The term “overhead” is actually quite nuanced. Donors often interpret the efficiency and effectiveness of an organization based on its fundraising and administration costs.
Any percentages of overhead within nonprofits are usually comprised of two things: accounting and assignment. “Assignment” refers to how an employee is utilized. For example, an executive’s function may comprise 50 percent field operations, 25 percent fundraising, and 25 percent administration and management. The percentage of time given to each function is referred to as an employee’s “footprint,” and also helps inform the allocation of funds toward salary and expenses.
More than the numbers, well-informed donors often respond on the basis of an organization’s credibility. While there are some who may only care if the overhead percentage number is low, it is helpful to keep in mind that donors often have a higher expectation that overhead percentages be lower for the nonprofits they support than consumers typically have for for-profit businesses.