Overheads or investment? A new perspective on nonprofit “admin” costs

Guest blog post by Lee Durbin (@lddurbin)

In February this year a story broke about the appalling conduct of some of Oxfam’s staff in Haiti following the 2010 earthquake, and there was understandable outcry. Channel 4 news spoke at the time with Sir Stephen Bubb, the former head of the Association of Chief Executives of Voluntary Organisations (Acevo), and although it is worth watching the interview in full Sir Stephen begins by highlighting a challenge for donors in light of the Oxfam scandal: “Administrative overheads are completely crucial for delivering effectively on the front line”. Without such investment, he argues, charities cannot develop proper processes, procedures, systems, and checks that would more successfully guard against the behaviour that Oxfam was rightly criticised for.

This is a compelling argument, but what about the argument for investing in fundraising specifically? How do we convince donors that a charity’s fundraising “overheads” aren’t a necessary evil which detract from the causes they care about, but are instead crucial forms of investment enabling charities to perform greater good?

This is more difficult to sell to donors than the idea that effective safeguarding needs to be financed, but in the video I’ve embedded below the great Ken Burnett is quite right when he states that “we won’t achieve the revolution we need unless we’re prepared to invest”. Ken spends the previous 6 minutes demonstrating why this form of investment provides tremendous returns over the long term (I do recommend watching it, together with the other “lightbulb moments”). So why aren’t charities heeding this call?

A puritanical opposition

There’s a well-known TED talk by Dan Pallotta where he talks about what holds US nonprofits back from investing in their fundraising programmes. Dan’s ideas have been subjected to criticism in some quarters, but I think he’s right to point out that the reluctance to invest is rooted in the idea that charities should give as much money to the cause and keep as little as possible for themselves (he traces this thinking back to the Puritans). He identifies five “areas of discrimination” that are worth considering within this context, and two in particular that are pertinent to this post:

  • Advertising and marketing: “If we tell the consumer brands: ‘You may advertise all the benefits of your product’, but we tell charities,: ‘You cannot advertise all the good that you do’, where do we think the consumer dollars are going to flow?”
  • Taking risk on new revenue ideas: “When you prohibit failure you kill innovation. If you kill innovation in fundraising, you can’t raise more revenue. If you can’t raise more revenue you can’t grow. And if you can’t grow, you can’t possibly solve large social problems.”

This form of ideology is common among the general public, donors, and even charity execs themselves. It inevitably leads to the question: “What percentage of my donation goes to the cause versus overhead?” This question, as Dan observes, presents overheads as something that detracts from the cause, and as a result “it forces organizations to go without the overhead things they really need to grow in the interest of keeping overhead low.” Claire Axelrad has written at length about the necessity of investing in fundraising and puts it more simply: there’s no free lunch in fundraising.

Seeing the connections

This is a new idea for many, and one that we need to communicate often and well. However, as Nicky Case’s sketch below argues new ideas aren’t simply “stored” like files in a cabinet – they need to connect, and an effective way of connecting ideas is to dispel misconceptions using a multi-modal form of presentation.

connections

Taken from Nicky Case’s zine, How Do We Learn? http://blog.ncase.me/how-do-we-learn-a-zine/

So if the perception exists that fundraising investment is an undesirable overhead, how do we therefore dispel this misconception using a multi-modal presentation in order for the idea to connect?

Data visualisations can do this effectively, and Nonprofit Quarterly addresses this some time ago when they recognised that “we need a new way to communicate about the true costs of our programs and the vital importance of strong organizational infrastructure”, pointing out how existing data visualisation approaches are counterproductive and require reevaluation. To address this, the author redesigned the tired old pie charts familiar to readers of nonprofit annual reports, showing instead how investment can “grow the pie” as Dan Pallotta put it.

Whilst I applaud this effort, I had a feeling that the end result didn’t go far enough somehow, but I was unsure why. After a Slack chat with a former colleague of mine (thanks @jdistorey!), a question emerged which I think any donor reading Nonprofit Quarterly‘s post is likely to ask: if a charity chooses to increase its investment in fundraising, does that increased investment lead to more or less fundraised income over time?

Five years of fundraising at Oxfam

Given that Oxfam has been in the news recently I decided to use them as an example, and pulled the required figures from their annual reports archive. I limited my data only to Oxfam’s expenditure on public fundraising and their income from public donations, appeals, and fundraising events (i.e. excluding governments grants and the like). I chose the five-year period from 2012 to 2016, and using Tableau (my data visualisation tool of choice) I visualised the change in Oxfam’s expenditure and income during this period. You can see the chart below (click on the image to see a higher-res interactive version via Tableau Public):

Fundraising expenditure

The story told by this simple chart is, I think, quite compelling: in the year that Oxfam invested £2M less in their fundraising efforts, they also raised £37.2M less than they had the previous year. But then by 2016, and after years of consistently increasing fundraising investment, they raised £42.3M more than the previous year.

That’s quite staggering, but the chart also shows how it takes a little time for fundraising investment to pay off (something that Matthew Sherrington addressed in his invaluable piece on the curse of the ROI fundraising ratio). Between 2013 and 2014 Oxfam switched from a year-on-year decrease of £2M in fundraising investment to a £5M increase, but whilst in 2014 they raised £7.2M more in income they raised a phenomenal £35.1M more in 2015.

We kept charity overheads low

“Our generation does not want its epitaph to read: we kept charity overheads low.” That’s how Dan Polletta rounded off his talk, and whilst I couldn’t agree more with the sentiment I do recognise the ongoing challenge of convincing donors and the general public (and the odd charity exec) of why fundraising investment significantly benefits the causes they care about. Oxfam’s accounts show that modest but consistent growth in fundraising investment can accompany massive growth in fundraising income, but it’s only by looking at changes over time that we truly see this – a snapshot in time represented in a pie chart isn’t going to cut it. We owe it to our donors and the causes they support to make this case with the clarity it deserves.

I’m the first to admit that my data visualisation effort here isn’t the best it could be, and the data I’ve used is clearly quite limited. If you have any ideas about different ways to represent the relationship between fundraising investment and fundraised income then please do let me know – I hope this is just the beginning of a conversation on the subject.

2 thoughts on “Overheads or investment? A new perspective on nonprofit “admin” costs

  1. Claire Axelrad says:

    Thanks for this article, and for keeping the conversation going. The case example is useful, and I like your attempt to put this into a visual form for those skeptics who just don’t seem to believe the old adage: “You’ve got to spend money to make money.” You also must invest to grow. When you deliberately starve yourself to “look good,” aren’t you really acting anorexic? Just saying… it’s a bit pathological.

  2. lddurbin says:

    Thanks for commenting Claire. The analogy you choose is illuminating as it points to the truly self-destructive consequences of this ideology.

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