Is Nonprofit Overhead Too High?

by Joan Garry

Board members often see overhead as a four letter word. Funders too. Really? Time to educate about its value.

In 1997, GLAAD offered me the job as their new Executive Director. They proposed a starting salary of $80,000 and I nearly plotzed. I politely turned the position down. At the time, I was making a very good living as a VP at Showtime (with a salary that was, let’s just say, a LOT more than what they had offered.)

They came back with a slightly higher offer. I signed the contract. I guess I REALLY wanted to change the world. I certainly had thought I had made a major sacrifice – more than a 50% pay cut – in what would become a win-win situation.

At the time I came on board, the organization was in a major financial crisis. I had a great team and we were able to right the ship quickly and grow substantially in both scope and impact.

Fast-forward eight years, and things were rocking. We had a boatload of major successes under our belt. As the financial situation improved over those eight years, I had gotten raises. By this point, my salary had gotten back into the general range of where I had been before I started at GLAAD.

Out comes a media “expose” about the ridiculous salaries of Executive Directors of LGBT organizations. I became Public Enemy #1 and the GLAAD board had a media crisis on its hands.

My salary fell into the dreaded category of “overhead.” And we all know that nonprofits should keep overhead as low as possible. Right?

Maybe they had a point…

According to a 2012 study by Grey Matter Research, the average American adult thinks it’s perfectly OK for nonprofits to devote 23% of total expenses to overhead (things like fundraising and administration.) These same Americans believe that nonprofits actually spend 37% on overhead. And they don’t like it.

Whatever the actual overhead percentage is for your nonprofit, this perception has an impact, particularly for fundraising. A recent Nielsen Norman Group study found that one of the biggest deterrents for people when considering an online donation is an unclear explanation of how donations are used.

So this stuff does make a difference. Overhead really should be as low as possible so people know that their contributions are going to actual programs that are directly helping people? Right?

No so fast…


Donors and funders treat it like a four letter word. It’s not. As my friend Dan Palotta notes in his very powerful TED talk, donors don’t want to fund “overhead;” they want to fund services.

It’s all about how little a nonprofit can spend rather than what it can achieve.

PUH lease.

Riddle me these, Batmen and women. Can you effectively offer services without a top notch CEO? When you “save” $15,000 on your development director, do you not get what you pay for?

When you pay a secretary salary to the Assistant to the President, you get a secretary and not a professional assistant who can manage your board and serve as the first point of contact with the organization’s most valuable stakeholders. Then, when your data entry is so bad, you keep trying to contact a donor that has been dead for years (been there, done that).

How in the world can this be a good thing? Certainly profit-based businesses don’t abide by this double standard.


I want to give you a mission. Let’s change the perception of overhead. I know this is a big uphill battle.

One of my clients recently got a bunch of flak for spending “too much” on their major fundraising event. After all, they spent $2 MILLION DOLLARS!!!

But here’s the thing. They raised $6 million in the process. There’s just no way they could have put on an event of this magnitude without spending a lot of money.

But if you can show me a public company that can consistently turn $2 million into $6 million year after year, well… let me know. I want to buy that company’s stock.

Now, without question, there’s good overhead and bad overhead.

Good overhead = Hiring an amazing development director or spending a lot on a major event that brings in a multiple of that expense.

Just like a for-profit company, nonprofits shouldn’t be wasteful. Money should be spent efficiently with a focus on value. Otherwise, it’s bad overhead.

So how can we, as a group of nonprofit leaders, start to convince the public that not all overhead is created equal?

Let’s start with our own boards.


1) Tell them how valuable it is: Yes, it’s really that simple. You do presentations at your board meetings about your program areas, right? You remind your board just how important the work is, right? Consider a presentation at an upcoming meeting that highlights the power and value of what is considered overhead.  Change their perspective. Let those folks who fall into that ‘nasty’ category find their way into the spotlight for a change.

What do I mean?

How about bringing in someone who sits at the front desk of your community center or your Y? Let them tell a few stories about clients and what that center means to the folks who come in every day. It’s time to bring “overhead” out of the closet and let the value of that work be seen and heard. And valued.

2) Don’t add to overhead in a piecemeal fashion. Oftentimes, organizations spend time talking about how overworked the staff is. And of course it’s true.  Equally as often, we wait until someone has reached the breaking point (meaning something of note has fallen through the cracks) and then we reconfigure the budget in some fashion so we can add an admin person.

