The Overhead Myth

August 21st, 2013 by Miles Leave a reply »

I was pleased to see that arguments like Dan Pallotta‘s are having an impact.  One of his key points is that he makes is that judging a charity mainly or only by “overhead percentage” or “amount of my money that goes to the cause” is dangerous, incorrect and damaging.

Just in the past few months, three of the most respected charity “watchdogs” or third-party evaluators have endorsed this concept, too.  They have launched a website and a campaign to spread the word.  They call it the Overhead Myth.  In their words:

In a historic move, the leaders of the country’s three leading sources of information on nonprofits – GuideStar, Charity Navigator, and BBB Wise Giving Alliance – penned an open letter to the donors of America denouncing the “overhead ratio” as a valid indicator of nonprofit performance.

The letter, signed by all three organization’s CEOs, marks the beginning of a campaign to correct the common misconception that the percentage of charity’s expenses that go to administrative and fundraising costs—commonly referred to as “overhead”—is, on its own, an appropriate metric to evaluate when assessing a charity’s worthiness and efficiency. The nonprofit sector, which all three organizations provide information to and about, has too often erroneously focused on overhead over the past few decades, which has starved nonprofits from investing in themselves as enterprises and created what the Stanford Social Innovation Review calls, “The Nonprofit Starvation Cycle.”

And it continues in their open letter: Overhead Myth Letter. [PDF]

Please help spread the word.

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  • CuriousOne

    What do you think of the Robinhood Foundation method of determining successful grants?