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Still Frightened to Talk about Overhead with Your Donors?

Maybe, just maybe, the fear described in the title of this blog is unnecessary. At least according to a study done by Grey Matters Research and Opinion $ Good “The Donor Mindset Study VI, The Elephant in the Room” suggests.

In the study, one thousand donors said they cared about overhead spending, but the reality of overhead doesn’t have the supposed negative impact we’ve been told it has for a long, long time.

Do donors think nonprofits spend too much on overhead? Yes, they do “think” so. In fact, 57% of respondents said so. Fifteen percent think spending is lower than what is “reasonable,” while twenty-eight percent think it’s reasonable. They think you should only be spending 19 cents of every dollar on such costs, down just a bit from earlier in the 2000s when people were ok with up to 23 cents of every dollar being spent on salaries, electric bills, rent, marketing, fundraising and other incidentals.

However, and this is a rather big HOWEVER, if caring is shown by the decisions of donors to give based on what a nonprofit spends on overhead, they don’t behave according to what they report they think. Just 12% of donors said lean and mean financial performance was what drove them to donate to a particular nonprofit. In other words, selecting their favorite charity because of how little it spent on overhead. Even those who described themselves as confident that they knew the overhead ratio of their favorite nonprofit didn’t really know. And an amazing 70% were off by fifty percent! Almost two-thirds (or 65%) of respondents to the survey were uncertain about what the actual overhead spending was by their favorite nonprofit organization.

Apparently, what donors believe, what they think they know and what they actually do, are not a logical progression and it doesn’t matter anyway.

In reality, there is actually a good percentage of donors who prefer nonprofits that spend more than the reasonable 20%. In fact, the majority (54%) of donors 65 and older want more than 20% spent on overhead, and almost a third (32%) of those under 35 feel exactly the same way. Clearly, they understand the consequences of investing too little if the goal is to achieve something great.

Socioeconomic status may also influence donor thinking, as those with household income of less than $40,000 think nonprofits spend .31 cents out of every dollar on overhead, while those with six-figure incomes think the figure is .23 cents. Political and religious affiliation don’t seem to influence people’s thinking about overheard.

If you’re a leader of a nonprofit, my advice is to stop fretting over what doesn’t matter to most and spend more time thinking seriously about what is important: delivering a quality service to your donors.

Would increasing salaries by $5,000-$10,000 a year allow you to find and retain more staff? Would actually having a marketing budget allow you to reach a larger audience and attract more donors and/or have more exposure? Would hiring a major gifts officer allow the executive director and board members to be more successful in securing gifts?

In short, would even a portion of the things for which you’ve been telling yourself “No!” for a long time be a worthwhile investment in the present for a greater return in the future?

Now, experience tells me that even if I’ve convinced you to invest more, not less, you’re not going to go crazy and start spending .75 cents or more out of every dollar on overhead. But think about the potential impact of spending even .20 cents of every dollar on something like staff satisfaction or client services. I’m talking about using money for the purpose of making money so you can have more impact.

If you’ve been hiding in the corner, be upfront about the benefits of investing in the capacity of spending on overhead and how that could drive your mission.

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