As social good organizations and funders increasingly focus on outcomes and impacts rather than inputs and outputs, nonprofit leaders and funders alike need to reframe their understanding of 'admin' or overhead costs. These are expenses incurred by a social-impact organization that cannot be directly or easily attributed to a specific project, such as administration, fundraising, technology, finance, human resources, learning development, and measurement and evaluation. Underfunding these areas limit the ability of nonprofits to build necessary infrastructure, innovate, and sustain their impact.
In Australia, nonprofit sector leaders and organizations are working collaboratively to address the challenge of these crucial but often underfunded overhead costs. Through the Reframing Overheads effort, they are creating a strategic shift in how overhead costs are communicated and funded.
F&P Australia (Fundraising & Philanthropy) featured an article on this topic. Below is an extract from that article, that covers my personal experience related to reframing overheads and the lessons learned from that interaction. This account was reported based on my keynote address in Brisbane, Australia.
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"A matter of principle championing overhead funding"
A matter of principle championing overhead funding
Fundraising expert Usha Menon has never met a donor she couldn’t educate. Yet even this talented trainer and thought leader has had challenges with funders about overheads. Here’s a story the Singapore-based consultant told at FIA Conference 2024.
Usha recalls the pivotal moment 20 years ago when she walked away from negotiations with a well-known grant-making organisation. At the time, she was the regional director at Habitat for Humanity International (Asia Pacific). She had gone to discuss a grant to rebuild 600 houses in Meulaboh, Indonesia, which was one of the places worst hit in the 2004 Boxing Day tsunami.
To the team’s delight, the grant-making organisation agreed to donate$10 million. However, there was a catch: the donation was exclusively for building houses. There was no provision for site visits, evaluation, technology or fundraising. Those ‘overhead costs’ couldn’t be included in their grant.
For Usha, this wasn’t going to work. “We needed to travel to the communities in the disaster recovery sites in Meulaboh, in the western part of Sumatra Island, to deliver the project. While Habitat for Humanity uses many volunteers for building houses, you still need program and community outreach staff and volunteer coordinators to recruit, train, deploy, monitor and support the volunteers.
“We also needed computers. In those days, the internet wasn’t as cheap, and mobile phone calls weren’t common, and when available, the cost was exorbitant. We also had to create fundraising campaigns and undertake project evaluation while working on the rebuilding program in a disaster-struck area, ”she recalls. Usha believed the donor’s resistance stemmed from a lack of education about overheads.
“I felt we hadn’t earned the right to accept that donation. I told the grant approval committee: ‘While we would love to work with you and we know that together we can make a great impact on the urgent housing needs in the community, I see that we have failed to adequately educate you on the importance of the costs of staff, technology and outreach for impactful change. Until we understand each other, I feel we can’t accept your donation’.”
Usha has always felt that organisations needed to be aligned in values to work well together, and she wasn’t feeling it. She also knew her decision could have gotten her fired. But for Usha, it was a matter of principle that overheads be part of the grant.
“I had done my homework, so this was no emotional response. I knew our organisation was the one that had the capabilities to take on a project of this magnitude.”
Three days later, the chair of the grant-making organisation called and asked her to return for another discussion. The board members had considered the line items in the budget, reviewed the proposal and accepted the reasoning for including overhead costs in the project. The board then agreed to increase the grant to $12 million, with the extra $2 million to cover overheads for this phase of the project. The rebuild went ahead and proved to be a great partnership.
Usha’s advice for fundraisers
1. Be bold and believe in your mission. Being bold and fearless when it’s the right thing to do is the responsibility of every fundraiser. Donors will then see you as their partner, working for a common goal. Stand up for your beneficiaries and explain why overheads are critical.
2. Be honest with donors. Discuss your organisation’s needs, including the costs of delivering programs and fundraising, and how their donations are vital to program delivery.
3. Educate funders about your operational needs, especially those who expect their entire donation to go 100% to the beneficiaries. Highlight that your organisation have costs to ensure the effective and efficient delivery of programs to beneficiaries and that providing overhead funding allows you to be more impactful. If donors can’t accept this, they may not be the best ones to collaborate with.
4. Be exceptionally good at what you do so donors will want to work with you and your organisation because they know they’ll get transparency, accountability and value for their money!
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The Reframe Overhead campaign in Australia and my experience in Asia, both underscore the critical need to reshape the dialogue surrounding overhead costs in the nonprofit sector. By educating funders about the essential nature of operational expenses and advocating for their inclusion in grants, nonprofits can develop robust infrastructures, foster innovation, and achieve lasting impact. This shift in perspective is crucial for the long-term sustainability and effectiveness of social impact organizations.
