As much as you want to appear altruistic to the general public, charities are just like other businesses, for the most part. That means you need money. You will not be running your charity for long if you do not take care of the expenses. However, there are two types of costs that you should know. There are administrative costs and program costs.
Administrative costs: These are the costs that come from the way your charity is structured to run. Once you take control and start running your organization, you start noticing what these important costs will be. Some examples of administrative costs are paying salaries, paying electricity bills (because you need your lights), and buying supplies. These are costs that are not necessarily unique to your charity because they come from details that all charities and businesses should have in common.
Program costs: They are the expenses that come from your charity acting out its purpose through their services. For example, if you provide scholarships to youth, the money that goes into giving those scholarships falls under program costs. You need to spend this money to prove that your charity is necessary and should continue existing. These costs, unlike administrative costs, are more than likely going to be unique to your charity because your purpose will be slightly different than another charity’s purpose.
There is no right or wrong answer as to how much money you should be spending to keep your charity running. There is this idea that, if you have way too much overhead, then you must be failing as a charity. People are scared of administrative costs. The general public, your donors, think that if you have a certain overhead ratio, then you must not be using your money efficiently. You must be putting a lot of money in the pockets of your employees, which means you are not making enough of a positive impact in the world. This means that donors will stop giving to you, if they think this way, because they want to feel like they are directly impacting people.
They do not want to accept the fact that different charities will have different costs, depending on their purpose, to keep themselves running. For example, donors want to believe that most of their money is going directly to the purchase of the food that will be given to hungry children, if your charity is for feeding hungry children. They do not want to think that their money could actually be going to giving salaries to employees, or to paying your bills, so that you still have a location or the resources to carry out your tasks before you think about feeding children.
That does not mean that there are not groups of people who have not been caught mishandling donations, but it does mean that there should be more ways to combat this stigma around overhead cost. The simple fact that an organization reports that they need a lot of money to simply run their locations and programs does not mean they are not making an impact on their members. Likewise, just because an organization reports that they do not use a lot of their donations for overhead costs, that does not mean they are carrying out their mission to its full potential.
However, if you want an idea of where you are in your spending compared to other organizations, you can look at the financial ratings table on CharityNavigator.org.
