Impact vs overhead


Andrew Watt

Andrew Watt

Andrew Watt

Talk to almost any donor about what’s important when they give, and the answer will be impact, change and positive outcomes. Donors want to know that they’re making a difference – that with their chosen charity, they’re making real change.

It could be how many people are taught to read, or how many acres of wetlands are saved. There are any number of ways that charity’s outcomes can be shown.

You can be certain, though, that impact will NEVER be successfully demonstrated by fundraising and overhead cost ratios. Fundraising and administrative expenses are not a guide to effectiveness, performance and impact, yet they have been the key measures that supporters have been encouraged to use for years.

That’s why the recent open letter written by Guidestar, Charity Navigator and the BBB Wise Giving Alliance denouncing the ‘overhead ratio’ as a valid indicator of non-profit performance is so important. It’s one thing for charities and fundraisers to make the case against linking ratios and effectiveness. But we are not used to hearing these three organizations putting forward that same line, and even pro-actively decrying the ‘Overhead Myth’.

In their letter, the three organizations highlight the ‘Overhead Myth’ as a self-defeating process which keeps non-profits focused on holding down costs instead of investing in infrastructure, processes, administration, fundraising and support that can help them be more effective and fulfill their missions. This is a critical shift in approach that affects all of us. Effective philanthropy is supported by knowledgeable and educated donors. Charities should approach supporters as equal partners and engage them, talking straightforwardly about opportunities and challenges.

But the focus on overhead cost ratios ‘dumbs down’ the charity-donor relationship and destroys those conversations. It casts fundraising in a very negative light – as something that should always be cut back – when fundraising is an essential element of philanthropy that moves and inspires people to action.

That’s why AFP has worked ceaselessly over the years to educate the media, the government and the public about the role of fundraising and what donors truly want: impact.

In Canada, AFP was a significant leader in the push to help the Canada Revenue Agency’s focus during the development of its fundraising guidance regulations. Based upon sector input, the CRA focused the guidance on the impact and missions of charities and nonprofits and the myriad of factors that make each organization unique instead of a one-size-fits-all cost-ratio regime.

And that’s where our conversations, and the ‘Overhead Myth’ Campaign, should lead: an emphasis on impact and change, not cost ratios. We should be encouraging open conversations, engagement and partnerships, not reliance on a mathematical formula that doesn’t have any relationship to the outcomes of our sector.

It’s what donors want, and it’s how philanthropy is most effective.

Andrew Watt is president and CEO of the Association of Fundraising Professionals. This article was first published on the AFP blog

Tagged in: Administration Charity analysis Charity overheads Impact

Comments (2)

Mark Atkinson

Charity overheads have been the subject of much debate in the UK for many years and with CEO pay now being lambasted they are under the spotlight again. This is a terrible shame. It is of course incumbent on any organisation (whatever sector it is in) to operate as efficiently as possible but I certainly do not know of any successful organisation which operates without the provision of any central services be they HR, Finance, IT, Marketing, Governance...or a leader at the helm. Take for example a company manufacturing widgets. The people who operate the machines that make the widgets are the frontline charity terms they are the service deliverers (aka the bit of the organisation donors generally prefer to see their money spent on). However, the machine operators won’t make many widgets or do so for very long if they have no engineers to service or repair the machinery; or no-one to manage supplier relationships; or no sales reps to sell the widgets; or no marketing personnel to ensure the widgets are meeting customer need...and the machine operators will surely all down tools if no-one manages the payroll or recruits new people to replace the leavers ….and so on…. A charity is no different to the widget factory. It can't run itself. It is also ludicrous to try and set cross sector targets for what is a reasonable level of overhead as this can differ for very legitimate reasons from one organisation to the next. From a charity perspective, what ultimately matters is whether it is delivering the intended beneficial impact for the people it is there to support in line with its strategic objectives and in a manner which is as efficient as possible taking into account its own unique operating environment. Charities need to take individual and collective responsibility to share this simple analogy with the media and the media need to recognise simple operational realities. It is good to see this action starting to be taken.

Paul Penley

If donors want an online charity evaluator that is about to release impact data for 500 charities rather than publish ratings and seals based on unclear mathematical formulas, go to Intelligent Philanthropy -

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