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Jun 21, 2012

Managing Overhead Responsibility in Nonprofit Fundraising

A recent discussion on the Stanford Social Innovation Review  group on LinkedIn posed “One of the great deceptions of nonprofit organizations is pretending–to themselves as well as to their supporters–that fundraising carries no costs. How can we get beyond this?”

The first place to start moving beyond this counterproductive perception is with the Better Business Bureau and many foundations who insist “100% of the gift goes to the program”. All successful businesses have overhead in order to thrive. That is why for-profit business measures net margin and not just gross margin. Yet the push for philanthropic “effectiveness” has a mentality of “bang for the buck” and “leverage” that forgets it is the nonprofit that should be leveraged, not the so-called benefactor. So the cost of fundraising is a key part of overhead, which is key to nonprofit effectiveness. Some of our nonprofits are feeding this misconception by falsely claiming no fundraising expenses on their 990 reports. Shame on them.

In the chapter on Challenges in Philanthropy (pp.193-200) in my book More Than Just Money, I talk about how donors need to rethink their relationship with nonprofits. Donors and nonprofits are mutually dependent: the first can donate but is limited in doing; the latter needs money but is the primary doer in the social space.

  • Doers: need to be efficient in doing. Overhead is the oil in the engine of doing; too much can be bad but too little grinds the engine to a halt.
  • Donors: insist that nonprofits invest in the management infrastructure and provide funding for this overhead.
  • Nonprofits: insist that a restricted gift cover the overhead, the fully loaded cost of what the donor wants done. If they balk, you balk too about accepting that money-losing gift — maybe, just maybe you cannot afford to accept that gift.

Read more about the challenges of philanthropy in More Than Just Money. If you are not sure where you make or lose money, consider a board retreat or workshop in which I show you how to evaluate your activities for how effectively they link mission to money.