Overhead rates across for-profit industries vary, with the average rate falling around twenty-five percent of total expenses. This spending supports vital processes such as information technology systems, financial systems, and the professional development of their staff. Yet in the nonprofit sector, where such investments are equally vital to successful outcomes, funders commonly hold organizations to a twenty percent overhead standard, and more often ten to fifteen percent.
Specifying that your funding can be used only for program-related costs can have a negative impact on a nonprofit’s ability to function effectively. Depriving a nonprofit of overhead funding can lead to chronic under-investment in systems, leadership, training and fundraising processes. For more on this important topic, see "The Nonprofit Starvation Cycle."
See also: “Don't Compromise 'Good Overhead' (Even in Tough Times)”