What is Giving Compass?
We connect donors to learning resources and ways to support community-led solutions. Learn more about us.
This article is a call to arms to nonprofits and funders alike to not only banish forever the overhead ratio but also, and equally important, embrace the concept of full costs.
Big strides have been made recently in the acknowledgment that overhead ratios are poor indicators of an organization’s impact or financial efficiency. Although the movement toward outcomes-based measurement offers a promising alternative to understanding impact, very little has been done to truly shift the sector’s understanding of what it takes—or even means—for nonprofits to be financially efficient and adaptable. The myths and misinterpretations of the true full costs of delivering vital programs have contributed to a chronically fragile social infrastructure for our communities.
Now more than ever, as the call to achieve high standards of outcomes-based measurement grows, we must hold ourselves to an equally high standard of understanding nonprofits’ full costs.
This article is meant to encourage nonprofit executives and boards to know and advocate for their full costs, and to urge the philanthropic sector to structure funding with greater consideration for the full context in which its grantees are operating. We look forward to the day when nonprofits and funders have embraced the concept of full costs, which include far more than direct program expenses and so-called “overhead.”