Arts and cultural organizations need to invest adequately in overhead to sustain their mission-critical work. There is no rule of thumb for how much your organization should spend on overhead.
Overhead encompasses a wide range of management, administrative and fundraising costs. It includes investments in organizational improvements, such as strategic planning, staff and board development, and evaluation. It comprises spending on infrastructure, such as rent, utilities, technology and fiscal management. The costs of raising money to develop and run programs are considered overhead, as is spending on marketing strategies that engage and retain audiences or visitors.
Overhead ratios will differ by organization and change over every organization’s life cycle. For example, growth often goes hand-in-hand with a temporary increase in administrative costs relative to program expenses. In addition, younger organizations, or groups with more controversial or experimental programming, may have comparatively higher fundraising than program costs.
Far too many organizations skimp on overhead, often in response to pressure from supporters who may not understand how much it really costs to run a successful organization. When organizations underinvest in operations, they risk jeopardizing the quality and safety of their programs. They may find it difficult to attract and retain talented staff, steward fixed assets, find and engage audiences or visitors, and measure organizational effectiveness.
Management Tip: The exact amount that your organization spends on administrative and fundraising costs says nothing about its financial health or program effectiveness.
- Resist the temptation to highlight a low overhead ratio as evidence of your organization’s accomplishments. Instead, talk about the impact your organization is having on the lives of the people and communities it serves.
- Be honest with your board and loyal supporters about the real, full costs of your infrastructure needs. Help them understand the risks of not investing in critical support functions.
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