Institute for Community Solutions

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The "Overhead myth" is one of the most dangerous, backwards ideas holding charities back in America today.

This myth is the idea that in order to be effective, charities must spend a certain percentage of their revenue on overhead and a certain percentage on programs.
It's typically expressed as "Our charity spends 90% of our funds directly helping those in need" or something like that.

Here are 3 reasons it's incredibly harmful.

1. It has nothing to do with the charity's impact.

The amount of dollars spent on "programs" versus "overhead" has little to do with whether those dollars actually did anything. We don't apply this test almost anywhere we care about the result. Almost no one asks Amazon, or Coca-Cola, what their overhead costs. We assume that as a part of delivering an excellent product or service, they reduce their overhead costs where possible.

2. It leads charities to create unprofessional programs.

Volunteering is one of the great joys of the nonprofit sector. Unfortunately, due to the many things happening in their lives, volunteers also aren't usually as reliable, knowledgeable, or available as staff. New nonprofits may need to spend a significant amount more on advertising so the community even knows they can take advantage of their services. Programs that tackle mental illness need highly skilled therapists and technicians on staff. Underpaid nonprofit staff take their talents and skills and leave for the for-profit sector, leaving the nonprofit sector with the leftovers.

Many nonprofit programs reduce their quality and effectiveness because of the myth that those programs should sacrifice the impact of their program for the appearance of financial efficiency.

3. It leads to moral fading of numbers.

Perhaps worst of all, for many social issues, the idea that 90%, or even 80% of the funds should go to the people served is simply unrealistic. This leads many impact-driven nonprofits to "fade" their numbers and make overhead expenses look like program expenses to meet this myth. Not only does this cause ethical issues on staff, it leads donors to believe that it's possible to help people with less overhead than it actually is.

This is not to say that overhead doesn't matter. If a nonprofit is spending all of its income on staff and vacations for the CEO - that's a problem. However, it's a measure that only works broadly to haphazardly track efficiency - not impact.

So what should you use instead to choose the charity you give to?

Choose impact. Look at whether or not the charity is accomplishing its mission first, and give to that mission. If another charity is able to achieve better impact for the same funding, give to that one instead. But let's stop making the measure of whether charities spend their money on arbitrary overhead or programs how we define the work those that we give to do.

It's handicapping your favorite charities.

In 1.5 months, we'll be releasing the first-ever comprehensive study of community solutions to justice. Get ready.

The "overhead myth" is an outdated concept that hurts charities and the people they help alike.

Why aren't we the Institute for Nonprofits?

When we were searching for a word that would communicate what makes organizations that are supported voluntarily, are making an impact, and are helping people who can't afford to help themselves different, "nonprofit" didn't fit.

Names for other organizations clearly describe what they do - a business engages in business, a government engages in governing. A nonprofit is just a legal status, and worse, it more describes what the sector doesn't do than what it does. It results in an excruciating focus on overhead costs, how many dollars go to charity, etc, rather than the specific impact this organization makes.

Worse, because nonprofit is a legal status, anyone can be a nonprofit. Until recently, the National Football League was a nonprofit. Nonprofits can be explicitly political, even electing candidates for public office. None of those have to have any direct effect on what most people think nonprofits should do, which is help others.

Instead, the sector needs a name that better reflects the unique value and impact of this sector. A name that can go toe to toe with "the government" and "the market," and is based around what we do, rather than whether or not the people that donate to us pay taxes.

It's time to stop thinking about the public and private sector. It's time to start thinking about the community sector.

One person can make a difference, when they have the passion and determination. This is the story of how one man saved an entire species of gorgeous birds.

How the Snowy Egret was Saved Years before federal legislation, a small band of thoughtful, committed citizens banded together to save one of America's most beautiful birds.