Impact Versus Overhead: Which Is More Important?

What makes your nonprofit a trustworthy organization? Is it transparency? Good PR? Low executive turnover? Quantifiable results? A longstanding reputation in the community?

Or is it just the ratio of your operating expenses to your program allocations?

A new survey conducted by the BBB Wise Giving Alliance and reported in the Chronicle of Philanthropy showed that donors are less interested in how effective a nonprofit may be in reaching its mission and are more interested in how it spends its fundraising dollars.

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About 46% of those surveyed said they base their trust in a nonprofit on its finances, which include the amount spent on overhead costs like salaries and fundraising versus allocations to its programs. And only 11% of donors reported that the overall results a charity is able to achieve with its activities cause them to place more trust in that organization.

Dubbed the “overhead myth,” the idea that a charity is considered to be more trustworthy if it limits expenditures such as salaries, fundraising activities, and investments in infrastructure is longstanding and pervasive.

BBB Wise Giving Alliance and two other nonprofit watchdog groups, Charity Navigator and GuideStar, have called the suggestion that a charity is better run if it limits its expenditures the “overhead myth.”

The survey reached 4,530 donors nationwide (margin of error +/- 1.45%).

Among the study’s other findings:

  • 20% of respondents said the deciding factor when choosing to make a gift is a nonprofit’s “overall honesty and ethics.”
  • Nearly 10% reported they give based on how well-known the charity is.
  • About 41% said they consider charities that spend less on overhead to be “well managed”.
  • 34% said they consider charities that spend less on overhead to be “more effective.”

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