Donors Pay Little Attention to Overhead Costs, Study Finds

Donors Pay Little Attention to Overhead Costs, Study Finds

Most donors believe that the typical nonprofit organization spends too much on overhead, administration, and fundraising, but they often have no idea what their own favorite charity spends, a study from Grey Matter Research and Opinions4Good finds.

According to The Donor Mindset Study IV, the average donor considers an overhead ratio of 19 percent to be reasonable but believes the typical charity spends closer to 28 percent. The study also found that donors often have no idea what their favorite nonprofit spends on overhead, with nearly half of all donors having a favorite charity that reports an overhead ratio of 20 percent or higher.

According to its authors, the study demonstrates that the charitable sector as a whole has "a reputation problem," with nearly six out of ten donors saying they believe the typical organization spends more than a "reasonable" amount on overhead and donors in general believing that overspending by charitable organizations is common. But half of donors who say they believe organizations overspend also say that charities spend at least double what donors consider reasonable for overhead, administration, and fundraising.

At the same time, donors demonstrate little awareness of actual charitable overhead ratios. When asked how much their favorite organization spends on overhead, nearly two-thirds of donors lacked confidence that their answer was reasonably accurate. And even among donors who said they were very confident about their favorite nonprofit's overhead ratio, seven out of ten were off by at least 50 percent.

"In a variety of ways, our research demonstrates that overhead ratios are not as important to donor decisions as many people believe," said Grey Matter Research president Ron Sellers. "Placing too much focus on keeping expenses very low can restrict available resources and harm an organization's ability to attract and retain talent, take reasonable risks, and invest in systems and infrastructure that will aid future growth and efficiency."