Most donors never ask what percentage of their gift goes to overhead. In 25 years of sitting in donor meetings, I can count on two hands the number of times an individual donor has raised the question with me. Individual donors give because they believe in your mission and in the people running your organization, not because they audited your 990.
But some donors do ask. Foundation program officers ask more often, and you’ll occasionally hear it from a business owner who reads financial statements for a living. Sometimes it’s a board member who just heard a podcast about charity ratings and brings it up at your next meeting.
When it happens, don’t be scared of it. Most of the time, the donor simply wants to make sure their money is going to make a difference, and that’s a question you should be glad to answer.
Start With Impact
Almost every donor who asks about overhead is really asking about impact. The question underneath the question is, “Will my gift matter?”
So answer that question first. Talk about what a gift at their level makes possible, and be specific about it. “A gift of $10,000 lets us enroll twelve more students in our after-school program this year, and last year 94% of those students moved up at least one reading level.”
The reason that answer works is because it ties the donor’s dollars to a concrete result. Before you walk into any donor meeting, you should be able to give that kind of answer for two or three gift levels without looking at your notes.
For most donors, that’s the end of it. They hear the impact, they nod, and the conversation moves on.
But Have a Real Number Ready
Some donors will press. “That’s great, but what percentage actually goes to programs?” When that happens, you must have a number ready. Fumbling, changing the subject, or saying “I’d have to check on that” tells the donor you either don’t know your own organization or you have something to hide.
Many nonprofits don’t have a real answer to this question, because they’ve never done the work to figure it out. They take whatever their bookkeeper labeled “management and general” on the 990 and assume that’s their overhead. It usually isn’t.
Much of what you think of as overhead is actually programs. Your executive director probably spends a big chunk of every week on program work: meeting with program staff, visiting sites, talking with the people you serve. That portion of his salary is a program expense, not overhead.
The same goes for your office. If the program team occupies half of your space, half of your rent is a program expense. So is the share of your insurance, your utilities, your technology, and your finance director’s time that supports program delivery.
Your finance team should sit down and do a proper functional allocation that accounts for all of this. Do it honestly, without gaming anything, and you’ll probably discover what most organizations discover: the program percentage is meaningfully higher than the number they’ve been quoting.
Then write the number down. Make sure the executive director, the development team, and every board member who talks to donors knows it and can say it without hesitating.
Then Go Back to Impact
Once you give the number, don’t linger on it. Say it plainly, add a sentence of context if you need to, and return to impact. “About 84 cents of every dollar goes directly to programs. And the reason that number matters to me is what those dollars did last year: 340 nights of emergency shelter for families who would otherwise have been on the street.”
The transition is the important part. You’ve answered the question, so nobody can accuse you of dodging it. Now you’re putting the percentage in its proper place, as the means to an end, and showing the donor what that end is: making a real difference in somebody’s life.
If the donor wants to go deeper into the financials, invite them to. Offer to send the audited statements, or to set up a call with your finance director. Serious donors respect an organization that opens its books without flinching, and the offer itself often settles the matter. (For more on this, read Building Donor Trust From the Ground Up.)
So the whole sequence is this: lead with impact, give your number with confidence if the donor presses, and then go right back to impact.
The donor who asks about overhead is doing their due diligence, and you should treat the question as a good sign (because it usually is). In my experience, the donors who ask are often the ones who write the biggest checks once they’re satisfied. Be ready for them!
Photo Credit: Gerd Altmann from Pixabay
