Nonprofit Overhead Isn’t Always a Bad Thing

August 3, 2023

By Jamie Schloegel, Chief Executive Officer

Nonprofit programing versus nonprofit overhead

Before donating to charity, many donors want to know what portion of their donation the nonprofit will spend on programs versus overhead. Programs meaning actual delivery of its mission-related work and overhead meaning the organization’s administrative costs.

Most nonprofits are required to file some version of an IRS Form 990 each year. Based on the 990, a nonprofit has three categories of costs: Management & General, Program, and Fundraising. Management & General plus Fundraising make up overhead costs.

Informed donors recognize that overhead expenses are usually essential for charitable nonprofits to be financially sustainable and successful in meeting their missions. In fact, overhead that is too low can be a concern.

Just like a for profit business, it does cost something to deliver a nonprofit mission and to operate a nonprofit in compliance with all regulatory standards set by the IRS for maintaining charitable status.

All charitable organizations should have at least one overhead expense: directors & officers’ insurance to protect the personal assets of the individuals who generously volunteer to serve on organization’s Board of Directors. From there overhead expenses can vary greatly organization to organization depending on a things like budget size, revenue sources, number of staff, and type of mission. The reality is that no two nonprofits are alike, so it’s hard to find a one-size-fits-all benchmark for what’s “good” and what’s “bad.”

Measures of impact and effectiveness

At La Crosse Community Foundation, we urge our donors and fund holders to consider other measurements of a nonprofit’s impact and effectiveness in addition to financial measurements. Financial efficiency measurements can play an important role in helping donors identify worthy charities to support, but it shouldn’t be the only variable a donor should consider when making giving decisions.

There are many ways organizations can and should be measuring impact to share with donors. Here are a handful of questions you may want to consider asking your favorite nonprofits to gauge their effectiveness in addition to financially related measurements:

• How long have you been around and how did you get started?
• What sets you apart from other organizations doing similar work?
• Can you share a specific example or story of how your organization’s work makes a difference?
• Is there anything that you wish more people knew about your organization or the issues you are trying to solve?

A delicate balance

Bottom-line, if you want to understand a nonprofit, connect with its people: those in leadership, those on the front lines, the volunteers and donors that already support it, and the community members that benefit from their impact. Nonprofits that stand the test of time are those that have figured out the delicate balance of passion and mission with administration and compliance. You can learn more about how to be an informed donor by checking out these charitable giving tips.