Bragging about program-to-admin ratios is a destructive practice that needs to die 

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[Image description: A black and white photo of a raccoon standing behind a chain-link fence. The raccoon has one paw raised near its face resting on the fence, and its other paw lower, also resting on the fence. This is a cute but kind of sad-looking raccoon. This image may be evocative of restricted funding in the nonprofit sector]

Hi everyone. Just a quick reminder that my org is hiring a capacity building coach to work with our partner organizations. We are getting lots of amazing candidates, but we are keeping the position open until we find that magical unicorn to join the team. 

Thank you to those of you who supported the Kickstarter project I’m involved with, where I’m helping to write a book. Thanks to you, the project got fully funded within a few days! Sweet! (You can still donate if you missed out, because there are cool prizes).

Meanwhile, if you’re looking for awesome holiday gifts for the nonprofit people in your life, NWB merchandise is available. 

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I know that many of us have sent out our year-end appeal letter, or are in the process of doing so. Some of us are pouring our blood, sweat, and tears into these letters, sometimes literally, with the paper cuts and the occasional weeping over the hundreds or thousands of letters that need to be stuffed. 

You know what makes me weep, though? Y’all who still use language in your letters like “94 cents of every dollar goes directly to programs!!!” Every time I see it or hear about it, it is like getting a barbed-wire-wrapped baseball bat directly to the noggin.

I am imploring you: Please, stop mentioning this ratio completely. Like Disco or skinny jeans, this practice has served its purpose and should be allowed to die a graceful death. Here are some reasons why:

It reinforces society’s ridiculous expectations of low “overhead.”: Society already expects us nonprofits to run lean, to the point that many of us have crappy computers running decade-old software, dumpster dive for supplies, turn to Youtube for professional development, and waste endless hours fixing our printer that’s held together with packing tape and prayer. By saying “89% of your donations goes directly to blah blah,” we are just giving permission to people to continue expecting us to keep “overhead” as low as possible, and that makes our work harder.

It trains people to look down core mission support: 89% of every dollar goes to programming? Well, that must mean that 11% goes to no-good, horrible, stupid, frivolous things. Never mind that these things include salaries, benefits, rent, insurance, financial management, evaluation, fundraising, HR, communication, technology, utilities, etc., all things that we need to do a good job making the “89% programming” possible.

It distracts from our outcomes and impact: Many of us complain about funders and donors’ micromanaging of how we spend funding instead of focusing on outcomes and allowing us the flexibility to do what it takes to reach those results. Well, who can blame them if we ourselves not only keep mentioning this and keeping it at the forefront of people’s minds, but also actually seem proud of it? As soon as we mention this ratio, donors’ thoughts drift away from what we actually accomplish. The moving stories of the people we serve, of the results we achieve, get overshadowed by the red-herring of admin costs.

It is insulting to so many people in our field: When we brag about low “overhead,” we are discounting millions of people whose work is critical to the sector. Finance professionals who are needed to keep the books and even allow us to know what the ratio is in the first place. Fundraising professionals who write grants and engage with donors so that we can keep the lights on. Evaluation professionals who help us know if we are reaching our goals and how we improve our services. HR professionals who ensure our team is happy and effective. Volunteer management professionals who help us engage our community members. Communication professionals who help us tell our stories and inform people of critical issues. Operations professionals who keep everything running smoothly so we can focus on programs. Executive Directors who curl underneath their cubicle desk and weep quietly over the cash flow projection as “Ordinary World” by Duran Duran plays softly on their 4-year-old phone.

It screws over other nonprofits and the entire sector: Yeah, by making donors feel warm and fuzzy that you’re not “wasting” their money, you may get more donations. But you’re screwing over other nonprofits, who may not have as “good” a ratio as yours, and so they look irresponsible by comparison, even if their impact is amazing. Worse, you’re making it difficult for our entire sector, including for your own nonprofit, because again you’re normalizing people’s unrealistic and destructive views and expectations of what an acceptable level of “overhead” should be. You are inadvertently perpetuating the Nonprofit Hunger Games.

