Nonprofits Should Move the Conversation Away from Overhead

When you buy a new car, do you ask how much money the car manufacturer spent on assembling the vehicle?

Do you grill the dealer about the commission paid to the salesman?

Do you care how much money the car company spent on its commercials?

If you're like me, you might wonder about these things, but you make the decision on which car to buy based on a series of different questions: How much will it cost me? How long will it last? What is the gas mileage? Is it safe? Is it stylish?

When we think about whether to give money to a charity, however, we ask a whole different set of questions.

In fact, many of us don't weigh the quality of the product when we make a decision about donating to a charity, according to a new study by the BBB Wise Giving Alliance. Instead, we think about how much money the charity pays for its overhead.

Says The Chronicle of Philanthropy:

"About 46 percent of people surveyed by the BBB Wise Giving Alliance, a charity watchdog, 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. Only 11 percent of donors said the results a charity gets from its activities engendered the most trust in that organization."

In other words, donors are more likely to trust a nonprofit that reports a low overhead rate than a nonprofit that actually delivers on its mission.

And that's a problem -- not just for charities, but for the donors who give to those charities.

In their quest to make sure they are not getting taken advantage of, many donors are putting too much weight on a measure that is meant to weed out the bad guys.

Yes, there are some crooked charities out there, charities that actually spend only pennies on the dollar delivering the services they promote to donors. Over the years, I've exposed a number of these crooked charities through my work as a newspaper reporter. But, unfortunately, we've let these bad actors dictate how charities market themselves to donors.

Many charities, in fact, trumpet their low overhead rates ahead of the impact of their work.

As a result, they're sending the inadvertent message that all overhead is bad.

If you invest in a charity that reports a low overhead rate, you're golden, right?

Not exactly.

By focusing on overhead, charities are taking attention away from what those donations pay for -- the people they feed, the research they conduct, the children they educate.

Telling the full story

For a well-run charity, the message to donors shouldn't be about overhead. It should be about showing what the charity does.

Your charity should be focusing on telling stories about how it is improving lives and solving problems. Most nonprofits have very powerful stories to tell -- and some hard numbers to back up those stories.

Those stories -- and that data -- should be front and center.

The information about overhead should be in the fine print -- easy to find, but supporting the main message rather than coming before it. And that information shouldn't simply be expressed in a ratio. It should explain why the charity makes its business decisions. If it needs to invest 20 percent of its money in overhead, explain why -- and why it helps the charity achieve its results.

A well-run charity should be able to explain its expenses and salary structure -- and not shy away from sharing that information. But you can do that without making it obscure the story of your work.

If we want donors to take a more nuanced approach to how they evaluate charities, we need to stop feeding them simple ratios. We need to provide the entire picture, in simple, easy-to-understand language.

Charities don't need to act like used-car salesmen, but they do need to understand that they are selling a product -- not a ratio.

Let's change the conversation -- and maybe we'll change some minds.