Dan Pallotta

The Dysfunctional Metrics for Non-Profit Spending

Humanitarian Comments (6)

Non-profits are often measured and rewarded for how little they spend.

In fact, allocating lower budget percentages towards overhead is viewed by many as a weightier metric for success than an organization’s ability to scale impact, sustain growth, and provide impactful services. In my opinion, this common view of non-profit spending is broken and dysfunctional. While it may be noble to get as much funding “to the field”, this business model often works against an organization’s ability to do the very thing that their mission and vision states.

I think donors as well as organizational leaders must rethink non-profit spending. The thoughtful strategy for scaling mission and impact should take precedence over lowering the overhead percentage. In many cases, we will help more people by spending more in the right areas that lead to great ROI.

Please take a moment to watch this insightful TED talk by Dan Pallotta. He challenges us to not equate frugality with morality and start rewarding charities for their big goals and big accomplishments (even if that comes with big expenses).

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On March 15, 2013
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6 Responses to The Dysfunctional Metrics for Non-Profit Spending

  1. Andrew says:

    Totally agree. The focus on overhead as a correlative factor with impact is absolutely ridiculous and causes many nonprofits to under-invest in overhead that could actually make the money they spend on programming more effective. It has also led to a somewhat sad state where nonprofits have become very good at hiding overhead. Everyone does it and so they twist their numbers around so that 80% of their CEO’s salary is actually in the programs budget, etc. It’s led to a very sad state of affairs.

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  3. Scott says:

    I watched this TEDtalk this morning and couldn’t agree more. Very well articulated and really made me think. The bake sale example was classic. I heard an interview you did recently and I’m really interested in your book. I have a passion/calling along with some big ideas for a group mentoring organization walking alongside fatherless youth in our community. I’m currently doing this on a small scale in my spare time; however, I’m stuck on how to turn this into something larger. Something that more people hear about and want to contribute to (time or money). Something I can devote all my time to. Do I go a traditional non-profit route and raise support? I’m more excited about a social enterprise? But what? Definately not asking you to solve this for me, but any ideas, tips, resources you could point me to would be great! Thanks for letting me rant. I’m really enjoying your blog.

    • Charles says:

      Thanks Scott for the note!

      Good to hear that you resonated with the TED Talk. In regards to your question, why don’t you start by reading my book. It actually helps you navigate some of these decisions. We could reconnect after you read it! Look forward to hearing back from you.

      • Scott says:

        Thanks Charles. Your book is ordered and I’m really looking forward to it. Hope to connect at some point!

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