Why Overhead Isn't a Dirty Word
For years, nonprofits have been judged by how little they spend on overhead. The lower the overhead ratio, the better the organization, or so the thinking goes.
But that thinking turns out to be flawed, and the research backs it up.
One study analyzing nearly 800 Habitat for Humanity affiliates found something striking. The top-ranked affiliate with the lowest overhead ratio built only 2 houses. Meanwhile, an affiliate with 32% overhead built 382 houses.
The lesson? A healthy investment in infrastructure leads to dramatically better results for your mission.
Here’s one analogy: A starving body can’t run a marathon (and that’s what social impact work is – a marathon). It needs fuel, rest, and support.
Research shows that when you adequately fund a nonprofit's overhead, you're not just paying bills, you're investing in capacity and enabling efficiency.
The Stanford Social Innovation Review even has a name for what happens when we fail to make these critical investments over time: the 'nonprofit starvation cycle.' Chronically underfunding overhead leads to weakened infrastructure, burnout, and stagnation – all things that actively hinder your ability to serve your community.
So what does underinvesting actually look like in practice? Here are three areas where nonprofits often short-change themselves:
1. Technology and Operations
When budgets are tight, technology is often the first thing to get cut. Old software, manual processes, and outdated systems are a reasonable place to save money. But the cost of not investing here adds up quickly.
Without the right tools in place, your team spends hours on tasks that could be automated. Data gets lost. Donor relationships slip through the cracks, and your staff burns out trying to compensate for systems that just don't work.
Think about it like this: What’s one tool that, if invested in, could save your team hours or days each month? Is the cost worth the time you get back being able to focus on serving your community?
2. Staffing
Here's a hard truth: underpaying your staff isn't a badge of honor. It's a risk to your mission.
According to research by Independent Sector, 1 in 5 nonprofit workers is an ALICE worker, meaning they are Asset Limited, Income Constrained, and Employed. These are people working full-time for causes they believe in and still struggling to make ends meet.
Imagine working for a nonprofit that’s fighting food insecurity… while struggling with food insecurity yourself because you can’t pay your bills.
The impact on organizations is real. The Social Impact Staff Retention Project reports that 7 in 10 nonprofit employees are actively looking for new jobs, with many planning to leave the sector entirely.
Every time a staff member walks out the door, they take institutional knowledge, donor relationships, and program expertise with them. Replacing them costs far more than simply paying them fairly in the first place.
If you haven’t done this yet, here’s a simple place to start thinking about this:
Take a look at your current staff salaries and compare them to sector benchmarks in your region. A great resource is the Nonprofit Compensation Report from your local nonprofit association. Even small, incremental salary increases show your team that they are valued and worth investing in.
3. Marketing and Communications
Many nonprofits treat marketing as a luxury, something to invest in once everything else is funded. But without consistent visibility, even the most impactful organizations struggle to attract donors, volunteers, and partners.
When your organization isn't showing up consistently online, in people's inboxes, or on social media, you become invisible. Invisible organizations don't attract funding; they can’t grow.
The reality is, marketing isn't about flashy campaigns or big budgets. It's about showing up consistently and telling your story in a way that connects with the people who care about your cause.
My advice on this one: Test out a few marketing techniques and see what resonates with your audiences – then make the investment as soon as you can to go deeper on those strategies.
Try it this week 🚀
Look at your nonprofit through the lens of infrastructure this week. Pick one area, technology, staffing, or marketing, and ask yourself. Are we investing enough here?
Brainstorm one small step you can take to start closing that gap.
