New Study: Low Nonprofit Overhead Does Not = Greater Efficiency

Print Share on LinkedIn More



May 2, 2013;The Guardian

Amid ever-increasing calls to ensure that nonprofit organizations reduce their administrative overhead expenses as much as possible, an article in the Guardian in the U.K. cites research suggesting that, in fact, the highest performing nonprofits spend more on administrative overhead than their less effective peers.

Abby Young-Powell’s article references research from GiveWell and Giving Evidence which shows that, in 2011, charities that would be recommended as effective in their work spent an average 11.5 percent of their costs on administration. Conversely, charities that were not recommended as effective spent less, to the tune of 10.8 percent. (These results are based on studies of 265 charities.) Similar numbers had been recorded in 2008 and 2009.

In England, a committee of Parliament is considering setting a cap on acceptable levels of administrative overhead for nonprofits. As NPQ has reported, there are similar initiatives in America, such as one forwarded by Gov. Andrew Cuomo of New York State.

One of the authors of the research, Caroline Fiennes, argues that assessing a nonprofit by the amount of administrative overhead is akin to assessing a teacher based on the number of sticks of chalk they use, or the amount of prescription drugs used by a doctor. These figures may reveal some information, but certainly do not reflect effectiveness.

GiveWell , one of the organizations quoted by the Guardian as conducting the research, ranks what it considers to be the top charities in the world, recommending that these organizations are worthy of donations. While overall cost-effectiveness is one of the criteria in the recommendation, the organization also says: “Because of the many limitations of cost-effectiveness estimates, we give estimated cost-effectiveness only limited weight in recommending charities…”

Indeed, it is often hard to ensure apples are being compared to apples when looking at administrative overhead. Nonprofits report their spending in wildly divergent ways, either through lack of knowledge of the right way to report, or in the effort to hide what could be perceived as excess spending.

As these writers argue, there are many cases of overspending. But nonprofits have to make some investments in administrative overhead. There are the costs used to assess the impact of a program, for example, or to establish practices that ensure compliance. In a video posted on , Dan Pallotta argues quite convincingly that it is completely wrong-headed to worry about administrative overhead expenses. Why care about the expense, he says, if the nonprofit is fixing the problem?—Rob Meiksins 

  • Kevin Tucker – YNPN Pittsburgh

    Very interesting read, Rob. Thank you for shedding light upon this increasingly popular issue.

    Your work in this article will be a feature topic in an upcoming event hosted by the Young Nonprofit Professionals Network of Pittsburgh (YNPN Pgh) on May 28th. The event, entitled “Moving Beyond the Headlines,” will task local nonprofit titans with responding to the issues presented in several recent publications, including “New Study: Low Nonprofit Overhead Does Not = Greater Efficiency.”

    More information can be found at, or click on the link below to register. Please contact me if you would like to become involved in the event, in one capacity or another. On behalf of all of YNPN Pgh, thank you for your continued coverage of these important issues.

  • Rob Meiksins

    Thanks for the kind words, Ken. I am very glad to hear you can use the newswire posting. Good luck with you event.

  • W. anderson

    The premise of this article which I understand to be that Not-for-Profits spending more on administration is better than spending less ‘automatically’ translates into more efficiency if by comparison the less spender is not as efficient, although the criteria for such comparison are unstated nor proven.

    A ‘non scientific’ comparison that would prove quite the opposite is one where several local and national politicians used leading edge “Free/Open Source Software” (FOSS) political campaign management software and/or Cloud Services to gain significant better results against their opponents that deployed the SalsaLabs solution, which was prohibitively more expensive.

    These convoluted stories in support of costly ‘proprietary’ technology solutions and to promote profligate attitudes by their customers have never proven even equal to the better quality, more flexible and scalable FOSS solutions like CiviCRM or the Plone CMS/Portal based eCampaigning tools.

    Our own investigation of SalsaLabs services have shown them coming up short on robustness (unless paying for additional services at a high price) and particularly in security against vulnerability intrusions and Internet cyber attacks.

    Organizations charged with the well being and good fortune of Not-for-Profits should not be solely propagating for commercial enterprises.