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Episode 33: Effects of overhead on donor decisions

If there was a list of dirty words for the nonprofit sector, overhead would likely be number one on the list. In spite of efforts like The Overhead Myth, it can still be a source of frustration for nonprofit employees and executives yet donors still seem to be hung up on the phrase.

Ellie Heng Qu and Jamie Levine Daniel examine how donors react to overhead in a recent paper, “Is overhead a tainted word? A survey experiment exploring framing effects of nonprofit overhead on donor decisions.” Qu is assistant professor at The Bush School of Government and Public Service at Texas A&M University and Levine Daniel is assistant professor at the Paul H. O’Neill School of Public and Environmental Affairs at IUPUI. The 41-page paper, published in the Nonprofit and Voluntary Sector Quarterly (NVSQ), explores donor aversion, whether donors prefer organizations with low overhead, and if organizations should even talk about it.

The authors surveyed 1,801 people people who donated within the past five years. In a series of 37 questions, donors were randomly assigned to four different scenarios in which organizations’ mission information remained the same but spending varied on program and overhead. In one scenario, donors are presented with two disaster relief organizations where overhead ratios are low for both but one focuses on immediate relief while the other on long-term recovery. Other scenarios presented donors with a choice between a charity with lower overhead and another with higher overhead, another omitted any references to overhead, and finally one in which a brief explanation of the purpose of overhead was presented.

Qu and Daniel build on earlier studies that looked at donor reactions to overhead. “We had this idea: Do people really know what overhead is? They don’t like overhead but do they really know what overhead is in the nonprofit sector,” Qu said. “There just seems to be this Pavlovian reaction to the word overhead that when you use that word, it definitely has an effect on people, even if you’re talking about the same thing,” Levine Daniel said.

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