Nonprofit Administrative Costs Help People, Too, So Why Won’t Donors Fund Them?

In the social and public sectors, internal branding with staff, funders, donors and volunteers matters. One area where this is apparent, even critical, is nonprofit administrative costs. These costs are also known as operations, overhead, infrastructure, or as one commentator put it: Things-we-need-in-order-to-do-our-job-of-helping-people-dammit.

No one likes funding these costs. The way that we talk about nonprofit administrative costs influences donors’ perceptions, which impacts funding.

One part of the problem is that social and public sector organizations don’t always know or acknowledge what it takes to fully fund the organization. But the bigger problem, as described in this Fast Company article, is how we name these costs.

Naming Nonprofit Administrative Costs

When I worked in a nonprofit, administrative costs were known as indirect costs. Typically, they were limited to 10-15 percent of a total project budget. I understand that people want their donations and tax dollars used effectively and efficiently. But restrictions on indirect costs at my nonprofit led to two types of false economies:

  • Insufficient investment in writing grant proposals and RFP responses. This vital work of seeking additional ways to carry out the organization’s mission was essentially volunteer work. Researchers and principal investigators wrote proposals and responses in slivers of down time, or during their personal time on nights and weekends.
  • Insufficient investment in promotion and distribution of research findings, best practices, policy studies, training events, and other goods and services of the organization. Goods and services without promotion and distribution are useless. It’s like a party without invitations. A research study that no one reads has no impact. It might as well not be funded.

Terms like overhead costs, indirect costs, and administrative costs sound ugly and unrelated to your organization’s mission. Alternative terms such as soft costs, existential costs, and core costs are trendy but vague.

Personally, I like the term “infrastructure costs.” Infrastructure gives you a strong metaphor as a foundation. A house, a city, a country doesn’t function without infrastructure. Your organization is no different. Beyond that, infrastructure is vital for production, distribution, and communications, all tasks your organization performs.

Tell Donors A Story To Help Them Understand, And Care

Your donors and funders care about furthering your mission. Do your administrative costs, such as your finance and accounting staff, further your organization’s mission? To you, it seems obvious that they do. For instance, you couldn’t function effectively, or even legally, without professional accounting help. It’s like trying to run an army but not paying for the mess hall and cooks.

Your challenge is telling your funders and donors the organizational narrative of how your administration furthers your organization’s mission. Here are some tips that can help:

  • Use the Pixar Pitch format to tell a before-and-after story of how you benefited from increased administrative capacity. Seeing your initial struggle, your “one day” change, and the fairy tale results helps donors grasp the impact of funding better administration.
  • Use the hero’s journey to tell how an administrative staffer member completed a quest to restore order in a part of your organization.
  • Use infographics to connect the dots for donors. Easily understood numbers showing administration’s contribution to your mission can combat dismissive attitudes.
  • Promote the contributions of your administrative staff stars, just like you promote your executives, service leaders, volunteers, clients and donors. You can include administrative stars in social media posts, funding requests, and annual reports.

What’s your best story about administrative heroism?

Administration Supports Scale

In the TED talk shown at the top of this post, Dan Pallota makes a powerful and multi-faceted case for removing the financial shackles from social and public sector organizations. One key point is that scale requires administration. Defeating the five villains of the social good on a global scale requires promotion, distribution, and administration on a global scale. That statement is true for nonprofit and for-profit organizations alike.

When we deny nonprofits the administrative support needed to scale, we deny them the chance to create large-scale impact. But isn’t that why people support non-profits in the first place–to have a major impact in the world?

The next time you heard someone grumble about overhead or indirect or administrative costs, ask them about scale. If they have a good answer, let me know.

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