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Overhead

August 23, 2016

There is a raging debate among nonprofits[1] about the best ways to think about overhead. The standard, canonical version is to look at general overhead expenditures (administrative costs and fundraising costs) as a measure of nonprofit effectiveness and sound governance. And this much is clear: this measure is nearly universally disliked by nonprofits.

In a recent blog post at Nonprofits Assistance Fund (shared by NPQ), Curtis Klotz illustrates an alternative to the standard model. His graphic representation of the way nonprofits should consider overhead moves past the standard slice-of-pie divisions that the industry is used to, so that increased emphasis is placed on the importance of infrastructure in nonprofit health.

His model is an interesting, and I believe correct, way of thinking about the idea of overhead and the nonprofit. It outlines four areas of nonprofit spending using concentric circles. At the core are two spending areas of infrastructure spending. The outermost circles are programs spending, i.e. spending directly toward the nonprofit’s mission. He then superimposes the spending allotted toward different programs on top of the concentric circles and shades them to illustrate funding.

The trouble is that in its zeal for accurately depicting the way we should think about nonprofit funding, the presentation becomes complex and a bit muddied. One of the key advantages to the original model is that it is simple to understand, and, while it ignores showing a direct measurement of infrastructure building overhead, it gives nonprofit stakeholders a look at what the nonprofit is doing with its money. Is the clarity lost by moving away from this graphic offset by the nuance allowed in the new illustration? I don’t know, but I tend to think not.

What a fundraiser needs to do when discussing his or her nonprofit is make clear to the funders – be they donors, foundations, or otherwise – that infrastructure is important. That’s something that will still need to be explained with the new depiction of nonprofit spending.

The Home’s overhead spending looks like this, by the way.

The Masonic Home’s budget in 2015, where Admin and Fundraising are considered overhead.

We spend roughly 13.3% of our budget on overhead last year, and a minuscule 1.6% on fundraising.

What is infrastructure spending? Well, this newly redesigned website, for one. In general, infrastructure covers a wide array of things that help a nonprofit function more efficiently. And, in general, it tends to be overlooked when we talk about supporting a nonprofit’s mission. We don’t really ask funders to support the support of our mission.

Mr. Klotz’s depiction of nonprofit overhead is a detailed rendering that is correct, but I just don’t think it will be all that helpful. That said I have nothing to offer as an alternative. It will be interesting to see where the conversation goes from here.

And if you’d like to help the Home’s infrastructure, you know where to go.


[1] Insofar as nonprofits rage.

[2] That is thanks, in large part, to the strength of our Fraternity, our Ambassadors, and how well we communicate.  You would be hard pressed to find a Mason in Virginia who hasn’t at least heard of us.

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