For a long time now pursuit of a low overhead ratio has been viewed as a benchmark of good governance in the non-profit sector. There have been arguments against that view, but the perception doggedly persists. Recent research specifically focused on arts and cultural non-profits indicates that these organizations actually need to be spending between 30-35% of their budget on overhead in order to be successful.
I wrote a post for ArtsHacker on the topic recently highlighting this:
As we explained in the academic journal Nonprofit and Voluntary Sector Quarterly, we found that when arts nonprofits devoted 35% of their budget to overhead, they fared best in terms of attendance.
Attendance declined, by contrast, for organizations that spent extremely low and high amounts of their budget on overhead. Groups that spent far too little saw their attendance decline by 9%. Attendance for arts groups that spent way too much on overhead fell by 30%.
While there spending too much is definitely detrimental to attendance, a sizeable portion of non-profit cultural organizations are expending far below what is beneficial.
Hop over to the Arts Hacker post to get more detail about why pursuit of a low overhead ratio sends cultural organizations into a downward spiral as well as why the researchers insist there shouldn’t be a one-size-fits-all rule of thumb about expense ratios.