Charity spending on overheads has been back in the news. Again.
Two articles taking opposite stances have made their way into my inbox in the past couple of weeks. First to arrive were comments from Gina Miller criticising, among other things, charity spending on ‘layer upon layer of staff and administration’. And second was Dan Pallotta’s TED talk on ‘why the way we think about charity is dead wrong’, making the point that a focus on overheads can prevent charities from innovating, scaling up and having a bigger impact.
The sector has been quick to counter aspects of Gina Miller’s argument, whilst Dan Pallotta’s TED video has quickly climbed the celebrity ladder with over 1.2 million views. And yet, we end up having the same conversations and debates every year in a seemingly never-ending cycle.
How can we move the conversation about overheads on?
Clearly donor education is crucial. NPC has written many, many times in the past why overheads are not a good way to assess the effectiveness of charities—and many commentators and charities have been doing the same. We need to keep pushing this message.
But the sector needs to change what it’s doing as well. Crucially, charities need to stop talking about administration costs.
Because what surprises me is that, despite much hand-wringing and indignation, the sector continues to give low overheads or admin costs as a reason why donors should give. It’s not unusual for a charity to say in fundraising or marketing literature that its overheads are less than 10%, or that 89% of donations go straight to the cause. One of the most high profile examples in recent years was Oxfam’s 100% giving campaign in 2011. The campaign’s partner, PayPal, agreed to pay Oxfam’s running costs (in this case, for governance and fundraising) for a month, meaning that 100% of every pound donated would ‘go to the cause’.
Oxfam acknowledged at the time that these admin costs are essential to running its operations. But by shaping the ask for donations around overheads, as something that can be avoided or that ought to be minimised, we are perpetuating the idea that this is a legitimate way of judging whether a charity deserves funding or not. Can we really blame donors who ask about admin costs when we’re often feeding them this very information?
This cycle is hard to break. But many readers won’t be surprised to hear that, at NPC, we believe one solution is for charities to communicate how they are achieving the change that they seek. And donors should—and do—care about this too. Our Money for Good UK research found that 60% donors care about what their money achieves and that £665m could be released if charities talked more effectively about impact.
We know this won’t always be easy: complex social change is much more difficult to explain, and (on the face of it) less compelling to donors than an easy-to-grasp admin ratio. But this is something we need to do if we’re going to break the cycle and finally put the admin costs issue to rest.