Why I Love Charity Overhead

Posted on

Someone recently asked me, “how much do you think is a good percentage for a charity’s overhead?” I get asked this question a lot and already knew my answer: “I don’t like that question.”

This question presupposes that the percentage of a donation that goes to overhead is relevant to the worthiness of a charity. This is rarely the case. A charity with 10% overhead is not automatically better than a charity with 40% overhead.

Overhead Is Not Straightforward

Every large charity you can think of has a massive legal and accounting department. They work diligently to find creative ways to allocate as much money to “program expenses” as they can possibly muster. They are really good at this.

Let’s say there’s a hurricane in Haiti and a charity sends a team down to deliver supplies to disaster victims. Is the flight down there considered overhead? What about the $15 steak one of the team member’s orders at a restaurant? After all, it is a business trip. What about the car that they rent when they land in-country? If you were just looking at the overhead percentage, it might seem like this charity is sending a significant amount directly to the disaster victims. However, upon closer examination, they may have spent so much money getting there that little is left over for actual relief efforts. The simple overhead percentage figure will not tell you whether the charity is actually doing good work.

Let’s take a look at the reverse example. What about a charity that spends ALL of it’s money on overhead? Literally 100% is spent on administration fees and 0% goes to poor people. That has to be bad, right? Not necessarily. What if that charity’s sole purpose is to provide free litigation to the poorest people on the planet who have been wrongly accused? Their expenses would go entirely to the lawyer’s salary who is almost certainly working at a below-market rate. In this case, a high overhead percentage doesn’t mean people in need aren’t being helped. All it means is funds aren’t being directly transferred to them.

The Rise Of Overhead Fixation

I have a hunch that the fixation on charity overhead started because there used to be several fundraising organizations that would pocket 90%, leaving only 10% for those in need. People would generously donate thinking they were helping…when in reality they were lining the pockets of some greedy fundraisers.

I sympathize with anyone who had this bad experience. But the solution of hyper-focusing on overhead doesn’t solve your problem. There are still organizations that are capitalizing on donor money, only this time they know to be extra careful with how they report donations on their end-of-year statements. As someone very involved in the charity world, I can assure you that this is shockingly easy (and legal) to do.

As a reaction to overhead fixation, several mainstream charities have re-structured their fundraising efforts so that they can claim “100% of every donation goes to the field.” They then fundraise for overhead separately, often through a network of millionaire donors. I’m glad they did this and it seems to have worked well for them, but this marketing move has also reinforced the idea that overhead is bad.

Unintentionally implied in their marketing efforts is the sentiment: “you should give to us because if you give somewhere else, you’ll be partially funding overhead, which you don’t want to do.” Again, I don’t think negatively of these charities who use “0% overhead” as a marketing angle and I certainly don’t think they have bad intentions. Many of them are doing excellent work.

I am just hoping to see a more nuanced conversation about overhead in our mainstream dialogue.

Impact > Overhead

It would be better if people got over their knee-jerk reaction to what they think overhead percentage means. “How much do you think is a good percentage for a charity’s overhead?” is a bad question.

A better one is: “what is the most crucial factor to consider when making a donation?”

My answer: “Impact.”

Impact is the only factor that matters. How much of an impact is your $1,000 donation going to make? If 99% of that donation will go to someone in need, but they subsequently squander your donation, your impact is actually a net negative. It would have been better if you had not donated at all!

But, what if someone starts a business with your $1,000 and lifts themselves out of poverty? This business then goes on to provide a monthly income that grows and even blesses other people.

The overhead in these two examples is irrelevant. The impact of the second use-case far outweighs the negative consequences of the first use-case, regardless of how much actually went to the person in need. Your job as a donor is to discern where your dollars are going to have the biggest impact, which is why I love overhead.

Why I Love Overhead

Overhead is an impact multiplier. The reason a charity puts a percentage of each donation towards marketing and operations is so it can make a larger and more sustainable impact in the long-run.

If you want a high percentage of your money to go to the poor, then just use Western Union or PayPal and send money to people in poverty. But the scope of a charity’s purpose goes well beyond material distribution.

Charities need to build strong relationships and invest in local communities. This enables them to make the most effective impact with your money, over time. As a donor, it’s in your best interest that the charities you support are allocating some of each donation towards building the infrastructure necessary to make a long-term impact.

As always, I encourage my readers to prioritize the poor. Focus on what is in their best interest when you donate. The impact you make in their lives is determined (in part) by how judicious you are with your donations. And part of that discernment should include an understanding that overhead plays a crucial role in good charitable work.

Get my book If The Poor Were Next Door on Amazon today.