Take a different approach. In your next strategic planning process, don’t just budget for the new program work but budget for increases in overhead that will pass funder muster (one more note on that at the end).

What do I mean?

If you want to grow, you need to invest. I presented a strategic plan to our board that brought my organization into new territory. They loved it. It was a three-year road map. It assumed growth. It assumed new hires. But there was something unique about it.

In year one, we added only to overhead. I mean it. Just fundraising staff. How could I possibly grow the organization without new money? That’s just plain counterintuitive.

With a great plan in hand, that recommendation made all the sense in the world to my board and that is exactly what we did. And we were “open” with our funders about this. And we raised the money and successfully executed the vision of the plan.

We explained what we were doing and why. And we brought the organization’s destination to life for them. They knew we had a plan.

3) Consider a time audit of your program staff.  OK, so this will frighten / intimidate your staff until you explain it further. Ask key staff to fill out time sheets for two weeks as if they were hotshot lawyers. In 15-minute increments, note their activities. Whether it is “found housing for homeless client,” or “opened every single door of the printer three times to try to fix the paper jam,” have them just write it down. 

Next, find a volunteer or donor that works for a management consulting firm.  Ask her/him to spend three hours of time looking at the time sheets. Ask her/him to render an opinion about how people are spending their time.

I guarantee you, the analysis will be clear. Your program staff is spending an inordinate amount of time on administrative tasks. These tasks have to be done by somebody. They are critical. But is this the best use of time for the program staff? Shouldn’t they be focusing on, oh I don’t know, programming work?

See? Your organization would be more effective, more valuable, if it had MORE overhead!

Use this analysis. Present it to your board several months before they have to approve a budget. It could really re-frame an Audit and Finance Committee discussion in a way that could enable you to pass a budget that allows you to add overhead.


As I wrote before, changing the public perception of overhead is a big uphill battle. But I think it’s a really important one.

I’d LOVE to hear your ideas. Please add them below in the comments!

Let’s share with each other and see if we can make a real difference together.

24 thoughts on “Is Nonprofit Overhead Too High?”

  1. Amen.
    “Rightsizing” does not equal “downsizing”. It CAN mean “upsizing.” (Are those terms still being used? Or is that so “Aughts” of me?)
    There is a deeper issue here, as well, over the meaning of a gift.
    If you think of your gift as a transfer payment (from rich to poor, for example), then you will want as little of that money to stick to what you perceive to be the middleman.
    If you think of your gift as an investment in a team that is helping to solve a problem you care deeply about solving, then, I believe, you would be more likely to want your team to have the tools it needs to do the job and less likely to want to see that team dismantled by burnout and turnover.

  2. it absolutely CAN mean upsizing. the tick sheet exercise that mckinsey and company did for GLAAD illustrated clearly that we did not have sufficient resources to do the work we were CURRENTLY doing and we needed to “upsize” before we could even consider taking on new arenas of work.

  3. Joan—
    Your presumption is that a nonprofit’s mission, first and foremost, is
    to raise money and get bigger. This comes as no surprise, as GLAAD’s
    mission seems to be raising more and more money to produce more and more
    lavish awards shows that are then leveraged as fund-raising tools.
    Needing more money to attract better talent is a tired axiom. Top-level
    corporate salaries have less to do with skill level than they do with
    cronyism, greed, and poor management decisions. You yourself displace
    the equation you’ve established: you’re a talented executive who took a
    pay cut to work at a nonprofit. Are we to believe your skill level took a
    dive as a result? You’re not a martyr willing to sacrifice money for
    doing good. What about the of the prestige and power your traded “down”
    And why point to the corporate world as some sort of model of
    efficiency? Well-run nonprofits are much more efficient, and do much
    more with much less. Most corporations are neither well-run nor
    equitable in their salary distribution.
    Where’s the discussion of how to put overhead toward attracting more
    talented service providers and paying /them/ more? Where’s the
    discussion of the /percentage/ of overhead consumed by executive
    salaries, or the comparison of C-level salaries to staff salaries?
    Nonprofits do not have to be bigger to do better. They often perform
    more poorly as they get bigger and take on more outside their area of
    expertise— GMHC is a great example of that.
    Your main point is that to raise more money so CEOs can be paid more,
    nonprofits need to do a better job at the public relations of
    fundraising. That’s both cynical and outrageous.
    And if you don’t like your budget being scrutinized by journalists, you
    were in the wrong job. Your essay is both condescending and appalling.
    —Andrew Miller

