Why You Shouldn’t Judge a Nonprofit by its Expenses

How do you choose a nonprofit worthy of your money and volunteerism? Organizations that spend a lot of money on overhead because no one wants to enrich their CEO’s pockets overpaid by donations We are often told to avoid . Our Own Charitable Donation Advice cites the rule of thumb that 20% overhead should be enough, right?

People often search Charity Navigator or Guidestar for charity donations, but another way to understand the overhead is to think about people you know who actually work for nonprofits. These jobs are notoriously underpaid and underresourced.Small, underpaid staff is not the best way to be successful Any The job is done when you think about it. So where is it when you look at nonprofit financials?

A recent study looked at arts nonprofits (museums and theaters) and compared their attendance and budgets.as the author explains conversation, they found that organizations that spent about 35% on administrative costs had the greatest increase in attendance over the years. Those who spent more or less did not see as much growth.

What are charity overheads, anyway?

The authors do not want this figure to be used as a new benchmark. (They are very clear: “In short, we are not recommending the new rule of thumb for all nonprofits. Museums should spend money on security. May require more expenses than other types of charities.

This raises the question of how much overhead costs that isExecutive compensation may come to mind when you look at charities on comparison sites, but that’s just one part of the category. There are also salaries for other employees. People who work for a business shouldn’t be underpaid, I think I can agree, and many non-profits make their commerce so difficult to keep people who are good at their jobs. And organizations that cannot pay the full cost of their staff often rely on volunteer work. This can present its own set of problems for both the organization and its volunteers.

Overhead costs also include rent, equipment, training, technical support, and other essentials for any business. Organizations that try to keep overhead costs low are essentially penalized for their mission investments.

For non-profit funding and administrative projects, report Cost-cutting measures often backfire. They detail, for example, mismatched and outdated computer equipment that might have been available cheaply, but costs an organization time when it breaks down or malfunctions. Employees were spread out at every level, from top to bottom. “There was no back-up for major roles,” they wrote.

That report also doesn’t name magic numbers, but its authors agree that overhead is a very poor measure of effectiveness. You want to know how good the charity is at its work, so you look for ratings. Its ratings are generated from several items in an organization’s financial statements.

Overhead seems to be the most visible way to evaluate a nonprofit because it is easy to calculateNot because it makes sense. Understanding the inner workings of a charity is complex and perhaps he cannot boil down to one number.

If you don’t judge nonprofits by their indirect costs, should do it do we judge them? There’s probably more than one statistic to watch here. Rather, consider the work your charity is doing, the unique challenges and costs associated with doing that work, and then consider how you will do it. they Measure work effectiveness and success.a paper According to the Stanford Social Innovation Review, funders need to “shift the focus from costs to outcomes.” Or put another way: JWe judge organizations by what they actually accomplish, not how they budget.