The Hidden Double Standard Restricting Sustainable Social Impact

"The next time you're looking at a charity; don't ask about the rate of their overhead. Ask about the scale of their dreams" - Dan Pallotta

I’ve always been involved in non-profit and charity work to some capacity. And, no matter the organisation, there is always a conversation about funding that usually goes something along the lines of:

Charity: “We are fundraising for PROJECT” Potential Donor: “Okay cool, we like PROJECT but, we see that over 40% of your budget is for admin costs and we only want our money to go towards the beneficiaries”


*Note: this is an actual conversation I had with a potential donor Potential Donor: “We would like to continue to fund PROJECT” Charity: “Great! We are so happy to have you on board. We really appreciate your support” Potential Donor: “None of the grant is to go towards your rent”

This type of thinking is problematic for many reasons that I’m going to try and explain.

First, there is a lot of misplaced attention on a non-profit’s admin expenses, and not nearly enough on the sustainability and scale of their impact. People prefer their money going directly to the beneficiary rather than going towards a marketing person’s salary. I get it. But consider for a moment how the money or program being implemented is going to get to the beneficiary without the support of the charity? Take it a step further and consider how a charity is going to get any funds in the first place without advertising the work that they do (cue thank you to that marketing person). The point is that more attention needs to be focussed on whether your money is going towards supporting a project that is doing more good than harm in an area; and, that the project is creating sustainable social impact.

Second, thanks to pressures from donors, non-profits often have to tell staff that they can’t afford to pay them a salary even close to market rates because of their non-profit status. (You have no idea how that logic drives me absolutely insane with anger.) Just because you are a non-profit or charity does not mean that you can’t pay someone a decent salary. It just means that you don’t make a profit and that you help people, or save the environment, or whatever it is you do. If you want to solve these gigantic social problems, you need to attract the best minds and start thinking about how you’re going to pay them. An organisation can only be as good as the people in it, and you can’t attract the right talent unless you’re paying a market-rate wage. As much as someone can love what they do, people still need to make a living. Those choosing to work in a non-profit should not have to choose between helping people and money.

What ends up happening when you restrict funding for certain uses, or put pressure on reducing overhead/admin costs, is that organisations become inefficient and ineffective. They lose all their best staff, the high-performers generating the biggest multiples in value and impact per dollar spent, who are forced to make a fraction of what they would elsewhere. They are so focused on meeting the demands of the donors and funders that the beneficiaries take second place. The priority shifts from ‘what is best for the recipient/ beneficiary?’ and ‘what is going to make a lasting positive social impact?’ to ‘what is going to make my donor happy?’ or ‘how can I shift around my work so that I can get more money?’

Don’t get me wrong, I am not saying that non-profits should be able to function without any accountability. I am saying that the spotlight should be on sustainable social impact. Start measuring dollars spent around total impact driven, people helped, and lives changed. There should be more time spent worrying about whether all those clothes you are donating are actually useful to the community or what’s needed during disaster relief so that efforts to help a community are actually useful.

This is a chicken and egg problem. While donors and funders continue to put pressure on charities and non-profits to reduce overhead costs and provide restricted funding, there will continue to be an issue of inefficiency and under-valuation of the work being done in development globally.

I haven’t heard anyone explain this whole concept better than Dan Pallotta in his 2013 TED Talk. When I first heard this talk I had to hold myself back from cheering out loud. He gets it! So I’ll leave you in his capable hands…