It reinforces our internalized martyrdom complex: We have to move out of this scarcity/martyrdom/scrappiness mindset. We should be responsible and efficient with our spending, but I’ve seen enough of us being paralyzed by fear that we may be affecting our ratio—“No, we can’t invest in new financial management software! That will ruin our overhead ratio!” Our sector cannot reach its full potential to address systemic issues if we continue to be gripped by fear, a fear that we ourselves are feeding. We have plenty of people discounting our work, especially around the holidays. We don’t need to do it to ourselves.

Yes, I know that in short term, it can be effective to mention the ratio. It can lead to more donations. But it’s like being stranded in the wilderness and being really thirsty and seeing a pond. Drinking that water will make us feel better in the short term, but from countless Naked and Afraid episodes I’ve seen, in the long-run it just leads to parasites, dysentery, and all the associated horrible symptoms while your partner—strategically blurred and covered with leech bites—looks on in worry and disgust. Bragging about your low “overhead” ratio is like drinking parasitic pond water to quench your thirst.

While we’re at it, for the love of hummus, please don’t try the irritating and ultimately harmful trick of securing sponsors of your admin costs and then telling people that “100% of your donations go to programs.” That’s like saying “We got some ugly suckers willing to pay for stupid, yucky, useless, disgusting admin costs so that you can fund pure, wholesome stuff.” If you genuinely believe that admin costs are frivolous and you don’t think anyone should pay for them, then by all means, keep saying that. But if you believe core operating expenses like insurance and financial management are critical to our programs’ success, then stop trying to weave illusions and preventing donors from seeing the importance of these things.

Let’s agree to just not mention admin costs at all. Not in our year-end letters. Not on our website. Not in our collateral packets. Not in our presentations. Let not mention admin ratio on a boat. Let’s not mention admin ratio with a goat. Not anywhere. Let’s focus on our outcomes. On our results. On the stories. Our organizations do amazing work that help people, that strengthen our community. Let’s shine the spotlight on that. We do not need to resort to the cheap trick of a lowered program-to-admin-expense ratio.

As we move into the new year, we must reexamine many of the philosophies and practices we have been used to. Our sector needs to do some things differently and abandon outdated habits that we may not realize might be harmful. Bragging about program-to-admin ratios is like wearing skinny jeans: we may think we look good, but we’re just getting circulation cut off to our legs and vital organs.

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  • OMG. LOVE this! Couldn’t agree more, and I’ve written about this more than once on my blog. Here’s one instance: http://clairification.com/2013/11/03/what-to-say-when-your-donor-asks-how-much-do-you-spend-on-overhead/ But, for the love of hummus, you’re a lot funnier.

  • Angie Sanders Wierzbicki

    YES! Every time I see a nonprofit use these ratios, I cringe. Maybe I’ll just share this article with them. Thank you!

  • OHvoter83

    Just received a year-end letter from a local nonprofit with the ratio language in it. And I know the DD. WHY???? Just WHY????

  • Jane Elder

    Thank you for this. After two years of intense effort to rebuild our website and updgrade to a 21st Century data system and begin building the foundation for a capital campaign, all of which will support and enhance our programs, our ratio tipped beyond the “what you should look for” balance on Guidestar. Our auditor, who also prepares our 990s, offered thoughtful concern about how this would look to potential funders. We made some adjustments (more administrative staff time to do so, alas) but still haven’t grabbed the brass ring. So frustrating.

    • Mehitabel

      This is one reason why I prefer to read a nonprofit’s audit to reading its 990. Audits include notes to the financial statements, and if you wish you can include language that addresses issues like this one. I wish all nonprofits would post their audits on their websites because if I can’t find an audit, I have to look at the 990 on Guidestar. 990s just don’t tell the story as well as the audit does.

      If your org’s ‘ratio’ is going to be affected by the new FASB rules regarding what can and can’t be allocated to programs, it’s prolly not too soon to have a chat with auditors about how an appropriate note can be crafted for inclusion in the audit report.

  • Katie Watson

    What do you think about annual report pie charts? Should we not even mention admin there?

