The overhead myth: how to talk to your board about marketing spend
The overhead myth is the belief that the best nonprofits spend the least on things like staff, systems, and marketing. Low overhead can mean an organization is underfunding what keeps it going. A better question for your board: does this spending bring in more for the mission than it costs? The calculator answers that.
Worked example. Change any number to use yours.
With 48 new donors, as promised
Year 1
−$1,200
Net cost
3 years
+$1,488
Comes out ahead
A loss in year one is normal for donor growth. Look at the 3-year view: returning donors pay it off.
Needs about 60 new donors in year one, or 39 over 3 years.
I don't know our numbers
Use figures from your donor database or spreadsheet.
Average gift: $0 · Retention: 0 in 10
With 48 new donors, as promised
Year 1
−$1,200
Net cost
3 years
+$1,488
Comes out ahead
A loss in year one is normal for donor growth. Look at the 3-year view: returning donors pay it off.
At $1,000/month for 6 months, this needs to bring in $6,000 in new giving, about 60 new donors at your average gift. If 4 in 10 give again next year, about 39 new donors would pay it off within 3 years.
Worth it over time
Year one shows a net cost, but returning donors pay it off. This is normal for donor growth.
- Cost to raise $1
- $0.80
- Worth up to
- $1,248/month
How did we get this?
$6,000 cost ÷ $7,488 giving over 3 yrs
How did we get this?
(48 donors × $156 − $0 setup) ÷ 6 months − $0 staff time
Based on what they're promising, this is worth up to $1,248/month to your organization.
Nets the equivalent of 2,976 meals
- New donors per active month to break even
- 7
- Most you can spend to gain one donor
- $156
How did we get this?
39 donors ÷ 6 active months
How did we get this?
That's what one new donor gives over 3 yrs, after fees. Year one only: $100.
Details
- Break-even, first year: 60 donors ($6,000 ÷ $100 per donor)
- Break-even, 3-year view: 39 donors ($6,000 ÷ $156 per donor)
- Full cost: $6,000 = $0 setup + ($1,000 fee + $0 staff and volunteer time) × 6 months
Make the case to your board
Already started? Check in on progress
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Is It Worth It? for Nonprofits · Board summary
Board summary: Marketing agency
Inputs: $1,000/month, 6 months, setup $0, staff 0 hrs/month at $0, average gift $100, 4/10 give again, 3-year view.
Verdict: Worth it over time. Year 1: −$1,200. 3 years: $1,488. Mission: 2,976 meals.
Questions we asked the vendor: Do you understand donor journeys and recurring giving? Who owns our donor data, website, and ad accounts if we part ways? How will you report new donors? When should we expect results, and what's the plan if they don't come?
Estimates for planning only. Not financial or tax advice.
What the overhead myth is
Donors and boards often judge nonprofits by one number: how much goes to "overhead" instead of programs. It feels like a fair test. But it treats all non-program spending as waste, including the fundraising and marketing that bring in the money for programs.
An organization that never invests in finding donors may look lean while it slowly shrinks.
A better question than "how much is overhead?"
Ask what each dollar of marketing brings back. If $1 in marketing brings in $2 over time, cutting it costs the mission $1. That's what this calculator shows: cost to raise $1, payback month, and the mission impact in your own terms, like meals or nights of shelter.
How to bring this to your board
Use your own numbers. Show year one and the long view side by side, since many good investments look negative in year one. Use the "Make the case to your board" paragraph, and agree on when you'll review results.
Worked example
Hypothetical: $1,000 a month for 6 months brings 8 new donors a month at $100, and 4 in 10 give again. Year one shows a net cost, but over 3 years it comes out ahead. At $0.50 a meal, the calculator translates the net into meals.
What you're actually paying for
- Staff and systems that keep donors coming back.
- Marketing that finds new donors.
- Tools that track gifts and thank donors.
Questions to ask vendors
- Do you understand donor journeys and recurring giving?
- Who owns our donor data, website, and ad accounts if we part ways?
- How will you report new donors, not just traffic or impressions?
- When should we expect results, and what's the plan if they don't come?
How to tell if it's working
- Ask "How did you hear about us?" on your donation form.
- Use a separate link for each channel so gifts can be traced back.
- Count new donors from this channel every month, not just clicks or visits.
- Review monthly with the check-in tool on this page.
- Report cost to raise $1 to your board alongside overhead.
How we calculate
- Full cost = setup fee + (monthly fee + staff hours × hourly cost + volunteer hours × hourly value) × months.
- Value of one new donor over N years = (first gift + later gift × (r + r² + ... + r^(N−1))) × gifts per year × (1 − processing fee) − thank-you cost, where r is how many out of 10 give again, divided by 10.
- Monthly donors are valued at monthly gift × 12 for each year they keep giving.
- Break-even new donors = full cost (minus the value of other goals you enter) ÷ value of one new donor, rounded up.
- Cost to raise $1 = full cost ÷ giving over the time frame.
- Most it's worth paying per month = (promised donors × donor value − setup fee) ÷ months − staff time per month.
Questions people ask
Is low overhead a sign of a good nonprofit?
Not by itself. What matters is whether the organization does good work and can keep doing it. Some overhead is what makes that possible.
How do we explain marketing spend to donors?
Show what it brings back. "Every $1 we spent finding donors brought in $X for programs" is clearer than an overhead percentage.
Does this page use overhead statistics?
No. We don't publish benchmark numbers. The calculator uses only your organization's figures.
About the builder
Built by Paul Watley
Paul is the Director of SEO at Tandem Theory in Dallas, Texas. He builds websites and helps them get found through search and digital marketing. He is originally from Nebraska and now lives in Dallas with his wife, their three kids, and Sunny, their dog.
He built this free tool because nonprofits get the same sales pitches businesses do, with less money and less time to check the math. Put in your own numbers and decide for yourself.