A charity’s mission matters, but we often misunderstand key costs to deliver that mission: “overhead.” Operational costs vary, with some charities being salary heavy, while others must maintain land and property.

When reviewing an organization’s IRS Form 990, “management,” “general,” and “fundraising/marketing,” usually comprise “overhead.” We want charities to be good stewards, but need to dig deeper into how they fund programs so we can evaluate their effectiveness beyond these categories.

The relationship between programs people like, and overhead that they don’t, isn’t always clear. Maintaining physical space for the unhoused is as important as providing mental health case management support services. Lights in a food pantry help differentiate canned goods and wouldn’t be possible without an electric bill. In mental health programs, the cost of staffing for one-on-one counseling, differs from group therapy, begging the question, which is most needed and critical? Overhead and programs work hand-in-hand.

Higher overhead isn’t necessarily indicative of a charity’s inefficiency. Services provided can impact overhead needs. Focusing solely on low overhead can be misleading in the proper evaluation of a charity’s impact.

Here are five reasons why investing in a charity’s overhead can be powerful:

1. Infrastructure and Operations: Essential infrastructure, utilities, technology, and salaries provide vital resources enabling a charity to deliver on its mission efficiently and effectively.
    
2. Innovation and Adaptation: Corporations invest in research and development. Shouldn’t we expect that charities also invest in innovation to improve their efficiency and adapt to changing circumstances? Overhead supports pursuits to find the next great solution.
    
3. Capacity Building: Staff training, program evaluation, strategic planning, and fundraising all contribute to enhancing a charity’s ability to achieve its long-term goals and require investments in overhead.
    
4. Long-Term Sustainability: It’s important that charities minimize unnecessary overhead, but underinvesting in essential infrastructure can jeopardize their long-term success and viability. Adequate overhead ensures they can weather challenges, attract and retain talented staff, and continue to make effective impact for years to come.
    
5. Transparency and Accountability: Tracking, reporting, and communicating in a transparent way to donors requires overhead. Poorly delivering on these functions can erode donor trust and a charity’s credibility. It takes overhead to ensure that all organizational resources are invested and deployed effectively and that their impact is communicated in a timely manner to stakeholders.

Contrary to the misconception that overhead is wasteful, wisely investing in it can improve charities’ effectiveness. Providing them with sufficient resources, support systems, and quality staffing enables them to optimize operations, reduce employee stress, and allows space for innovation.

Donors may initially balk at a portion of their donations going to overhead instead of directly supporting programs and clients. But it’s clear these funds are vital to charities’ health and sustainability, enabling them to fully deliver on the promise of their missions for the communities and people they serve. 

We hope you’ll take time to learn more about the role of overhead in the charities you support, and see that it isn’t just about ratios or categories on a Form 990. Explore more deeply how your donations to overhead are leveraged for meaningful impact.

To learn more about how you can join us in helping secure our community’s future through the power of endowment, please contact Michael Trench, vice president for advancement, at 630.665.5570 or michael@dupagefoundation.org.