Creative Leadership

Do Ministries and Non-Profits Spend Too Much on Overhead?

According to Grey Matter Research, new study data shows six out of ten Americans believe charities and non-profit organizations spend more than is reasonable on overhead (fundraising, administration, etc.). The average American believes non-profits typically spends over 36 cents out of every dollar on overhead, while at the same time saying just over 22 cents out of every dollar is a reasonable proportion to spend on overhead.

See the results of the report here. What’s been your experience? Do they spend too much on overhead?

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  1. I can relate this to my experience within Local Churches so I don't know how valuable that will be.

    There is a definite economy of scale that takes place within the Local Church.  On average, the actual amount of money spent directly on pure ministry is usually quite small.  Most local church budgets run at about 50% of the annual budget.  There can be a 10% fluctuation either way, but I'd bet the farm that that is a pretty clear bell curve and few fall outside of that span.

    Building and maintenance hits about 20 – 25%.  The remaining 25% of budget gets spread among other administrative costs, supplies with maybe 10% applied to actual program and ministry costs.  Some Churches even give money outside of themselves for missions as well and it depends on whether it is inside or outside of their annual budget.  It's a rare Church that exceeds 10% of it's annual budget in missions type projects.

    Some argue that you can't consider salaries as overhead because these are the people who do the ministry and I understand that argument and it's right.  I've even seen some creative accountants argue that the building has to seen as a tool that supports ministry and therefore spending money on the building should be seen as an investment for future ministry revenues.

    The economy of scale kicks in as the church gets larger, in general, the staff costs stay at roughly the same proportion but begin to skew toward the 40% level depending upon the ministry model in use in the Church.  Building maintenance costs tend to reduce as well as you have higher program usage relative to the size of the building and the congregants per square foot.

    In short, the larger the church, the greater the proportion of the budget available for direct ministry costs.

    There's ways around it.  Some churches don't own buildings and rent non-traditional space for example.

    The media costs of course, are probably more the issue for the context here.  My experience there is limited.

    My guess would be that there is a significance to how a Church or ministry organization views those costs.  Joel Osteen for example, from what I've read and observed treats their media expenses as a cost of ministry and therefore they don't use the TV time for any fund raising period.  Of course, they still receive a healthy cash flow from viewers who send support in unsolicited.  That amazes me.

    Where push would come to shove is, if that revenue were to decrease significantly for any reason would they continue to maintain the same level as a commitment to ministry and scale back in other areas?  Is the media ministry for them, in other words, a direct ministry expense of the Church or is it a satellite that has to pay for itself?

    A ministry organization which is not an extension of the local Church, and which actively solicits funds, has to treat things differently if the revenues there are the sole means of support for every element.

    This may explain why so few Churches, even large one and mega-ministries break into wide distribution ministries.  When you start with a local Church and are locked into 70-80% fixed costs (assuming there's a commitment to employees) the available funds to move in that direction are prohibitive without great leadership and vision.

    My motto in Church ministry has always been that money follows vision and most Church financial problems are a symptom of something else.

    Yet, most of the issues I see with large media ministries are in part attributable, in my opinion, to a lack of connection with a Church or governing body where there is stability and accountibility.

    It puts a lot of things into context, doesn't it?

  2. One of the trials when dealing with the finances of non-profits is that there really is no standard for accounting.  For instance, consider a ministry that works to educate people about persecution of Christians.  Their direct mail may serve two purposes:  educate people about the latest persecution case, and raise funds.  Therefore, they may choose to consider that direct mail campaign as program expenses, or partially as program expenses, or as fundraising expenses.

    A local church is in a unique situation.  Very little of the ministry of Compassion International, or the Red Cross, or World Vision, or whatever non-profit actually takes place at their headquarters.  For Compassion (for instance), the administration and fundraising takes place at HQ, but the work is going on in the field, in Guatemala or Thailand or wherever. 

    But much of the ministry of a local church takes place at "HQ."  That's where many Bible studies are held, worship services, youth meetings, and often even things like soup kitchens or food pantries. 

    The same is true for staff.  The leader of Compassion isn't in the field "doing ministry," he's running the organization and allowing others to "do ministry."  So his salary is clearly "overhead."  But (particularly in smaller churches), the pastor is the one "doing ministry."  In many cases, the pastor is about the ONLY one "doing ministry"!  So that has to be taken into consideration.

    For the local church, think of it this way:  what if the church were a homeless shelter?  If the building were used to house and feed and minister to the homeless, and the pastor and staff were the ones doing that, few people would complain about paying for the building and the salaries, because the building and people are all "doing ministry."  How is a church building and staff different, other than in the type of ministry they are doing?

    That is certainly not an argument that churches should have lavish buildings and staff should be given endless raises – balance and reasonable standards are important in all things.  But I do believe it's time to allow churches and church leaders some freedom from guilt about things like "We're only spending 10% of our budget on ministry!"  In a church that is working well, virtually everything that is done is ministry.

  3. You make good points and my points weren't intended to minimize the importance of Churches and their ministry.  I was just trying to put some numbers and percentages to it which are based on many years working in and with churches.  The Church is an organism first and an organization second.  It's easier to frame and understand things from the organization standard.  But the living body element of the Church as an extension of Christ's ministry, of course, trumps all of that.

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