THE BLOG
01/20/2015 11:00 pm ET Updated Mar 22, 2015

Nonprofit Overhead Doesn't Matter. Except When It Does.

There have been a few defining moments that have dramatically shaped my life (beyond the regular events like graduations, weddings, etc. - not to diminish those...) and one of them directly led to the creation of my blog, re: charity, and started my writing career. Over 4 years ago now, I heard Dan Pallotta speak at the AFP Conference in Toronto about his book Uncharitable and was so moved/inspired/pissed-off that I bailed on my afternoon sessions, wrote my first post and launched my site.

I've continued to write about the issue of nonprofit overhead (as well as other subjects thankfully...) so when I came across a recent study in Science magazine titled "Avoiding overhead aversion in charity" I had to read it. And then write about it. So here we are.

In the report, the researchers performed a field study (real people in the real world) and found that having an organization's 'overhead' costs covered by other sources almost tripled the total funds raised when compared to a standard 'ask' from the same organization. The 'overhead' covered appeal also outperformed asks with seed funding (by 75%) and matching funds (by 90%).

So feeling (key word there... feeling...) like more of their donation is going 'to the cause' was more effective than giving to a project with momentum or having their donations doubled. That's pretty powerful.

In the same report, they also performed an experimental study (real people in a lab environment) and found that donation rates were relatively unchanged when subjects were asked to give when an organization had 0% overhead compared to 5% and 50%, as long as the overhead was covered by someone else.

So the feeling (there's that word again...) that their donation was going directly 'to the cause' was more important than that actual 'efficiency' or overhead ratio of the organization.

The common denominator? Donors care more about how they feel when they give than how organizations spend their money. Or put another way, they care more about how impactful THEIR donation is as opposed to how impactful THE organization is.

It's not that donors don't care about efficiency, impact or being strategic - many of them do. It's just that those sentiments often come as a secondary aspect in the giving process that helps justify the more emotional response to give, help and do good. This is why when donors are asked what they want (in surveys, over coffee, etc.) they will say things like "know donations are making an impact" and "know donations are being used properly".  And they are mostly correct. If you toss in a capital MY in those sentences between 'know' and 'donations' then they would be spot on.

It really is about them. But they aren't going to say that.

So what can organizations do? Get their overhead covered for future appeals and campaigns? Perhaps. That sure seems like an effective strategy right now and one being deployed successfully by organizations like charity: water among others (tread carefully here as there may be some downsides to this 100% model as well...).

The main takeaway here has to be that nonprofits need to make their donors feel like they are changing the world. One of the main reasons people don't give is because of futility. They don't feel that their donation will make a difference. These studies are not just reiterating that fact through their research on overhead but they also suggest charities can get more people to give more money more often by combating futility. Covering the overhead is just one way to do that. Telling great stories, telling their story, providing tangibility and thanking them profusely are also ways of making donors the heroes of the story.

Donors want to feel like they are making a difference. It's the nonprofit's job to give them that feeling no matter what their ratios say.

Further Reading
  • Vox has a good summary post on the same research here
  • If you have a subscription you can read the full article from Science here
  • A Foolish Way to Evaluate Charities here
  • 4 Science of Giving Studies Fundraisers Can Learn From [INFOGRAPHIC] here
  • Non-Profits and the Story Wars here