  4. Your inability to understand how appalling you are would be laughable, if it weren’t so sad.

  5. It’s amazing that you pick Dan Palotta as the example of what you’re trying to say.
    Palotta conveniently leaves out the facts that the AIDS rides and breast cancer walks actually had MASSIVE overhead and that he profited TREMENDOUSLY from them. In some cities, his personal profit was actually higher than what the AIDS organizations got. And that’s not even counting the massive overhead. The overhead was so high that in several cities, the organizations made next to nothing while he still made a hefty profit, forcing those organizations to cancel much needed programs, and in some situations to shut down entirely. He got rich, while ASO’s shut down and people died.
    THAT is why every single AIDS and breast cancer organization in the country stopped working with him. Yes, the overhead for these rides and walks was MASSIVE — well over 3/4 of the money taken in in come cities. But they mainly stopped working with him because his greed was toxic and made no one want to give anything to their organizations.
    The AIDS rides and breast cancer walks were massive money-making scams. Now, he’s trying to justify his greed with this video.
    And he’s clearly trying to con other organizations to get in bed with him. Don’t be fooled.
    To be frank, Ms Garry, using Dan Palotta as your example says so much more about you and your goals here than you realize. Thank you for warning anyone else who might ever want to hire you!

  6. How about the security of health/dental insurance, enough sick/personal health/vacation days, and a living wage in a satisfying work environment?
    I’m all for funding general operating but your idea of a secretary’s work for a secretary’s pay is appalling, condescending, and so far outside of what we need in community advocacy…I can barely find the words. Small wonder GLAAD has done little of real value for the LGBTQ community under your direction. Like the HRC, GLAAD’s twisted relationship to money is a root problem with what is disparagingly referred to as Gay Inc.

  7. not naive here. there were indeed controversies around dan and i am well aware of them. that said,even some of his vocal critics found his video important and compelling in its ability to make this larger point. without investment in talent, in strategic planning, in innovation, nonprofits’ ability to have large scale impact is severely hampered.

  8. PSL — your initial point is something that many nonprofits have worked hard to achieve for their staff members. that said, often it is these same organizations that have difficulty meeting payroll because an insufficient investment has been made in things like development and press. as for ‘gay inc.’ many many people find our larger organizations to be important and effective. clearly you disagree. that said, i appreciate your taking the time to share your opinion.

  9. just to clarify. my main point in this piece is not that a nonprofit’s mission is to raise money and get bigger. and money does not always equate with impact. small organizations often have extraordinary impact. my argument was simply this. to fulfill the mission of your organization, you typically need money. to raise money, you have to invest. in good people, in development staff, in communications. and that these areas are less well funded and often the first to be cut, thus hampering an organization’s ability to capitalize on its ability to fulfill its mission.

  10. paul – sorry you feel this way. this piece was not written about the LGBT movement – i wrote to highlight the importance of those items often categorized as “overhead” and the degree to which those items are critical to the success of any organization of any size in any sector .

  11. Don’t you think you’re kind of washing over the issue here? These weren’t minor controversies. They were an inherent failure in the entire fundraising concept. As soon as people heard about the facts, they abandoned the rides and walks in droves. As such, they were a spectacular failure.
    Well, it’s always easier to make a point when you lie about the facts of the point you’re making, like he’s doing, conveniently avoiding the real facts about why the AIDS Rides and Breast Cancer Walks failed.
    The fact is that you’re holding up a man who was crucified by the community for his greed and waste as an example of how to do things right. I felt bad for the riders who didn’t understand how little of the money they raised actually went to AIDS. I felt bad that they only found out about this when people with AIDS leafleted them with that information at several of the last rides.
    Trying to use Palotta as an example for your point only makes the point for those who disagree with you because the AIDS Walks were such an extreme example of everything you’re saying taken to the extreme absurd level.
    Yes, an AIDS Ride is a great idea. But why have it over 2-3 days, when that increases the costs exponentially? Because Palotta felt that making this some sort of group “experience” was more important than giving that money to help PWA’s. It was more important to house and feed thousands of runners for several nights than to house and feed PWA’s. It didn’t matter to him that the overhead for most of these events was more than HALF of what the events took in!
    Yes, directors and fundraisers have the right to make a decent wage, and even a competitive wage. But he made MILLIONS off of these Rides and Walks — in many cases more than the ASO’s made themselves. Palotta Teamworks’ fees were extraordinarily high.
    THAT is why the events failed. Because as soon as people heard where the money THEY were raising that they thought were going to AIDS and breast cancer went, they bailed in large numbers. And when this information became public knowledge, the organizations themselves wanted nothing to do with them, because it hampered all of their other fundraising events. When a fundraiser puts a service organization out of business, it can only be called a blatant failure.
    You simply can’t ask people to go out and ask people to donate to a cause when the majority of the money they’re donating isn’t actually going to that cause. It destroys the credibility of the organizations involved, often permanently.
    Yes, the AIDS Walks raised a lot of money for AIDS — much of which would have been donated in other ways, with lower overhead. But they damaged the organizations — and destroyed some — more in the long run, which ended up costing them more money than was raised.
    Putting him up as an example of your point only succeeds in hurting your point.
    Defending Palotta — which you’re doing by posting his deceitful video only damages your own credibility.

