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Is Overhead the Problem with Non-Profits?

Traditionally, “overhead” (office expenses, salaries, phone, etc) has been the bane of churches, ministries, and non-profits.  The goal has always been to keep overhead low and get more dollars into outreach and service projects. In fact, most evaluations of non-profits are based on comparing overhead costs, in the belief that people would rather give to organizations with lower overhead expenses.

But in this month’s Fast Company magazine, writer Nancy Lublin questions that thinking.  Check out the article and let me know what you think.

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  1. I love that article.  Non-profits have to end up doing a lot of working over the math to give the appearance of that 95% or more going “directly” to ministry.  I think it’s more math juggling than accuracy in most cases.  🙂

  2. Very interesting article. I deal with this alot, trying to justify things to donors. Unfortunately, it is difficult to quantify the value of a dollar spent on overhead. Did the money spent on landscaping lead to increase in population and donations or was it the non profits product that did it? Should extra money be spent to retain current staff at current rates or would hiring cheaper staff maintain current donations and, therefore, increase bottom line?

    Ugh. I am depressing myself…..


  3. Unfortunely, the term “overhead” in the church/non-profit world becomes pejorative in the sense that anything deemed unnecessary or excessive is thrown into it.  In this atmosphere, very legitimate even critical expenses can be viewed incorrectly.

    Real world example.  For years I produced corporate image pieces focused on fund raising for churches and non profits.  Though my budgets were below minimal professional standards, I was often viewed as too expensive.  My come back always was – would you rather pay me X amount of dollars for something that works or pay half of that for something that doesn’t.

    As a fund raising consultant used to say – “If they don’t reach for their wallets, it just isn’t worth it.”  Some expenses categorzied as overhead are, as Master Card would say “priceless.”

  4. I think balance is the key here. If you don’t spend enough on Human Resources, let’s say,  you end up with an unmotivated, depressed team which can in the end cost the non-profit much more waste in terms of impact for the buck. The impact that additional staff member in HR can have gets multiplied by 30 or 100 or 1000 others being more efficient in getting the “product” out to the people who need it. That should translate into being able to feed 100,000 people for less than the next guy can. So admin might be a higher percentage of our expenses, but if it is working right, it should enable you to get the your “product” done for less money in the end.

    The down side is when we let the Administration run the non-profit. Too many times administration becomes so large and cumbersome that it actually restricts or slows the purpose of the organization by laying down too many procedures, approvals, etc. That is when we need to stop and evaluate whether we need all of the admin that we have. Admin should be enabling the operation to flow more smoothly. We should always be looking for those areas that  begin to inhibit our mission.

    The appropriate size for our admin should be the goal.

  5. Instead of looking at overhead, being a percentage of total expenses, one should look at efficiency.

    Divide the total cost by the total value added by the organization. Then compare that with similar organizations.

    If the organization is a food bank, then  total cost/meals served.

    That way, what is measured and encouraged is to improve the efficiency of each dollar spent.

    Then the challenge would be to pick the appropriate measure of value added by each type of non-profit. Hhopefully this is already in place, as how else would they measure their effectiveness over time.

  6. I donated thousands to a non for profit until I realized one day that my thousands in meant pennies out the door to actually assist families.  Most of the money went to support the chief executive officer in financing her projects and personaly wishes.  The Elena Tresh Foundation is still in existence, but I feel that people are catching on to these small not for profits as being money generators for individuals as more that legitimate charity organizations.  it is unfortunate.  So many of us have limited funds to give and we want our money to actually benefit those in need.

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