The Overhead Myth (alt title: The Number That Tells You Almost Nothing)
Rethinking how we think about the cost of making money
The North (Guide)Star
I have this memory from when I was a freshly graduated young professional. I am sitting in my cubicle, thinking about finding a nonprofit to donate money to or volunteer with in my new city (Houston, Texas). I start googling and end up on GuideStar (now Candid) in the hopes of finding a “good steward” of my hard-earned baby corporate dollars.
I remember side-googling what a “good” ratio of program spend vs. overhead costs would be. Even in that sentence, there is semantic bias baked in…spend vs. costs. Spend is agentic; it can be done strategically and wisely. Cost is a burden, something to be reduced and avoided.
I remember zeroing in on a local organization that boasted 90 cents of each donated dollar went directly into programming, “back to the community.” That seemed like a good use of my money. I hit the donate button.
What is Measured?
Back in the early 2010s I was not familiar with The Overhead Myth, a pernicious belief that nonprofits, as good stewards of their donors’ dollars, must keep overhead costs to an absolute bare minimum, ensuring maximum dollars flow to programming. On its head, it’s not an unreasonable concept. People donate to organizations because of their dedicated causes and programs; they want the bulk of that money to directly benefit the end-recipient (constituent, customer) of the nonprofits’ services and programs.
The desire for donated monies to flow to programming is not the problem. The downstream effect of that expectation is the problem: organizations are unable to scale and grow due to starved staff and a profound lack of discretionary funds.
WTF is Overhead
From a for-profit business accounting perspective (note: I am not an accountant), overhead is typically described as any costs that are not directly related to delivering a core product or service. Spending on things like rent, utilities, and executive and functional salaries (the C-Suite, Legal, IT, HR, and even accounting in most companies) is all categorized as overhead.
Nonprofits are not different: all spend and costs not directly linked to the delivery of products and services (programs) are typically designated as overhead.
The core difference between nonprofit and for-profit overhead (as I see it) is how we value these different areas of spend, not what they are.
THE MYTH
The most comprehensive and easy-to-understand overview I found is this article from The Nonprofit Leadership Alliance.
The article outlines four Overhead Myths:
Nonprofits should keep their overhead below a certain percentage of expenditures
A high overhead ratio indicates that a nonprofit is inefficient or ineffective
Overhead costs don’t contribute to a nonprofit’s impact at all
All donors will refuse to contribute to overhead costs
The article is worth reading in its entirety, but for me, the major takeaway (as I’ve written about and referenced before) is that nonprofits are businesses and deserve the opportunity to grow and scale (while maintaining responsible donation stewardship practices) just as any for-profit business does.
Spend Money to Make Money
What fuels nonprofits? Money.
And how do nonprofits get money? Fundraising.
And yet, costs associated with fundraising (salaries for development and grantwriting teams, fundraising events, donor communications, donor-management software) are all considered overhead.
You would never catch a leader in a for-profit company referring to its sales organization as overhead.
I’m not an accountant, so I can’t speak to the exact ways that sales-team related costs are noted on a Profit & Loss sheet (which the internet tells me usually under “Selling, General, and Administrative Expenses,” which sounds a lot like overhead). But regardless of how the accounting team codes the expenses, culturally and strategically, the sales team is seen as a key driver of growth, not a cost to minimize.
I know that Capital-S-Sales can make some people feel icky, so forgive me if this hits the wrong way, but fundraisers are salespeople.
If we set aside the Used Car Salesman archetype (or, given that it is 2026, the LinkedIn SaaS bro) that unfortunately turns so many people off from Sales, fundraisers are tasked with building and nurturing relationships that ultimately result in an exchange of resources (money). Fundraising is how nonprofits keep the lights on, so why would we label it overhead and (in turn) something to be minimized?
Money Fuels The Mission
In a previous piece, I wrote about trust-based philanthropy and the criticality of bringing this philosophy and mindset to all giving, even at the individual level. I try to think about this every time I engage with nonprofits: they are the experts on their work, not me. My money fuels the mission, in the broadest sense of the word, by giving the folks closest to the challenge resources ($$$, etc.) to find sustainable solutions.
Increased “Overhead” Enables Sustainability
Stay with me here: well-managed (balanced, right-sized, growth-focused) overhead creates sustainability. I think about my experience over 15 years as a corporate employee in a volatile industry; roles and functions that fall into the “overhead” column (Learning & Development, HR, Administrative Support, IT, etc.) are regularly the first on the chopping block in a down cycle. The result is a measurable dip in employee engagement, satisfaction, training progress, and process efficiencies. You can exist, and maybe even grow a bit, while bootstrapped (early-stage startups obviously do this all the time), but it can’t last forever.
Eventually, in order to not only exist but grow sustainably, organizations need to hire support staff. Support and functional staff create the environment for employees to work, heads-down, on delivering the goods and services that (eventually) translate to profit. Without support, organizations burn out brightly.
It’s a simplified take at a complex system (every business likes to think of itself as very complex), but dedicated, support-focused resources create the conditions for long-term sustainability. Nonprofits deserve the opportunity to not just exist, but grow and thrive sustainably.
Trust is the Mythbuster
I have this hack from grad school that I learned while studying structures of power. Whenever a judgmental thought pops up, I ask myself about the base-level source.
Who defines efficiency?
Who defines value?
Who defines impact?
Who gets to decide what type of people are most fiscally responsible?
Applying these questions to businesses in the social sector (like nonprofits), the answer across the board is: definitely not me.
My job as a donor is to trust the people who do the work day in and day out.
Busted
A few days ago, I attended an educational event that featured a panel of local civic and nonprofit leaders. One of the speakers was Lisa Barden, the executive director of Keep Austin Fed. I was already working on this piece, and she said something that made me go back and change a good chunk of what I had written.
Below is not a direct quote from Lisa, but a statement in the spirit of what she shared.
You’re assuming that nonprofits have some base-level income they can rely on to pay for their everyday services…we have to work every day for money to keep those everyday services.
Fundraising costs money.
Fundraising brings in money.
Fundraising is overhead.
Fundraising fuels the mission.
As a nonprofit professional of 15 years, I firmly believe we can’t talk about the “Overhead Myth” often enough. The pressure to minimize overhead at all costs can undermine the very infrastructure that makes meaningful impact possible. Thank you for continuing to elevate this conversation.
This also reminded me of Dan Pallotta’s TED Talk and the work of Fund The People & Rusty Stahl. We have so many antiquated practices & assumptions in the nonprofit sector. I wish Candid and Charity Navigator would list which nonprofits pay living wages & benefits. Donors & funders would be shocked.