The Reality of Nonprofit Overhead Costs

Experts Advocate for a New Pay-What-It-Takes Model

The Stanford Social Innovation Review recently published an article shedding light on the “starvation cycle” that nonprofit organizations face while attempting to secure funding for “indirect costs,” better known as nonprofit overhead costs. Many funders are not willing to pay for overhead, or they restrict overhead funding to 10-15%, leaving organizations unable to operate effectively.

The SSIR article utilizes research from The Bridgespan Group to gain an understanding of the actual indirect costs of real nonprofits broken down by sector. The authors of the article, as well as many in the community, are calling for a new approach, a Pay-What-It-Takes model, which advocates for a more practical view of nonprofit operations and moves the emphasis from what it takes just to fund a program to what it takes to fund a program that makes an impact. Hopefully, with this new model, the end of this all-too-familiar struggle is in sight!

We encourage all nonprofits to take a closer look at their real costs and engage in a more honest dialogue with funders. Be clear about what your true needs are and how they will yield the desired outcome. As a community, we can help change this damaging myth of what it should, or should not, cost to make a difference in the world.

Read the entire Stanford Social Innovation Review article here.

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