Many organizations are aware of their ratio of program service expenditures to total expenditures. And in fact, there are a number of charity rating systems that make recommendations as to the appropriate overhead ratio. This causes some nonprofit entities to manage to that ratio.
Here’s the problem. The idea that charities should put as much money as possible into their program activities without investing in overhead – the management and support of the organization, can cause an organization to have significant difficulties in meeting its mission and goals down the road. There have been a number of examples of organizations struggling to deliver their services because they haven’t invested enough in the infrastructure necessary to support their programs.
Public pressure contributes to this dilemma. There is a perception that it is unreasonable for an organization to put significant money into building and maintaining its infrastructure. Some donors will limit their donations to program-only uses or will not donate at all to organizations that spend more on overhead. In the long run, the nonprofits that are deliberate about building and maintaining their infrastructure will be able to efficiently deliver their programs on a long-term basis and to effectively create new programs to benefit their communities.