  12. you are right on the money and naive donors who do not understand that “overhead” is essential to doing your work effectivel are appalling and laughable.

  13. As a business owner who happens to volunteer on Not-for-Profit Boards, I quite agree that the bottom line is that “you get what you pay for”. That is not to say staff salaries should raise without thought. But if you expect a good job, the salary must be commensurate with the responsibilities involved.

  14. Joan — Thank you for your thoughts. Knowing you I appreciate your dedication to non-profits and agree that sometimes organizations (and their donors) can be short sighted when desiring to restrict operating costs. As you said — looking at the longer view picture and the impact the organization can have with greater resources is essential to achieving any group’s mission.

  15. Appalling?
    Have they never run a NFP? 😉
    What folks don’t understand is this.
    It’s a business and needs to be run like a business.
    The mission is different and you are tax exempt.
    If you don’t create value, you have no right to exist.
    It *is* that simple.

  16. I’m with you Joan! I’ve served as an Executive Director for several non-profits (and am now) and I’ve been a consultant to non-profits and before my current position spent most of the last 20 years in an officer role on a variety of Boards. I’m also a donor to many organizations. The old addage of it takes money to makes money is true. I wish that just doing good work and producing programmatic results was enough to generate income to do more good work, but today’s reality requires infrastructure and communications – all of which are not what most people want to see their money going towards.
    The reality is that overhead dollars is the avenue that generates program dollars and too often they are the last dollars that are put in place. Overhead vs program percentages are an important metric – and shouldn’t be thrown out. There are other metrics – like effectivness and impact that aren’t as easily measured but are actually more important in looking at an organization to see whether it’s worthy.
    We in the non-profit community have an obligation, I think, to find a way of communicating the entirety of what we do for donors and supporters to make an educated decision about the organization.

  17. Joan,
    In my experience with introducing change in an organization, resistance follows three predictable stages. 1). I don’t agree with the change you are proposing,
    2) I agree with the change, I just don’t like the process that you are proposing,
    3) i agree with the change, I agree with your process, I just don’t like you as a change agent.
    It seems to me, based on the comments that you have recieved so far, that you have sucessfully navigated the first two stages and some people have jumped right to stage three— shoot the messenger. To me this means that you have been successful in getting your idea and your suggestions for action across to your readers. Congratulations. I found the piece refreshing.

  18. Hey Joan,
    I have a situation which I think you can advise on.
    I head up a department within the company I work for, my role is not business development but my suggestions are taken on board which are in the best interest of the company and the company are doing much better with all I have suggested and implemented.
    I believe in investing for the well being and growth of the company, however I am constantly knocked back with “our over heads are too high, so can’t afford it”.
    What are these overheads?!
    I know pretty much what’s coming in and out. The biggest overhead is salaries, however being in the media sector most of this is covered with the level of work bought in.
    While closely monitoring as much as possible (as I’m not in finance) I have come to know a senior level employee can do with a pay cut. Clearly this is a overhead not covered or it would not be a overhead! If I had it my way I would love to pay the hard working employees as much as possible.
    In order to invest for the greater good I feel this pay cut should be done immediately, what do you think?
    Thanks in advance

  19. What’s with all the personal attacks? Joan is giving away her insight and perspective freely, and the negative attacks are ridiculous. Disagree all you want, I’m sure she welcomes the discourse and sharing of differing views, but this is nuts. Come on people, have a bit of decency!

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