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Shifting focus from charity overheads to impact

Dan Pallotta’s TEDtalk on the US non-profit sector has unsurprisingly ignited debate, and the gung-ho American free market capitalism that underpins his case may be a little strong for British tastes. But Pallotta’s willingness to challenge the received wisdom that charity equals frugality makes for interesting listening.

One of Pallotta’s bugbears is the question often asked of a charity, about how much of its income is spent on overheads. My experience working inside the charity sector is that this figure is a vital statistic for every charity’s communications, quoted in annual reports and fundraising door drops. Usually expressed as x pence in £1, the lower the number, naturally, the better. In a crowded charity marketplace and with growing scepticism amongst some supporters, being able to assert that only a few pence of every £1 spent goes on ‘overheads’ looks like the single authentically ‘true’ indicator in a miasma of feelgood puff, heart-rending asks and spin.

Never mind that each charity finds its own way to calculate this figure, and as such there’s no real way to compare like with like. Pallotta’s more serious challenge is to the idea that it is correct to see an ‘overhead’ as separate from – and even damaging to – ‘the cause’. Rather, investment in fundraising, great staff, advertising, etc, should not be seen as different from spend on ‘the cause’, if the result is a significant increase in the total money available to spend. In other words, if it increases the size of the pie of which ‘overheads’ form a slice. By trying to keep ‘overheads’ low, he argues,  charities can wind up not spending on the things they need to help to ultimately achieve ‘the cause’, that is, to deliver positive change for beneficiaries.

You can decide how persuaded you are by this argument – there are many who still feel uncomfortable with charities using larger salaries to attract leaders from the corporate world, or spending money on advertising, or generally behaving in ways that look too much like actual businesses. It’s debatable in a time of recession how much extra growth there is to be found – can the ‘pie’ really get much bigger? And of course, the corporate sector can be just as hot on screwing down its costs than the non-profits, arguably even more so.

It’s Pallotta’s advice to donors that particularly caught my attention:  ‘Don’t ask about the level of [a charity’s] overheads, ask about the scale of their dreams.’ I think the reminder for charities – and particularly to their communicators – is this: find a way to paint an authentic and compelling picture of the difference we make, on the impact our work has for those we are here to help, and what it will take to achieve our vision for the future. It may not be possible to stop some supporters seeing overheads as an important measure of effectiveness. But finding ways to measure and articulate impact is ultimately the way that supporters, and indeed all stakeholders, can see where that investment in the ‘back office’ is paying off. It can shift the focus to what ultimately really matters – the positive difference to our beneficiaries.

In other words, as Pallotta puts it, which charity wants to be looked back on and remembered purely as the one that kept its overheads low?