William Bedsworth, Ann Goggins Gregory, and Don Howard

Donors tend to reward organizations with the “leanest” profiles; they also skew their funding towards programmatic activities. Nonprofit leaders, in turn, feel pressure to conform to funders’ expectations by spending as little as possible on overhead—and by under-reporting overhead costs.

These behaviors describe a vicious cycle that has already been recognized in the nonprofit sector, but persists nonetheless. This article offers steps towards breaking down the cycle, based in large part on in-depth profiles of four youth-serving nonprofits that have managed to expand their capacity in critical ways despite the cycle’s pressures.

Funders, for example, can support organizations with general operating funds, when feasible, and pay a greater share of administrative and fundraising costs in use-restricted grants. Nonprofit leaders can develop strategies that explicitly recognize infrastructure needs and communicate their logic to their boards. Funders and nonprofit leaders alike can foster open discussions about overhead. Ultimately, such dialogs can help all parties align their focus on what matters most—achieving more for beneficiaries over the long term.