The Icky-Sticky Word: Overhead

Few words make nonprofit leaders tense quite like  overhead. Except maybe, administrative cost.

This is especially true when a donor brings it up. They see an executive salary, an administrative percentage, or a fundraising expense in a report and suddenly there are questions: 

“Why are they spending so much on staff?” 

“Why isn’t more of my gift going directly to programs?” 

“Shouldn’t nonprofits keep overhead as low as possible?” 

Those questions can feel uncomfortable. But they are not unreasonable. Donors care deeply about impact, and they want to know their generous support is being used wisely. 

The problem begins when “low overhead” becomes shorthand for “good nonprofit.” Spoiler alert: It is not. 

The danger of starving the mission

For years, nonprofits have been encouraged to keep administrative and fundraising costs as low as possible. That pressure can create what researchers call the nonprofit starvation cycle. 

Organizations become afraid to invest in the very things that make strong programs possible: 

• Fundraising infrastructure

• Experienced staff

• Competitive salaries

• Training and professional development

• Technology and data systems

• Financial oversight

• Communications

When those areas are consistently underfunded, the result is rarely a healthier organization. Instead, we often see that it leads to turnover, outdated systems, poor donor care, limited growth, and burned-out employees. 

Furthermore, low overhead doesn’t automatically equal effective programs. In fact, research shows there is no clear connection between a low overhead ratio and strong program outcomes. 

The better question isn’t, “How little are you spending?” 

It is, “Are you investing wisely to achieve the greatest sustainable impact?” 

There’s a sweet spot 

Please know: this is not an argument for unlimited spending or careless management. 

There is a point at which additional expense no longer improves effectiveness. Nonprofits still need sound financial controls, accountability, and thoughtful decision-making. 

But spending too little can be just as harmful as spending too much. 

Healthy organizations find the sweet spot by investing in people, systems, fundraising, and infrastructure. That emphasis strengthens both current programs and long-term sustainability. 

Those investments may temporarily increase expenses. But it also helps the organization retain talented employees, build stronger donor relationships, raise more money, improve services, and grow its impact. 

That isn’t waste. That’s capacity. 

Overhead is part of impact 

Programs don’t operate in a vacuum. 

Someone hires and trains the staff. Someone manages the finances. Someone maintains the technology. Someone communicates results. Someone builds relationships with the donors who make the work possible. 

Those costs aren’t separate from the mission; they support it. 

Fundraisers have an important role in helping donors understand that distinction. Not through spin. Not through defensiveness. Through honest, permission-based conversations grounded in trust. 

What’s more, percentages rarely tell the whole story. An organization serving a million people will have different staffing, infrastructure, geographic reach, and operating needs than one serving 35 million. A single percentage can’t capture that complexity or tell us whether either organization is effective. 

Next week, we’ll share how to navigate the difficult, icky-sticky conversation when a donor asks questions.