Guest Author: Ernie Smith, Associations Now
Research shows that many donors make their giving decisions based on how much an organization spends on overhead, and the pressure to cut costs can starve nonprofits of critical operating resources. But analysts have proposed ways to overcome the “overhead myth.”
With Giving Tuesday this week and year-end donations on many people’s minds, donors are making a lot of decisions about their charitable giving right now. And many are likely focusing on the wrong metric in evaluating which organizations should get their money.
“Overhead aversion” often has an outsize influence on donors’ giving decisions, as they prioritize low administrative expenses over other, arguably more important mission-related factors, according to a 2018 study [registration] published in the Journal of Behavioral and Experimental Economics. And charity rating firms such as Charity Navigator have reinforced that habit by evaluating nonprofits on the overhead metric, critics say.