Overhead Costs and the Overhead Myth: A Fundraiser's Guide

How to talk about indirect costs with confidence, and navigate the grant overhead debate

Hey there, apologies for the delay in this issue. In a version of “my dog ate the homework,” my sweet dog, Marcos, collapsed out of the blue this weekend and was paralyzed! Such a crazy event. We rushed him to the emergency room, and then over to NeuroVet, where an MRI showed that he was suffering a herniated disc in his neck. We said “yes” to emergency surgery, all through of costs out the window. Wouldn’t you find a way if you “could”?

He’s home now and on 3-4 weeks bedrest. He’s a tough ‘lil guy—if you could send some positive vibes his way I’d be ever so grateful. Thank you so much.

Now, on to the business at hand.

Picture this. You’re building a grant budget, and you reach the line labeled “indirect costs.” Your cursor hovers. Type too high a number, and you worry the funder will see a charity that can’t manage its money. Type too low, and you know your organization will be quietly subsidizing this grant with money it doesn’t have.

If that moment feels familiar, you have met the nonprofit overhead myth firsthand. It’s one of the most persistent misunderstandings in our field, and learning to push back on it, gracefully and with evidence, is one of the most valuable skills a fundraiser can build.

My sweet dog Marcos resting after emergency surgery © Tonya Hennessey

What the Overhead Myth Actually Says

In October 2014, three of the sector’s most influential watchdogs, BBB Wise Giving Alliance, Charity Navigator, and GuideStar (now part of Candid), published an open letter to donors that reshaped this conversation. Their message was direct: “The percent of charity expenses that go to administrative and fundraising costs is a poor measure of a charity’s performance.”

The letter named something fundraisers had felt for years. Low overhead does not necessarily mean high impact. In fact, chronically underfunded overhead creates what researchers call the nonprofit starvation cycle, where organizations underinvest in the very staff, technology, and systems that let programs run well, then struggle to deliver the results funders want to see. As the letter put it, “the people and communities served by charities don’t need low overhead, they need high performance.”

The evidence backs this up. Research cited in that campaign found that better-performing charities actually reported slightly higher overhead than lower-performing ones, roughly 11.5 percent compared to 10.8 percent. Efficient does not mean cheap. It means well run.

Why the Grant Overhead Debate Persists

Here’s the honest part. More than a decade after that letter, the grant overhead debate has not disappeared. Candid’s own research shows that 61 percent of donors still choose where to give based on how “efficiently” they believe an organization uses its funds, often judged by that old “90 cents of every dollar” framing. That pressure trickles down into how nonprofits build budgets and how program officers evaluate them.

The cost of that pressure is real. Sector surveys show that more than 60 percent of nonprofit staff report demanding, unsustainable workloads, a direct consequence of organizations trying to look lean on paper. Knowing the research is one thing. Changing the conversation with your funders is another, and that is where your language matters.

How to Frame Overhead Costs Positively to Funders

Start by retiring the word “overhead” in your budget narratives. Replace it with language that names what the money actually does: professional development for program staff, the database that tracks outcomes, the evaluation work that proves your model, the finance team that keeps the organization compliant and trustworthy with public and private dollars.

Then connect every indirect dollar back to results. Instead of asking a funder to accept a percentage, show them what that percentage buys: retained, well-trained staff, reliable technology, and a leadership team with the bandwidth to plan ahead rather than react. Funders fund confidence. Give them a reason to have it.

What’s an Acceptable Overhead Rate?

There’s no single right answer, and that is precisely the point the overhead myth campaign was making. Still, fundraisers need something to anchor a budget conversation, so consider two reference points.

The federal government’s own Uniform Guidance (2 CFR 200.414) sets a 10 percent de minimis indirect cost rate as a floor, meaning any organization without a negotiated rate can claim at least that much without justification. Many private funders now treat that as a bare minimum rather than a ceiling. The MacArthur Foundation, after analyzing IRS Form 990 data from more than 130,000 nonprofits, found that financially healthy organizations carried indirect cost rates closer to 29 percent, and it now reimburses grantees at that rate.

That range, roughly 10 to 30 percent depending on your funder and your organization’s actual cost structure, is a far more useful benchmark than an arbitrary program-ratio target. Build your real budget first. Let the evidence make your case.

What language do you use to talk about overhead with your funders? Let me know in the comments, I read every one.