In a recent policy debate about federal funding, a policy maker asserted school lunch programs don’t help kids read. This sparked a flurry of evidence about the impact of school lunch programs from the social impact sector, both from nonprofits and funders who invest in these programs. Those of us on the inside of the social impact sector have known that outcomes matter for quite some time, but now we see this debate on CNN, tweeted across the internet, and fueling a news cycle.
The discussions about impact are a welcome development. For too long, too many funders and donors have been focused on low overhead cost ratios to determine a nonprofit’s efficacy. The laser-like focus on nonprofits doing more with less when it comes to overhead and administrative expenses has unnecessarily limited their abilities to fulfill or expand their missions. And as charitable missions all over the country face even more cutbacks from government funding (i.e., the dollars that deliver the most scale), no organization can afford to continue to ignore the vital importance of the infrastructure and mission sustainability that “full-cost funding” provides.
There is no evidence to suggest that low overhead ratios lead to effectiveness. In fact, the opposite is true. Investment in staff, evaluation, fundraising innovation, strategic collaboration, and stronger financial acumen deliver capacity and mission growth in much more effective ways.
Perhaps overhead ratios could be used as one of a set of tools to identify mismanagement or malfeasance. However, using a tool to identify flags for bad behavior hardly seems the tool to measure mission efficacy.
The tide about overhead costs has begun to shift as more leaders of the nonprofit sector, including the nation’s three most prominent charity watchdog groups, educate donors to consider factors other than overhead costs when making their giving choices.
At Forefront, we are continuing an important and honest conversation about nonprofit overhead costs. This conversation began in 2012 when we became a local partner with The Bridgespan Group in a national effort to provide resources to help nonprofits and their funders shift their thinking on administrative costs and organizational performance.
As part of Forefront’s mission, we will continue to:
- Encourage candid discussion between donors and nonprofit organizations in order to talk about what impact looks like — and how much it costs to deliver it.
- Foster transparency and accuracy in nonprofit funding requests.
- Educate Board Trustees, as well as individual donors, to focus upon investing in infrastructure that would reduce the cost of serving people over time.
Now that this discourse has gained more traction, we must build will among grantmakers and individual donors. The Nonprofit Finance Fund reports only 7 percent of foundations cover the full costs of the projects they fund. Funders and other donors must rethink policies and practices that arbitrarily limit support for nonprofits infrastructure costs. And nonprofits need to ask for appropriate and adequate funding in their grant proposals.
Instead of “doing more with less,” we ought to be asking — and providing — what nonprofits need in order to deliver impact.