  • Alecia B

    First of all – please let me tell you how much I love your blog and the level of anticipation with which I look forward to it each week!
    I happen to agree with you and all of the points you make this week, but feel compelled to offer a counterpoint to this hardline stance. Because we all know that the are any number of nonprofit organizations that aren’t responsible with donor dollars and the story of the 90% overhead is not a fictional one – less-than-reputable organizations DO exist! Just a few weeks ago, I received a call (from a telemarker, not a fundraiser) asking me to donate to their veteran’s organization. When I asked him how much of my gift was going to help veterans, he said he THOUGHT that 10% of every donation will help a veteran. People are right to question the intent and operations of a charity that is asking them for their financial support.
    And here’s one other small counterpoint: I work for a nonprofit with a bigger, more well-known brand. I am constantly fighting against the misconception of potential donors that our organization spends most of their gift on overhead and huge executive salaries (which is not the case at all). So to propose that I should just ignore these misconceptions and “take the high road” by not addressing them at all is a tough pill to swallow. Do you have any ideas for addressing such misconceptions without adding to the narrative that we’re trying to shift?
    I really do agree with what you’re saying. But it’s also very idealistic. I think it would helpful to address some of the reasons WHY this continues to a part of our narrative rather than just issuing a blanket statement that it needs to stop.

    • Unicorns for Hire

      There are a lot of private companies that blur the line when they are contacting people to buy products – books of coupons, other things – so someone thinking that it is “ABC Animal Love” calling them, and asking that question, the honest answer would be that 10% or whatever is going to the charitable work, which would make all real charities look bad. We need to argue and lobby hard for tougher disclosure rules.

  • Jessica W

    Someone at charity: water, please read this.

  • CRS: Evaluation into Action

    I couldn’t agree more, thanks for highlighting the issue! It definitely distracts from paying attention to outcomes and impact. It’s an issue of trust…for funders to trust nonprofits know how to implement their programs and manage their funds.

    To use a customer/baker analogy. Would a customer stand over a baker and tell them how much frosting, cream, and/or other ingredients to use in a cake? Or, just wait, pay for the cake, and enjoy the outcome? So yes, you can have your cake and eat it too, without managing all of the details of how it was created.

  • How about nonprofits actually TRY to spend more money on their administrative costs (within reason of course), with the idea it will allow them to grow and evolve as an organization. I don’t know what the expectation is for percent of budget to overhead, but let’s say it is 15%.

    So the appeal letter would go something like this: “20 percent of our budget, or 5% more than the average among other nonprofits, went to administrative costs. The extra money we devoted to administration was spent on x, y and z. We are very excited about this because we anticipate it will allow our organization to grow more rapidly, and we’ll be able to work with more clients – and serve them better – as we move into the future.”

    • Anna Trachtman

      I agree with you, Geoff, and I think all the points made in this article are great, but I don’t want to stop talking about administrative costs. Kick the ratio rhetoric out the door, definitely, but not the whole conversation. I want prospective donors to know exactly how much it would take for me to pay my staff fairly and provide the resources they need to do their jobs. I want my donors to feel encouraged to help me achieve a positively run organization.

    • One of the first things we ask our nonprofit clients’ governing board is this: Are You Spending ENOUGH Money? They usually squirm. Then a useful discussion about business-y ideas like Return on Investment and Cost of Ownership typically ensues, which is a good thing. And Vu, this is NOT biz-plaining! It’s common sense.

  • LisaSJA

    GuideStar is doing a three-part webinar on the Overhead Myth. Part one is available here: https://youtu.be/HapJdvrRRZY. Part two is full, but you can sign up to receive the recording and slides – https://learn.guidestar.org/20161219-overhead-myth-series-part-two Part three will be in January.

  • Gina Sideris

    Absolutely! You are nobody’s hero when in the guise of efficiency you limit your capacity to be effective in your mission.

  • lindenchariot

    Thanks as always Vu. I am going to be really selfish right now, but as a grant writer the overhead concept always makes me feel like crap. I count as “admin” for my organization, yet what do I really do: I work with program staff to develop new proposals that are about better serving our community. I help design the interventions that bring in resources for our organization! Yet on the balance sheet I am part of the burden, the overhead that’s sucking up resources from the field. The same could be said for our finance person who makes sure grant-funded projects are spent on time and on budget, or the HR person who finds the people to do the work. Everything is integrated: we are programs people too.

