Worth a read: talking about overhead to donors
Donna Day Lafferty | 6 February 2023 | Blogs
The first in a series about books, journal articles, and reports that fundraisers might find inspiring.
The discussion of core costs, or overhead, in fundraising materials is a particular bug-bear of mine.
Mainly because what makes core costs low can be outside of the charity’s control. Comic Relief, with
large sums to invest before distribution, state that:
“No money donated directly by the public goes to pay our running costs. We cover these in
other ways – such as returns on investments […] .”Advertisement
Does this type of communication fuel an unhelpful narrative that goes along the lines of “charities
that do it right don’t spend public donations on running costs”? Thus, driving donor demand for ever
lower overhead ratios, with the long-term potential to create poorly governed and managed
charities that are less effective and efficient. Or administrative staff that are stretched to breaking
point.
This is not a new topic, there is a lot of literature out there already (Bennett, 2009; Karlan & Wood,
2017; NfpSynergy & ImpACT Coalition, 2006) .
Small overhead isn’t the same as cost-effective
Caviola et. al.’s (2014) journal article on this topic cuts straight to a useful point, small overhead isn’t
the same as cost effective. I don’t know if we say that often enough. Then they think about what to
say to help donors make choices that align with what really does matter to them, which is handy.
Like all good academics, they offer a nifty term that can leave you asking, what’s that when it’s at
home: ‘evaluability bias’. In a nutshell, donors use data they can make sense of, or to quote them
“the tendency to weight the importance of an attribute in proportion to its ease of evaluation.”
The punchline in their abstract that made me sit up was:
“when presented with a single charity, people are willing to donate more to a charity with
low overhead ratio, regardless of cost-effectiveness. However, when people are presented
with two charities simultaneously—thereby enabling comparative evaluation—they base
their donation behavior on cost-effectiveness…”
It is in some ways a simplistic analysis of giving. They state that “If the aim of charitable donation is
to maximize the impact of one’s donation […] then people should prefer to donate to those charities
that are most cost-effective.” We know that giving decisions are more complicated than that
(Bekkers & Wiepking, 2011). But when we say how little (or how much) we spend on overhead, we
are talking to that element of donor decision making. So, it remains a useful study even if only to
guide your discussion of overhead.
They touch on the phenomenon of what you measure, becomes what’s important, and how this has
potentially impacted the way we communicate with donors:
“as the overhead ratio is more readily available for most charities because it is straightforward to calculate, it becomes easier to choose a charity based on this aspect.
“Measuring cost-effectiveness, on the other hand, can be extremely difficult and requires
extensive empirical research…”
Although my professional fundraising experience says that measuring overhead isn’t that simple
(The Urban Institute and Indiana University, 2004) . I’ve been involved in the arguments about what
goes in, what doesn’t, and who decides. But I take their point. Actually, we know impact reporting is
important but difficult (Breckell, Harrison, & Robert, 2010) , and the discussion of comparing cost
effectiveness may be just a fraught with pitfalls as comparison of overheads.
SEE ALSO: 13 fundraisers share their fundraising bookshelves (4 February 2020)
In the Caviola et. al.’s (2014) they compare the effectiveness, impact against cost, of two charities. It
is this comparison that drives the donor behaviour in favour of effectiveness rather than low
overheads (warning, this is theoretical giving, but read their justification for the research model).
That’s a tricky move for us to take in fundraising material, we’re hardly likely to seek to discredit
each other, thankfully it’s not how the nonprofit sector works.
I once worked for a canine charity, which provided assistance-dogs. The fundraiser before me had done a very good job of comparing the cost of an assistance dog with the cost of an equivalent service from the NHS. In comparison we are stunningly cost effective, no slight to the NHS but trained dogs are just cheaper than care assistants.
My recommendation, before you decide how and when to include details of your overheads, is to
give this paper a read. It’s not a how-to, but it might help you, to help your donors, to reduce their
‘evaluability bias’.
Bibliography
Bekkers, R., & Wiepking, P. (2011). A literature review of empirical studies of philanthropy: Eight
mechanisms that drive charitable giving. Nonprofit and Voluntary Sector Quarterly, 40(5),
924-973.
Bennett, R. (2009). Factors influencing donation switching behaviour among charity supporters: an
empirical investigation. Journal of Customer Behaviour, 8(4), 329-345.
doi:10.1362/147539209X480972
Breckell, P., Harrison, K., & Robert, N. (2010). Impact reporting in the UK charity sector: CFDG,
Charity Finance Directors’ Group.
Caviola, L., Faulmüller, N., Everett, J. A., Savulescu, J., & Kahane, G. (2014). The evaluability bias in
charitable giving: Saving administration costs or saving lives? Judgm Decis Mak, 9(4), 303-
316.
Karlan, D., & Wood, D. H. (2017). The effect of effectiveness: Donor response to aid effectiveness in
a direct mail fundraising experiment. Journal of Behavioral and Experimental Economics, 66,
1-8. doi: https://doi.org/10.1016/j.socec.2016.05.005
NfpSynergy, & ImpACT Coalition. (2006). Getting the Message Across: Practical strategies to help
charities to change the way stakeholders see them. Retrieved from NfpSynergy.
The Urban Institute and Indiana University. (2004). Lessons for Boards from the Nonprofit Overhead
Cost Project. Retrieved from The Urban Institute and Indiana University.
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About Donna Day Lafferty
Donna Day Lafferty, MSc, is a Senior Lecturer at the University of Chichester, UK. She has worked as a professional fundraiser and project manager since 1997. She founded the first undergraduate degree dedicated to non-profit fundraising in 2014, and the first dedicated master’s degree in 2023.
She is also co-author, with Beth Breeze and Pamala Wiepking, of The Fundraising Reader, a one-stop body of over 80 pieces of literature that shine a light on fundraising as a practice and a profession.