I had the wonderful opportunity to spend time with family and friends through various parties and gatherings over the holidays. Inevitably, conversation always leads back to the things we spend the most doing: kids, work, and hobbies. As soon as the conversation starts about my work in fundraising I am always given a quick opinion about nonprofits in general. It usually revolves around which nonprofits are doing great work or did you see that new social media campaign for or against a particular nonprofit.
Lately, the conversion has quickly moved to overhead spending of nonprofits. Overhead spending discussion use to be more common a few years ago, but it seems to be gaining steam again. I understand that overhead needs oversite for nonprofits. Overhead should not be the majority of where organizations are spending their revenue; however, overhead costs do have a direct impact on the viability of the organization.
I have a relative who stated, “I only give to organizations that have overhead spending of less than 5% of their operating budgets.” I calmly explained the reality of that statement. There are over 1.6 million nonprofits in the United States. Around 47% of those nonprofits have an operating budget of $1,000,000 dollars or less. 5% overhead costs would translate to $50,000 or less to pay for staff, utilities, equipment, leases, etc. That could hamstring organizations from making an impact in their community.
At one of the many fundraising conferences I attend, I heard a speaker discuss the realities of overhead and restricted funding. He gave an analogy comparing nonprofit organizations to a pastry chef. The dialog went something like this:
Customer: I would like to purchase a cake to feed 20 homeless veterans.
Chef: Wonderful, our specialty is a chocolate lava cake.
Customer: That sounds delicious, how much does that cost?
Chef: The cost is $50.
Customer: Well, I can give you $10, but you are going to have to find the remainder from somewhere else.
Chef: We have other customers who also want to help feed homeless veterans. Two of them offered to pitch in and we will ask others.
Customer: Great, here is the $10, but you can’t spend the $10 on sugar. You can only purchase chocolate and one egg with my money.
One Week Later …
Customer: We ordered a chocolate lava cake from you last week and it was horrible. It was way too dense and not sweet enough.
Chef: I’m sorry. The other customers had their own conditions. One was willing to pay for sugar, but not butter. I had another customer offer to pay for chocolate, but you had purchased all the chocolate that we needed. I asked for butter; she declined to participate. We also had a problem with our oven, but none of the customers would allow their cake payments to be used to fix it, saying that fixing it does not directly benefit homeless veterans.
Customer: Well, I am never purchasing a cake from this establishment again. You obviously do not have the capacity to support your baking.
Ultimately, we as donors need to be focusing on outcomes and impact and not forcing nonprofits to navigate the complex maze of funding restrictions. Restricting funding in the name of accountability has been a standard practice that stemmed from good intentions; in the end, it is the homeless veterans who are without cake.