  • Marilyn Miller

    While I generally agree with the idea of deemphasizing % program ratios, I think we can’t reasonably throw it out until there is a meaningful and universally applied and understood replacement. I’ve seen too many examples of NFPs that are spending frivolously (in my opinion). I can’t give a percentage, but they are out there, and it’s unwise to give a pass to organizations that aren’t at least attentive to this ratio. I totally agree that there are often extenuating circumstances that can cause an org to deviate from the ideal, and as mentioned, this can be documented in the audit and the annual report, websites, etc. Responsible donors should inform themselves. But I don’t want to give my hard earned (working for a NFP!) dollars to an organization that isn’t putting program at the forefront–I don’t want to support nice office spaces and fancy galas, I want my money to save animals, provide healthcare to the uninsured, and build housing for the homeless. Every dollar that doesn’t go to this purpose better have been well thought out and justified. NFPs aren’t like for profits–we can’t just raise our prices to meet demand. So we have to look at our resources differently, because we are stewards of those who give their money to us.

    • Steven

      I agree in part to Marilyn’s comments in that I’m not sure if we’re ready to completely get rid of the % ratio. At least not until we have something else to replace it with. Many agree (me being one) that it should be replaced with to conversation around measuring impact. However, currently this can be quite subjective and all over the map on what people in the NFP industry determine how impact should be measured. But, this shouldn’t stop us from continuing the struggle to find a better replacement to the % ratio.

  • digopheliadug

    I agree! I’m a bookkeeper and operations manager, so everything I do is overhead. Denigrating the importance of infrastructure and operations makes me sad!

  • Kate Ramlow Meyer

    agreed! I would much rather read from one such letter that a high percentage is put into opening positions, competitive staff salaries, professional development, excellent benefits packages, great PTO policies, and staff appreciation. Keeping the best of the best working at peak performance is a far greater benefit to any organization and yields far greater direct service results when folks are appreciated and committed to the mission <3

  • StraxTheSontaran

    Thanks for sharing this. I am happy to work as a finance professional in a nonprofit that has a broad social impact while still paying their infrastructure staff enough to live comfortably and pay rent in the DC area. I know many folks in the sector are not so lucky due to the “overhead” stigma.

  • Margaret Sequeira

    This is such an important discussion! I get so tired of hearing about the salaries of Executive Directors and CEO’s of nonprofits make all this money. I have spent my career in the nonprofit sector and have never made it to the national median salary. What does it say when staff are in need of assistance or can’t pay their bills because the expectation is that people will work far more than 40 hours a week, for far less money than their education and experience warrant because somehow your intention to serve the world doesn’t mean you need a salary that actually pays the bills. In addition since so many of us in the nonprofit world are women, there is an idea somehow women don’t deserve or need to earn as much. Justice begins at home.

  • Brian

    A thousand times yes. A weird artifact of the American ethos that we’re so proud of how poorly we care for those doing the most important work.

  • Cj sharp

    This is always an important discussion and should be brought up every year so it becomes a fait accompli. (A girl can dream, right?). however, while non profits are guilty of perpetuating the practice, we are also fighting an uphill battle against forces that will take far more than our banding together to stop it. The accounting rules, the IRS, the Combined Federal Campaign (which requires participating organization’s to calculate it AND posts the rate in the description of your org in their catalog!) and some of our beloved politicians (senator Grassley, to name one), are working against us to not only sustain the erroneous concept that “overhead”, admin costs, whatever, are separate and completely unrelated to delivering services, but are finding new ways to require us to make it known. As a sector, WE can fight the good fight to eliminate using this as a symbol of our value, but our donors and the public need to hear this from others who have perceived “official” authority and can change the dialogue, getting everyone on the same page. So can up you please send your post to the IRS and others?

    I’m a fundraiser and I often say that I got into non profit work for the same reasons a social worker did so being categorized as a part of the organization that doesn’t have a role in its mission or impact is ridiculous and offensive. By my calculation, 100% of our funds go toward fulfilling our mission because we couldn’t do it without me, accountants, HR, etc. But forces other than my nonprofit colleagues require me to state it differently…for now.