Debunking the nonprofit overhead myth

Updated Jul 29, 2025

All too often, donors are told the best nonprofits are those that spend as little as possible on overhead. However, solely supporting nonprofits that spend less on overhead can unintentionally harm the very organizations that align most with your charitable interests. 

Nonprofit overhead includes the essential infrastructure that keeps an organization running: salaries, technology, fundraising costs, compliance systems, and more. These investments ensure the organization can operate efficiently, measure outcomes, and grow sustainably. Without overhead, there is no mission. 

Why the nonprofit overhead myth persists 

The idea that low nonprofit overhead equals high impact has been a longstanding, persistent myth. This belief stems from charity rating systems that overly emphasize administrative ratios. These systems often overlook the importance of investments in operational excellence and long-term growth. 

A business should not only be judged by how little it spends on staff or systems, especially if expenses are geared toward delivering critical services through an investment in staff and operations. This principle applies to charitable organizations, too. 

Supporting infrastructure supports impact 

When you fund a nonprofit’s overhead, you’re not just paying bills. You’re investing in capacity and enabling efficiency. A nonprofit’s overhead encompasses the fundamentals needed to build a strong infrastructure. 

A solid infrastructure enables nonprofits to: 

• Hire and retain talented staff
• Implement secure and effective technology
• Evaluate program success
• Comply with complex regulations 

Donors typically grant to nonprofits that drive initiatives they believe in. And while it might be glamorous to directly fund a specific program of a nonprofit, it’s important to also consider the critical infrastructure needed to make those programs or services effective. Gifts that support overhead are critical for charities to fulfill their mission. 

The Stanford Social Innovation Review highlights what they call the "nonprofit starvation cycle," where underfunding overhead leads to weakened infrastructure, burnout, and stagnation. Breaking this cycle starts with donors who understand that sustainable impact requires unrestricted support. 

How you can help 

One of the most powerful ways donors can support nonprofit overhead is through unrestricted giving. This means, rather than designating a grant for a specific program or initiative, nonprofits can use funds where they’re most needed. 

At Vanguard Charitable, we’ve seen the positive momentum around unrestricted giving grow in recent years. In fact, more than half of the total dollars granted by Vanguard Charitable donors in 2023 were unrestricted. 

This approach aligns with the principles of trust-based philanthropy: believing in the expertise of nonprofit leaders and giving them the flexibility to allocate resources where they can drive the most impact. 

Unrestricted funding helps nonprofits navigate challenges, invest in tools and training, and respond to urgent community needs without being constrained by narrowly defined grant terms. 

In addition to unrestricted giving, changing the dialogue surrounding nonprofit overhead is essential, and it starts with donors. Here are a few ways to evolve your giving strategy to make a charitable difference: 

• Don’t use overhead ratios as your sole decision-making metric
• Look for signs of financial health, leadership stability, and measurable impact
• If you leverage a donor-advised fund (DAF) for granting, consider making unrestricted grants
• Talk to the nonprofits you support about their needs beyond particular programs

By funding both mission and infrastructure, you help nonprofits do their best work. 

Maximize your impact 

If you want to be a consistent supporter of your favorite nonprofits, a donor-advised fund is a great way to invest funds that can grow and be granted to charity. 

DAFs are ideal for those looking to unlock more assets for their charitable giving, which not only means more support for nonprofits, but also more robust, tax-smart wealth management. For example, not all nonprofits can liquidate complex assets, such as non-publicly traded stock, private equity, and hedge fund interest. However, DAFs can, bringing additional funds into the philanthropic landscape. When these charitable assets are invested, they unlock tax-free growth. 

All the benefits of a DAF are only amplified when you choose Vanguard Charitable, an industry leader in donor-advised funds. Learn more about opening a Vanguard Charitable DAF account and see how you can better support your favorite charities, including their nonprofit overhead.