Let's be Realistic about Expenses for Nonprofits

I often talk to nonprofit organizations about the fact that they are all being held to a higher standard and rightfully so. They are dealing with funds that have been entrusted to them by a cadre of donors that have invested in their organization’s work. Along with that are certain standards and expectations that require a nonprofit to not only succeed in accomplishing their mission, but to succeed with extreme efficiency. My question becomes, “Is this a realistic expectation in today’s tough economy, where dollars are very hard to come by?”

The standard I am speaking about is the long established 20/80 ratio where no more than 20% of a dollar should go for fund raising, management and administrative costs and no less than 80% should go for programs and related services. In a perfect world, these are ambitious numbers and certainly demonstrate the kind of efficiencies we want and expect from a nonprofit organization. However, when times are tough and dollars are hard to come by, it may require organizations to spend more on infrastructure because they have less money to work with. In other words, keeping a program director in place to deliver services to children or keeping your bookkeeper in place to manage your systems more efficiently are necessary but may hold your costs higher and, therefore, outside the normal 20/80 ratio.

I understand this completely and I ask that we reconsider this expectation and as a fair comprise, perhaps, look at it on a three year or five year average basis. It is not unusual that ‘for profit” businesses, which are in business to make money, operate on much thinner margins and with less profit. Some grocery store chains are extremely pleased when they hit a 95/5 ratio at the end of the month. Yes, that means 95% cost to make a 5% profit.

So right now, I don’t think it is unreasonable at all to allow nonprofits to have a 30/70 or even 35/65 ratio with operating costs to program costs. We need to be sensitive and flexible with the rules at this time. I am all for accountability and efficiently run organizations but I am also a realist when it comes to making sure services are delivered by a competent and dedicated staff, recognizing that most of these organizations are being run by underpaid and overworked people. Now is the time for us to help organizations succeed and to also be pragmatic about what we expect. I truly believe the next few years will be extremely tough on the nonprofit sector and, therefore, I am willing to cut them some slack when it comes to costs. It may be the only way organizations can survive, can get the job done and get their mission accomplished and we very much need to be in tune with that situation.


Tom Keith is the president of the Sisters of Charity Foundation of South Carolina