Giving Compass' Take:

• The Bridgespan Group discusses how poorly-managed Indirect Cost Recovery can feed into a nonprofit's financial starvation cycle and perpetuate the overhead myth.

• How can funders help nonprofits thrive in the longterm? What support do nonprofits you work with need? 

• Learn why the overhead myth still persists among many donors.

Ford Foundation CEO Darren Walker knows what it is like to run a nonprofit on a shoestring budget.

Since its inception, The Bridgespan Group has worked to understand what it takes to build strong nonprofits. We believe the first step a nonprofit should take is to recover the true costs of doing its work. In 2009, Bridgespan’s "Nonprofit Starvation Cycle" research pointed to a cycle that begins with funders’ (public and private) unrealistically low assumptions about the true costs of running a high-performance nonprofit. In turn, many nonprofits under report overhead spending to meet funders’ expectations. This reinforces the assumptions that kicked off the cycle in the first place.

In 2016, Bridgespan's "Pay-What-It-Takes Philanthropy" analyzed the true indirect cost of 20 high-performing nonprofits, demonstrating that 10–20 percent is too low to cover true indirect costs for most organizations. This data also led us to divide the group into segments based on their business models — an idea we think holds promise for better understanding variability in true costs.

Read the full article about improving indirect costs recovery at The Bridgespan Group.