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Monday, March 14, 2011

The "20% rule" from a donor standpoint

As a donor to several nonprofits, I felt oddly convicted by the Bridgespan article this week. As I have been learning more about nonprofits and about nonprofit reporting this semester and last, I have become one of "them," the funders who base giving decisions on financial information. While this is not the only criteria for how I decide to donate money, I would be lying if I said it wasn't important. Especially now as I have been looking at a variety of American and International nonprofits for different courses, I notice that I am quick to find the annual report and even quicker to find the page with the pie graph telling me the percentage of total funds which go to overhead costs. In theory, this always seemed like the smart thing to do, and we have discussed some reasons why in class. For example, what a nonprofit pays its workers says something and, in some cases, there may be a cut-off point for CEOs and other executive salaries where a donor has to ask why the money isn't being spent on direct programming. However, in reading the Bridgespan article, I think I have a more clear view of the effects that the "20%" expectation has on nonprofit work and impact. The examples used, especially about technology and competitive salaries for well-trained staff, make a lot of sense. It is clear that spending overhead money on these things will make a nonprofit more effective in the long term.

What were other responses to the article, related to expectations of low overhead costs? Have others seen this play out in your experiences? Has the famous spending pie chart influenced your giving decisions?

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