The Overhead Myth.

There is an implacable, deeply-rooted idea about nonprofits: that they should be lean and grateful for any help they can get, no matter how small.

Nonsense.

In his now famous 2013 Ted Talk, philanthropist Dan Pallotta elegantly dismantled the long-held notion that a charity’s overhead is a measure of its worthiness. We encounter this misconception often. When our staff engages customers about a particular nonprofit we are supporting, they sometimes hear the question: “What’s the administrative overhead?” They’re looking for a low number, and anything more than 10 percent raises an eyebrow. Nonprofits are aware of this sticking point and often preemptively share their overhead percentage on their marketing materials. It’s a question designed to give a donor more information about how their dollars are being spent, and though it’s an admirable impulse, the answers can be misleading and beg the question: 

Would any charities be more effective if they had fewer resources?

Pallotta and his organization, Pallotta Teamworks, have been criticized for operating very much like a “for-profit” business by employing hundreds of paid staff who earn high salaries relative to their counterparts in the nonprofit sphere. But even his critics must admit the money the organization has raised by hosting popular multi-day events is staggering: Its HIV/AIDS bike rides netted more than $236 million during their tenure, and their breast cancer walks brought in $333 million. Both figures represent the fastest and highest dollar amounts raised for those causes in history.

Would those events have been better served if they operated on a shoestring budget? I find it difficult to say yes. Perhaps the main reason they were so successful was the massive amounts of paid advertising that was created by Pallotta’s team of skilled, well-compensated employees. There are certainly many leaner groups fighting for the same causes, but I doubt there are more impactful. Pallotta once said “Want to know why nonprofit organizations aren’t solving the world’s big problems? Because that’s not what we asked them to do. We asked them to keep their overhead and salaries low. So guess what they did.” This pithy bit of wisdom flies in the face of what we hold as true, but it strikes a nerve. I listened to Pallotta speak to a room of hundreds of fundraising professionals, and to say that the group was enthusiastic about his philosophy would be a staggering understatement.

We expect charities to be pure; to conform to our ideas of what they should be, even at the expense of executing their missions. In 2010, the Susan G. Komen Foundation attracted widespread criticism for filing trademark oppositions against other charities — mostly small ones — using the color pink and the words “for the cure” in their marketing. Outrage ensued and it was easy to see why; it smacks of big bullying little. But that’s not really what was happening. All of the overlapping marketing confused donors about where their money was actually going, and was detrimental to Komen’s financial mission of actually curing cancer. Not to mention it’s a completely different standard than we would hold a for-profit business to.“We see it as responsible stewardship of our donor’s funds,” said Jonathan Blum, Komen’s general counsel. 

Ultimately, we have to understand it’s difficult to judge the worth of a nonprofit simply based on one impression or metric that may well exist for a very good reason. Whether it’s overhead, size or tactics, snap judgments serve only to perpetuate misconceptions and harden them like stone. We found it’s most effective to do our own research and provide our customers and staff with a clear and earnest description of what our donation will accomplish.

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