{"id":25705,"date":"2022-04-01T09:32:54","date_gmt":"2022-04-01T13:32:54","guid":{"rendered":"https:\/\/www.donorperfect.com\/nonprofit-technology-blog\/?p=25705"},"modified":"2023-09-28T17:15:47","modified_gmt":"2023-09-28T21:15:47","slug":"how-to-reframe-nonprofit-overhead-as-investments-in-your-mission","status":"publish","type":"post","link":"https:\/\/www.donorperfect.com\/nonprofit-technology-blog\/donor-advised-funds\/how-to-reframe-nonprofit-overhead-as-investments-in-your-mission\/","title":{"rendered":"How to reframe nonprofit overhead as investments in your mission"},"content":{"rendered":"
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\u201cAs a result of our collaboration and learning, we are convinced that today we have a problem in the way we fund nonprofits.\u201d\n

-Presidents and staff of the Ford, Hewlett, MacArthur, Open Society, and Packard Foundations in a letter to peer philanthropists<\/p>\n

Many donors, grantmaking organizations, and people who are passionate about the causes that nonprofits champion often scrutinize \u201cindirect costs\u201d and \u201coverhead,\u201d including staff salaries and benefits, vital infrastructure, equipment, professional development, utilities, and other costs that are necessary for nonprofits to function but don\u2019t obviously support their beneficiaries.<\/p>\n

In 2019, the presidents of the Ford, Hewlett, MacArthur, Open Society, and Packard Foundations began a collaborative effort to empirically develop best practices to combat the \u201cnonprofit starvation cycle<\/a>.\u201d<\/p>\n

They discovered that while foundations are key partners in supporting costs for programs and specific projects, their grantees face an average deficit of 17% for associated indirect costs with each grant. This deficit is largely due to limits on indirect cost reimbursement enforced by grantmaking organizations, and the general public\u2019s misconceptions about overhead spending and what it takes to run a successful nonprofit. Smaller and newer nonprofits bear the brunt of these misconceptions, and often vastly underspend on the vital infrastructure<\/a> they need to support their programs, unfortunately at the expense of their mission and the wellbeing of their staff.<\/p>\n

The good news: foundation thought leaders are working to end the nonprofit starvation cycle, and you can join in the effort.<\/b><\/p>\n<\/section>\n

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What overhead is \u2026 and what it isn\u2019t<\/h2>\n<\/header>\n

\u201cOverhead\u201d or \u201cindirect costs\u201d<\/a> generally refer to a nonprofit\u2019s administrative, fixed, and general costs. This can include things like fundraising expenses, staff salaries and benefits, office supplies, rent, utilities, marketing and advertising, and anything required to carry out a nonprofit\u2019s mission beyond direct costs for specific programs and projects.<\/p>\n

A popular misconception is that overhead is wasteful, and any spending that doesn\u2019t directly support your nonprofit\u2019s mission ought to be cut or minimized. The truth: spending that helps you and your staff thrive does<\/b> support your nonprofit\u2019s mission! Your beneficiaries need and deserve to receive services from staff with up-to-date training and relevant licenses. Your volunteers need and deserve adequate tools, technology, and resources<\/a> so they can truly support your mission rather than become a time-suck with good intentions. And finally, though perhaps most importantly, you and your staff need and deserve the pay, benefits, and working environment required, not just to survive, but to thrive<\/b>. If you\u2019re hanging on by a thread, how can you be expected to get out of bed every day and tackle society\u2019s toughest challenges on a shoestring budget?<\/p>\n\"DonorPerfect
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The true cost of burnout and \u201cmaking do\u201d with the bare minimum<\/h2>\n<\/header>\n

According to Exact Hire, the voluntary annual turnover rate for nonprofit organizations is 19%<\/a> – far exceeding the all-industry average of 12%. In a 2021 study, Nonprofit HR found that 45% of nonprofit employees plan to seek new jobs by 2025<\/a>. Of that group, 23% said that they will not seek future employment in the nonprofit sector.<\/p>\n

It\u2019s estimated that turnover costs 33% of an employee\u2019s annual salary<\/a>. This includes expenses associated with posting a position, screening and interviewing candidates, onboarding, background checks, and lost productivity.<\/p>\n

This data, though alarming, can inform sound strategy. Investing in employee retention and satisfaction will pay for itself whenever a staff member decides to stay with your nonprofit rather than seek employment elsewhere. Survey, interview, or even have casual conversations with your team to check in on how they\u2019re feeling and what improvements they would like to see. There may be creative, low-or-no cost solutions you can implement right now to keep your nonprofit\u2019s staff engaged and satisfied in their work lives.<\/p>\n<\/section>\n

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Practical tips<\/h2>\n<\/header>\n

It\u2019s one thing to understand the value of an internal investment, and an entirely different thing to actually implement them – especially when you have limited resources. Here are some tips to get started, and we invite you to share your ideas in the comments below.<\/p>\n

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Creating a positive culture around internal investments<\/h3>\n<\/header>\n