Charities often face intense scrutiny about how they allocate their resources, especially when it comes to overhead costs. Public perception suggests that overhead costs, such as administration and fundraising, would be better spent directly pursuing the organisation's programmatic activities. But the evidence suggests emphasis on cutting overheads can damage a charity’s long-term impact.

This article provides practical advice for charities focused on overall impact rather than just the simplistic program-versus-administrative costs debate.

Time and again, when donors see overhead-to-program ratios, they quickly judge a charity’s efficiency. This is an example of “evaluability bias” — the tendency to base opinions on what’s easy to measure, without realising that this data might lead to misguided conclusions. As a result, many donors come to believe that it's more effective to give directly to programs or impose restrictions on how charities spend on administrative support.

Many charities feel the pressure to keep overhead costs low, often leading them to underreport these necessary expenses just to secure future funding. This traps them in a destructive “starvation cycle” where they remain underfunded and unable to grow. But instead of focusing on minimising overhead, the real conversation should be about how these investments boost the charity’s overall impact.

As Dan Pallotta famously argued, nonprofits should be judged by the results they achieve, not by how little they spend on overhead. The real question isn’t about overhead percentages, but whether those expenses are helping the organisation do more good.

Thankfully, organisations like ICAEW and campaigns like Australia’s "Reframe Overhead" are shifting this narrative. They encourage charities to frame overhead not as a burden, but as a smart investment in areas like staff development, governance, and accountability — all of which are crucial to creating long-lasting, sustainable impact.

Charities should clearly explain how they use their funds. Instead of seeing overhead as a drawback, describe it as an investment in advancing your mission. Break expenses into simple, relatable categories such as technology upgrades, staff training, governance, and administrative support. Show how each of these areas directly helps you achieve your goals.

For example, a charity could explain that some of its overhead covers technology upgrades that improve data collection, helping them provide better services to clients.

Today’s overhead costs often drive tomorrow’s success. The "Reframe Overhead" campaign highlights how spending on areas like marketing or infrastructure sets the stage for future growth. For example, while investing in fundraising might seem like a large expense initially, it can lead to more donations and better-funded programs over time.

Charities should present overhead costs as investments that drive future impact.

Many donors might focus on overhead-to-program ratios, but these numbers don’t tell the full story. Instead of emphasising these metrics, charities should focus on showcasing the impact of their work. Highlight how the programs achieve real, measurable results, and explain that these outcomes depend on strong administrative support.

Oversimplified data can harm the sector by reinforcing the myth that overhead is less important than program costs. Charities can counter this by sharing their overall cost-effectiveness and showing how overhead spending directly supports their ability to create meaningful impact.

Trust and accountability are key to building strong, long-term donor relationships. Charities must show they manage finances well and use funds responsibly. The Statement of Recommended Practice (SORP) requires charities to explain how they allocate costs and report governance expenses separately, but it doesn’t specify how to label them.

Charities can describe these costs as investments in learning, development, effectiveness, safeguarding, and governance. This helps the public see them as essential to their mission, not extra expenses.

The charity sector should rethink how it presents overhead in their communication including the annual reports. These costs are necessary for achieving goals, not wasteful spending.

By adopting a more transparent and impact-driven approach, charities can move past outdated views on overhead and achieve more sustainable, long-term results for the causes they support.