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3 Reasons Why Nonprofits Need to Invest in Overhead

Debunking the myth that the smaller marketing and fundraising budget the better

Dan Pallotta, fundraiser and entrepreneur, shook up the nonprofit world in 2013 with his Ted Talk, “The way we think about charity is dead wrong.” Despite raising $333M for breast cancer over five years and $236M for HIV/AIDS over nine years, Pallotta and his nonprofits came under fire.

Funders and charity watch groups crucified the fundraising events for investing 40% of revenue on recruitment, customer service, and the participant experience. Pallotta’s fundraising company closed overnight when sponsors split. Coverage of the events conflated morality with frugality, calling the significant investment in overhead sinful.  

Since then, Pallotta has been on a mission to change the narrative of overhead. He argues that stigmatizing overhead in the nonprofit sector puts it “at an extreme disadvantage to the for-profit sector on every level.”

It’s time for nonprofits to start investing in overhead for three main reasons:

1. The higher the fundraising ratio, the bigger the pie.

An in-depth analysis of the organization by the Charity Defense Council found that the organization’s high overhead to program ratio allowed them to serve more veterans. They assisted 100K+ warriors and their family members through 20 programs and services and secured $2B+ for wounded veterans and their families through legislation at the time of the report.

Comparable organizations that spent less on fundraising also raised less overall:

 DAVCSTSemper FiFisher HouseWounded Warrior Project
Cost of Fundraising1.2%2.4%5.6%14.5%
Net for Veterans Programs$6.5M$23M$39M$242M

Pallotta summarizes this phenomenon perfectly: “The more of every dollar you want to go to the cause, the fewer the dollars there will be.”

2. The future costs money.

How can a nonprofit thrive with low staff wages, outdated computer equipment, and limited outside consultation? When underpaid staff must spend time every day fighting with broken technology, less time can be spent on strategic planning, community outreach, and organizational growth. Low overhead means not investing in a nonprofit’s future.

3. Marketing advances missions.

Marketing leads to more than just raising money. Charity Defense Council’s report on Wounded Warriors explains that some marketing materials can be both programmatic and promotional, such as a television ad that asks for donations and shares an emergency number for veterans.

Expecting nonprofits to allocate only 5-15% of their operating budget on marketing is like asking a sinking ship to sail across the Atlantic Ocean. Communications teams tasked with the essential activities of attracting donors, educating clients, and gaining community support often have only pennies to achieve their goals.

Nonprofits frequently underfund their communications departments. Studies show three full-time communication staff optimizes efficiency and effectiveness for cross-channel communication strategies. However, a third of organizations only have one communications staff member.

Donors need to stop asking about the percentage of their gift that goes to programs and instead ask how their gift can maximize impact. Overhead is a simplistic and invalid measure of nonprofit success. Transparency, governance, leadership, and results paint a more comprehensive picture of the impact a nonprofit has.

Let’s challenge the taboo of overhead and advocate for sufficiently covering marketing, fundraising, talent, administration, and technology costs.



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