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Getting Over the Nonprofit Overhead Myth
In 2013 Dan Pallotta released his TED Talk that called out what is now known as The Overhead Myth. The nonprofit sector was hopeful that things might turn around.
Now, almost a decade later, has anything changed? Have we stopped judging organizational effectiveness based solely on how much (or how little) a nonprofit organization spends on operational costs?
I've rounded up some nonprofit colleagues and thought leaders to join me in a roundtable conversation about this important topic, and you are invited to listen.
It's not enough to say something's wrong with the way things are done. We need to educate and provide better tools to truly shift the status quo.
Reframing the Nonprofit NarrativeWhile interviewing Michael Thatcher, CEO of Charity Navigator, the topic of overhead came up. Today I'm sharing a transcript of the conversation with you:
Michael Thatcher: So one of the things I think that's important with the new platform is, and what we're trying to do with the ratings, is to re-articulate the nonprofit narrative. So that there's not this tremendous focus on overhead, and how much gets spent on programs, but actually shift donor perceptions away from that towards what's the impact? And what are the results that the organization is making? What are the other attributes that actually make me want to invest in this organization?
Ultimately, when we're looking at overhead, we're looking at where money's being spent. We're not looking at what money's actually achieving. The only way we can tell that story is this kind of brings it back to the individual nonprofits. Give us that data. Give us your performance data so we can actually tell a better story. Because overhead’s easy; we pull that from the from the IRS tax forms, and that is what donors are using as a proxy for impact. It doesn't tell you a thing about impact. And it's actually can be really harmful.
If you under-spend on actually taking care of your people, you will actually damage your organization. You'll have staff, you'll have attrition rates, that you can't manage because at a certain point people have families; they've got to support their families, and if you're under paying your staff, then they're not going to stay with you because they actually have to make a living. So we should be paying. We should be paying appropriate rent wages for non-profit staff. We should be telling the story of the impact we're making in the world.
Charity Navigator is really trying to make that front and center. If you look back historically, we were part of, you know, we've been part of different letters that had been sent to donors, to the nonprofits, on the overhead myth. But this is such an important moment right now, where we have so many issues in our world that need to be addressed. And they talk about the difference we're making in the world. So that's one thing is like, tell the story of the impact you're making. Use platforms like Charity Navigator to actually amplify that message. And stop talking about overhead.
Teresa Huff: I just want to hug you right now! I am cheering and clapping on the inside. Because I see that so much. And it's such a struggle, and a frustration, especially for small nonprofits. And I hear it I see the churn that you're talking about the burnout, the overhead and the the turnover. In people. It's like a puzzle shifting around, somebody moves and the dominoes fall, and it's like, okay, they're gonna shift around in the community somewhere else. And it happens so much. And that inconsistency hurts the organization too. Because then their programs, people build up rapport, and then somebody's gone the next week. It's tough all around, and nonprofit leaders are wearing so many hats, and they're often exhausted and don't know where to focus. I think these conversations and these supports need to shift and what you're saying, we need to shift the the way we are approaching it and the perception around overhead. Spot on; I'm right there with you.
Michael Thatcher: So one thing I was saying, you said, nonprofit leaders wear many hats. We do. And the smaller the nonprofit, the more hats you have to wear. Yeah, that means you are not overhead. Right? You are probably doing a lot of program work. And so one of the errors that I see a lot, particularly from smaller nonprofits is that they'll put the executive in as a management or administrative expense entirely. That's rarely the case. You know what, you know how much program work you're doing, you know how much administrative work you're doing and how much fundraising you're doing. Do those allocations appropriately. It's not a one size fits all approach. And so be careful how you actually report. You do have to report on this, right? In other words, the IRS rules are the IRS rules. And also state rules are state rules. You've got to follow those. But know how you're spending, track your time, and then figure it out. And then just put that in your annual reporting.
Teresa Huff: Yes, thank you for saying that. And for clarifying that, because I've tried explaining that. And sometimes people get it, and sometimes they don't. And it can be a tricky struggle to try and convey. And I think the more we educate the public, and our potential donors and supporters, sometimes they just don't know. And we need to take responsibility for educating them in doing a better job of helping them understand what it really takes to run the nonprofit and then paying people to do their job is not a bad thing. It's an investment in the program and in the community and in the impact.
Michael Thatcher: 100%.
Attend the Nonprofit Mythbusters roundtable conversation: www.nonprofitmythbusters.com
Connect with Teresa Huff:
Website: www.teresahuff.com
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