The most common question donors ask is “what percent goes to the cause?” It feels rigorous. It is close to useless.
What the ratio measures
Overhead, in charity accounting, is spending classified as management, administration and fundraising rather than “program.” The split is partly a matter of choice. A charity that codes its evaluation staff as program has lower overhead than one that codes them as administration, with no difference in what happens on the ground. The three biggest US charity-information organizations said as much in a joint 2013 letter titled The Overhead Myth, and Charity Navigator later rebuilt its ratings to lean less on the ratio.
What it does not measure
Whether the program works, and what it costs per result.
Consider two organizations, both at 10% overhead:
- One distributes insecticide-treated nets in high-malaria districts. GiveWell’s estimate: about $5,500 per child’s life saved.
- One runs a well-loved after-school program in a wealthy suburb. Nobody has measured its effect on anything, and its cost per child is several thousand dollars a year.
Same ratio. The first is among the most effective uses of money on earth. The second may be a fine thing to do for your own community, but nobody could tell you what a dollar buys.
Now flip it. A lead-paint regulation charity spends heavily on staff (chemists, lawyers, government liaisons) and almost nothing on “program delivery,” because the delivery is a law that manufacturers then follow at their own expense. Its overhead ratio looks terrible. Its own model estimates a healthy year of life for about $4.49.
The right question
What does a dollar buy, at the margin, and how do you know?
- What does a dollar buy means an outcome (a death averted, a child in school, a ton of CO2), not an activity (a net shipped, a meal served).
- At the margin means your next dollar. A fully funded program has a marginal value near zero however good its average.
- How do you know means the charity or an independent evaluator can point to evidence, ideally a trial, and to a cost model you can read.
Charities that can answer all three are rare. That rarity is the signal.
A ten-minute version
- Find the charity’s own statement of what a donation achieves. If it is an input (“$10 buys a net”), keep looking for the outcome.
- Search the charity’s name plus “GiveWell,” “Founders Pledge,” “Animal Charity Evaluators” or “Giving Green.” An independent evaluation, positive or negative, tells you more than any ratio.
- Look for a funding gap. Evaluators publish how much more a program can absorb; a charity that says “we can use $X more for Y” is doing the marginal analysis for you.
- Only then glance at overhead, and only to rule out fraud: ratios above 50% or a refusal to publish financials at all.
When the ratio does matter
Almost never for choosing between good charities. It can matter for spotting bad ones: an organization that spends most of its income on professional fundraisers is not a charity in any useful sense. That is a floor, not a ranking.
Method notes
Figures for nets and lead paint are the evaluators’ and charities’ own, cited above. The after-school example is illustrative, not a specific organization.
Sources
Figures come from the cited sources as of the dates shown. Cost-effectiveness estimates change as programs and evidence change; check the source before giving. We are not financial advisers and receive nothing from any charity named here.