It's Time for Real Talk About Real Nonprofit Overhead Costs

On June 17, the leaders of the nation's three most prominent charity watchdog groups released a landmark letter to donors in America calling for them to consider other factors in addition to overhead costs when making their giving choices.

This is a welcome development for donors and nonprofits alike. For too long the laser-like focus on nonprofits doing more with less when it comes to overhead and administrative expenses has unnecessarily limited their abilities to fulfill or expand their missions.

To be sure, ratios can be a measure of an organization's effectiveness and should be used as one of a set of tools to identify mismanagement or malfeasance. But we ask charities to do too much with too little to achieve effective ratios. It's time we start looking at an organization's outcomes -- in addition to what they spend to achieve them -- when determining where our charitable dollars go.

At Donors Forum, we've started an important and honest conversation -- Real Talk About Real Costs -- about nonprofit overhead costs and what it takes for them to be successful. Donors Forum has been a local partner with The Bridgespan Group in a national effort to provide resources to help nonprofits and their funders shift their thinking on administrative costs and organizational performance. Read an accompanying blog post by Bridgespan's Ann Goggins Gregory.

It's particularly important for institutional donors to join the conversation. This is a critical opportunity for grantmakers, whom many individual donors view as providing a "stamp of approval" for nonprofits, to help the nonprofit sector pivot away from the fixation with overhead costs and focus more on outcomes and impact.

Grantmakers -- and all donors -- need to recognize the value of providing grants and donations that cover overhead costs and be aware of the full costs required to achieve specific results. We all want to invest in the most important work in which organizations are engaged, but without the lights, and the computers, and the salaries, our nation's nonprofits can't function. Funders should rethink policies that arbitrarily limit support for important infrastructure costs and, better yet, encourage nonprofits to ask for appropriate and adequate funding in their grant proposals.

This is an important moment for our sector. The nation's foremost charity watchdogs have essentially changed their minds about how we should measure nonprofit performance and are using their influence to shift the entire discussion about what makes nonprofits successful.

Instead of "do more with less," we ought to be asking -- and providing -- what nonprofits need in order to be successful. The balance sheet doesn't begin to tell the whole story.