Is All the Overhead Complaining Completely Overblown?
For more than two decades, I’ve heard the same complaints about overhead funding in nonprofits. When I first entered the sector, the conversation was everywhere: nonprofits didn’t get enough support for infrastructure and administration. Back then, it was a legitimate problem. Funders were obsessed with program-specific funding, and many outright refused to cover general operating expenses. Overhead was seen as wasteful — a necessary evil nonprofits were expected to minimize, often at the expense of their effectiveness.
But here’s the thing: a lot has changed since then. Major foundations and institutional funders recognized this issue years ago and have made significant adjustments. Many now routinely offer general operating support or explicitly allow for overhead percentages in grant budgets. Some even go further, providing capacity-building grants specifically designed to strengthen organizational infrastructure.
So, why are we still hearing about the so-called “overhead crisis”?
1. The Overhead Crisis Narrative Is Outdated
The idea that nonprofits don’t get enough funding for overhead is old news. While it was a legitimate issue in the past, the sector has made real progress — especially among major institutional funders, which drive much of the economic impact in the nonprofit world.
Many institutional funders now allow for overhead costs or even provide capacity-building grants. For example, the Ford Foundation’s “Building Institutions and Networks (BUILD)” initiative is a well-known model for funding infrastructure and capacity-building, and it’s far from the only one.
The real perception problem lies with individual donors, corporate sponsors, and newer funders, who may still be stuck in the outdated “overhead is bad” mindset. Even here, though, much of the conversation has shifted from overhead percentages to how outcomes are being measured.
2. The Real Problem: Funding the New vs. Sustaining the Core
The issue isn’t overhead funding. It’s how funding is structured and what it prioritizes. Specifically, major gifts, particularly from foundations, tend to favor the new over the necessary. Funders love to support innovation, pilot programs, and bold new initiatives. They’re far less interested in sustaining the core work that keeps nonprofits running, or even maintaining the programs they helped launch.
This creates a vicious cycle: a nonprofit receives a major grant to start a new initiative, which often doesn’t cover the full cost of the work. The organization stretches existing resources to make it happen. Then the grant period ends, the funding dries up, and the nonprofit is left scrambling. What began as a bold new program has quietly become a permanent (and unfunded) part of the operating budget.
This “fickle funder effect” is a major challenge. It’s less about overhead and more about the disconnect between what funders want to support (innovation) and what organizations need to function sustainably. Addressing this requires leadership and strategic decision-making, qualities that are often in short supply when tough choices about staffing or sunsetting programs need to be made.
3. Clever Nonprofits and the Art of the Budget
Savvy nonprofits have found ways to navigate these challenges by embedding core costs into budget proposals for “new” initiatives. For example:
Including salaries for existing staff who will work on the new project, particularly higher-cost staff like the Executive Director.
Allocating operational expenses — such as office rent, IT infrastructure, or marketing — to the initiative.
Positioning the new work as an extension of the organization’s existing mission, blending programmatic and operational costs.
This isn’t about being sneaky; it’s about being strategic. Nonprofits must effectively communicate that their staff, infrastructure, and systems are integral to their mission. The separation of “overhead” from “mission-critical” expenses is a false dichotomy that doesn’t reflect how nonprofits actually operate. Funders who understand this rarely object.
For funders still skeptical about overhead, nonprofits need to better explain how those expenses drive impact. For instance:
“Our administrative team ensures programs are delivered efficiently and meet compliance standards.”
“Our office space provides the stability and infrastructure needed to serve clients effectively.”
“Investing in professional development improves the quality of our services.”
4. The LinkedIn Problem: Simplistic and Misleading Narratives
There’s a pie chart making the rounds on LinkedIn that divides a nonprofit’s budget into two slices: 40% “Overhead” and 60% “Mission.” Its title? “A Typical Nonprofit’s Budget.” It’s not intended as a joke, but it might as well be. The chart perpetuates the flawed idea that overhead is separate from mission. It completely misunderstands how nonprofits function.
Overhead includes the people, systems, and infrastructure that enable programs to happen. Suggesting otherwise betrays a lack of understanding of how impact is created. Instead of apologizing for overhead, nonprofits should demonstrate its connection to outcomes.
One strange inconsistency in funding: while many funders cap staff salaries as part of a grant, they often allow limitless spending on consultants. This dynamic can be leveraged. For instance, if you’re hiring someone new, consider framing their role as a consultant (even if they’re a W-2 employee). It makes them easier to let go if the program ends and aligns with funders’ preferences.
Final Thoughts
Yes, overhead-complaining is overblown. The nonprofit sector has made real progress on this front, and we need to stop treating it as the central barrier to success. The real challenges lie in restricted funding, balancing innovation with sustainability, and communicating the value of infrastructure.
It’s time to move past outdated myths and focus on what really matters: building strong, sustainable organizations that deliver on their missions. Overhead isn’t the enemy. It’s actually part of the solution.
