What Are Administrative Costs for a Nonprofit?
Administrative expenses are expenses an organization incurs that are not directly tied to a specific core function such as manufacturing, production, or sales.
Calculating Administrative Overhead for Nonprofits
Overhead is calculated by adding Management & General expenses to Fundraising expenses, then dividing by total expenses.
The Nonprofit Starvation Cycle
The nonprofit starvation cycle describes a phenomenon in which nonprofit organizations continuously underinvest in their organizational infrastructure in response to external expectations for low overhead expenditure.
Netplaces.com Recommendations
Netplaces.com advises non-profits to budget according to the following outline: 80 percent for the non-profit’s mission and purpose, 10 percent for administration costs, and 10 percent for fundraising expenses.
Administrative Costs Percentages for Charities
In general, administrative costs below 15 percent are considered best. However, there are variations; for example, museums may warrant higher costs up to 17.5 percent, while food pantries/banks and humanitarian supply charities should have lower overhead with a cap of costs around three percent.
Shocking Statistics
- Only 15% of donations reach the intended beneficiaries.
- On average, 30% of funds are used for administrative expenses.
- Less than 10% of charities disclose their administrative expenses.
Overhead Costs for Nonprofits
Overhead is generally defined as a combination of “management,” “general,” and “fundraising” expenses.
Charity Financial Statements Research
To prevent falling for scams, research should start with a call to the charity for financial statements.
Charity Effectiveness Evaluation
Recent thoughts suggest charities should be valued by effectiveness over costs. Charity Navigator gives highest rankings to 85% or more spent on programs, while the Better Business Bureau recommends 65% or more.