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Charity Ratings and the Overhead Myth: What the Numbers Really Mean
"What percentage goes to the cause?" is the question most donors ask. It's a fair question, but it's not the most important one.
What "overhead" means
On its Form 990, a charity splits its spending into three buckets:
- Program services: the actual work, such as meals served, classes taught or research funded.
- Management and general: accounting, insurance, the executive director's office, audits.
- Fundraising: mailings, events, grant writing and donor staff.
"Overhead" usually means the last two added together.
The overhead myth
It's natural to want every dollar to go "to the cause." But a charity that can't pay for a bookkeeper, decent software, or a staff member who stays more than a year usually doesn't do its work well. In 2013, the heads of BBB Wise Giving Alliance, GuideStar and Charity Navigator wrote an open letter telling donors that overhead ratios are a poor measure of a charity's performance on their own. Some overhead is how good work gets done.
Very low reported overhead can even be a red flag. It can mean the charity is starving its own systems, or that costs are being counted as "program" spending when they shouldn't be.
A better question: instead of "What percent goes to the cause?", ask "What did my gift accomplish, and how do you know?"
When overhead does matter
Ratios aren't useless. They're a useful warning light at the extremes:
- If most of the money goes to fundraising, especially to an outside telemarketing firm, be cautious. BBB Wise Giving Alliance's standards say fundraising costs should not be more than 35% of related contributions, and program spending should be at least 65% of total expenses.
- If leadership pay is far out of line with similar organizations, ask why.
- If spending on programs is falling while fundraising is rising year after year, ask why.
What the major evaluators look at
| Evaluator | What it does |
|---|---|
| BBB Wise Giving Alliance (give.org) | Reviews charities against 20 standards for governance, finances, fundraising and honest appeals. A charity "meets standards" or doesn't. |
| Charity Navigator | Scores charities and gives star ratings. Its methodology includes financial health, accountability and transparency, and impact measures for some organizations. |
| Candid (GuideStar) | Doesn't rate. Collects nonprofit data and awards transparency seals to organizations that share information about themselves. |
Each evaluator explains its method on its own website. Read it before you treat a score as a verdict.
Better signs of a strong charity
- Clear goals and results. It reports outcomes, not just activities, including what didn't work.
- Transparency. Its 990, annual report and audited financials (for larger groups) are easy to find.
- Healthy finances. Stable or growing revenue, and some reserves, often three to six months of expenses, so one bad year doesn't sink it.
- An independent board that actually oversees the organization.
- Respect for donors. No pressure, easy unsubscribe, honest appeals and prompt receipts.
Ready to put this into practice? Learn how to read a Form 990, or run a charity through the Charity Check.
Questions people ask
What is a good overhead ratio for a charity?
There's no single right number. It depends on the charity's size, age and type of work. BBB Wise Giving Alliance's standards ask that at least 65% of total expenses go to programs and no more than 35% of contributions be spent on fundraising, but very low overhead can also be a warning sign.
What is the overhead myth?
It's the idea that the best charity is the one that spends the least on administration and fundraising. In 2013 the leaders of BBB Wise Giving Alliance, GuideStar and Charity Navigator published an open letter urging donors to stop judging charities by overhead alone.
Where can I see a charity's expenses?
In Part IX of its Form 990, which breaks expenses into program services, management and general, and fundraising.