Nonprofit Overhead

How much money should an organization spend on overhead or fundraising?

Because most donors want to ensure that their gifts are well spent, many are concerned about the level of overhead and fundraising. The answer to this question is far from simple for some of the following reasons:

  • First, there is no universal formula for calculating overhead. The CEO’s salary is a good example. Many would consider it overhead; others would argue that since the CEO deals primarily with program-related issues and is essential to the success of the organizations, the CEO’s salary is a program expense.
  • Second, there are no generally accepted standards for what levels are acceptable. While some organizations may boast that they spend only 5 to 6% on overhead; other well-known and very efficient and effective nonprofits spend 20 to 25% on overhead.

Here are some important factors to consider when evaluating how well your charitable contributions are used:

  • What is the mission of the nonprofit? Some activities are labor-intensive and require a higher level of staffing than others. It is also not necessarily more efficient to use volunteers to provide such services because of the high level of management and training they would need.
  • In what environment does the organization operate? Two organizations with identical missions might have very different cost structures if one operates downtown and the other serves a distant suburb. Examine the overhead costs in relation to the location, number of people it serves and the manner in which it is delivering its services.
  • How does the organization raise money? Some methods of fundraising are more expensive than others. In evaluating fund-raising effectiveness, keep in mind that some activities are not only important for the money that they raise, but for the education and exposure they provide.

Excerpted from “What You Should Know About Nonprofits” a joint project of Board Source and Independent Sector.

Additional Resources

  • MANP’s searchable Answer Center includes a wide variety of resources on Financial Management.