MIP eMagazine: Best Software

Measuring and Understanding Overhead Costs

In an effort to increase understanding and to improve measurement and reporting, researchers at the Urban Institute have spent five years gathering data and exploring the issues of fundraising and cost reporting. The result is a comprehensive look at the challenges facing many organizations.

Donors expect nonprofits to have low fundraising and administrative costs, and the federal government’s Combined Federal Campaign requires it – participating organizations must certify that these costs constitute no more than 25% of their total revenues. Therefore, it is critical that nonprofits make the most of their fundraising efforts, and that they report on them accurately.

The goals of the Nonprofit Overhead Cost Study were to:

Understand the scope and sources of variation in fundraising and administrative costs, and to identify problems or inconsistencies in their measurement and reporting.
Develop and disseminate accessible reports, tools and guidelines to the public, practitioners and policy-makers.
Initiate a fact-based dialogue on how to ensure comparable and uniform reporting of these costs.

As Tom Pollack of the Institute explained at the 2004 MIP User Conference, the researchers conducted extensive surveys, interviews, case studies and analysis to learn about the challenges of cost reporting, and the issues they raise for everyone from nonprofit managers to government regulators. While some questions remain unanswered, the study revealed that fundraising methodology is vitally important – results are not the same, and the costs vary quite a bit by size and subsector. The research also shows that low overhead costs do not necessarily translate to a more successful organization. Efforts to assess and compare organizations based on this criteria can be flawed, as nonprofits that spend too little on infrastructure are less effective than those that spend reasonably. While accurate, standardized reporting is important, there is no one-size-fits-all method for assessing an organization’s effectiveness.

Further guidance from the Institute will be coming later this year. Visit www.coststudy.org for more information.

MIP Fundraising solutions make it easy to track and report on the costs associated with raising funds and running your nonprofit. From the smallest nonprofit to the largest foundation, MIP Fundraising has simplified, streamlined reporting to make your accountability tracking more efficient.