How 'ethical overhead' can help us think differently about how nonprofits spend money - Generocity Philly


Jul. 22, 2016 12:55 pm

How ‘ethical overhead’ can help us think differently about how nonprofits spend money

On "overhead myth" and how to combat it.

Fair trade products increase overhead — ethically.

(Photo by Flickr user Kevin Dooley via a Creative Commons license)

Tivoni Devor’s “Getting Good Done” column focuses on new models of enacting impact.

The standard story is that nonprofit “overhead” is the money that nonprofits flush down the toilet by spending it on administrative or fundraising costs instead of using it to help people.

It’s a myth so strong even some nonprofits believe it, and they starve themselves to death in the process.The simple truth is that it takes something like 36 cents to properly manage the other 64 cents of every dollar donated to a nonprofit organization. We shouldn’t hide from it, and we shouldn’t lie about it. In some cases, especially in cities with higher costs of living, true overhead costs are even higher.

You may have seen a lot of nonprofit orgs sweating minimum wage increases, changes to overtime regulations and the Affordable Care Act’s 30-hour rule. You may have also seen people delighting in the irony of nonprofits that are pushing back against these rules and looking for exemptions. The simple truth is that all nonprofits want to pay their staffs more, and they all want to provide better health benefits, but they are afraid funders will only see this as overhead increases.

From our Partners

While individual donors and institutional funders need to realize moral implications of their biases against overhead, nonprofits need to do a better job at explaining how this overhead is spent and that it is done in an ethical and mission-driven way. Nonprofits are obligated to, at some point, spend every dollar that they get from a donor or funder. Nonprofits can and should spend every dollar they have in an ethical way that maximizes social impact.

We need to look at the fair trade movement which has adopted a set of principles that includes things that increase overhead costs, such as fair wages, capacity building and opportunities for disadvantaged producers, all of which increase the cost of the product. Consumers are happy to pay a premium if they know their dollar is being spent wisely and fairly. With transparency and accountability, nonprofits can begin to talk about the true costs of program delivery.

Ethical overhead should mean that nonprofits focus spending their overhead dollars on local independent businesses, certified Disadvantaged Business Enterprises, B Corps, etc., which generate local economic development. Ethical overhead means that nonprofits pay their staffs fair and prevailing wages, which in turn reduces more costly staff turnover. Most importantly, ethical overhead should allow the nonprofit and the funder to have a frank conversation on the true cost of running an operation in a way that maximizes its benefits to society.


From our Partners

What to do when your nonprofit’s rep is taking a beating

By sunsetting, the Douty Foundation makes a strong case for limited-life philanthropy

Testing a new Generocity


Generocity Philly

Meet Kim Andrews, new executive director for The Fund for Women and Girls

3616 South Galloway Street, Philadelphia, PA 19148


Corporate Relations Manager

Apply Now
Pittsburgh, Remote, or Hybrid

Regional Housing Legal Services

Senior Staff Attorney, Housing Development Legal Services

Apply Now
3645 Lancaster Ave

Al-Bustan Seeds of Culture

Multimedia and Operations Coordinator

Apply Now

How to create a CSR initiative built to last

Nonprofit AF: It’s time for nonprofits and foundations to implement vaccine mandates

You don’t have to start your own nonprofit to get the impact you want


Generocity Philly

Be the leader to bring a 26-year mission into the future in Chester County

Philadelphia, PA

Youth Sentencing & Reentry Project (YSRP)

Policy Coordinator

Apply Now


Director of Brand & Narrative

Apply Now
Philadelphia, PA

The Lenfest Institute for Journalism

Advancement Associate

Apply Now

Sign-up for daily news updates from Generocity