Choosing which charity to give money to can be a difficult decision. You want your money to go to a worthy cause and to ultimately provide as much impact for your intended recipients as possible. The problem is that in addition to paying for worthy activities like sheltering the homeless or caring for the sick, a non-profit has to also pay for activities like non-programmatic staff salaries, IT, communications, and even rent. These are all non-programmatic expenses and are considered administrative expenses or overhead. A commonly head belief is that overhead is inherently bad–less money goes directly to your intended recipients, the non-profit is wasteful, and therefore the impact is less. This thinking is encouraged by sites like Charity Navigator that rank charities on a number of dimensions but weigh program vs. administrative (overhead) expenses highly in their overall evaluation of non-profits.

Unfortunately, the percentage of overhead vs. programmatic expenses is not actually a good measure of the efficiency of a non-profit, nor does it in any way indicate the type of impact you can expect to yield. If you were investing in a for-profit company you would probably be concerned if it had not invested in its own infrastructure. Companies without good IT infrastructure are usually far less efficient than those that have it. Companies with the lowest salaries probably have a hard time being a competitive employer and attracting the best most experienced staff making them far less efficient. And, companies that don’t have communications staff are unlikely to have the capacity to share information and learn from the rest of the industry. Non-profits are no different than for-profit companies in all these regards—they cannot be effective or efficient without direct investments in overhead and sometimes the most effective non-profits are those that make regular investments in themselves as organizations.

If looking at its overhead is not a good measure, then how can philanthropists determine an organization’s opportunity for impact? Well, no grant making is ever sure thing, but choosing organizations that will ultimately yield the greatest impact actually takes a lot more time and effort than looking at a website. Philanthropists need to conduct more thorough due diligence on potential organizations. Philanthropists should look at the organization’s leadership. Is the person in charge ready to lead change? Do you agree with their leadership style? The strategy of the organization should also be considered. What is the plan or theory of change for impact and over what timeline? Was this strategy developed around some type of recognized evidence base? Does the organization have the capacity to scale up? What about measurement, how will it identify and learn from its mistakes? Philanthropists might also think about what others in the field are saying about the organization including service recipients, other non-profits, and other funders. Rarely are these answers found on a website, in fact, they aren’t easily summed up into any metric so usually takes some additional research and conversations to answer these questions. If you don’t have the time to conduct due diligence, consider finding help; SmarterGive and other philanthropic advisors have the experience and expertise to answer these questions. Ultimately, by choosing to steer philanthropic dollars towards the most effective organizations (regardless of overhead) donors can drive great efficiency in the social sector as a whole and thereby yield greater social impact.