What Percentage of Income Can Nonprofits Use for Administrative Costs?

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Nonprofit organizations typically raise money to offer community programs or to engage in charitable endeavors. However, nonprofits do have overhead costs, such as employee salaries, building and equipment maintenance, utility expenses and supplies. While there is no standard percentage requirement, typical nonprofits spend from 15 to 40 percent of revenue on administrative costs.

Typical Rates

An August 2012 survey by Grey Matter Research & Consulting indicated that the average nonprofit organization spent 36.9 cents of every dollar raised on administrative costs. At the time of the survey, the Better Business Bureau Wise Giving Alliance suggested that nonprofits not exceed a 35 percent overhead-to-contributions ratio. Foundations, which solicit donations to disperse to other nonprofit and community programs, maintain a much lower ratio of around 10 to 15 percent.

Public Expectations

Americans who donate money to nonprofits often don't recognize the significant administrative costs involved in nonprofit operations. The Grey Matter survey also asked the public about its expectations for nonprofit administration. Respondents suggested a ratio of 23 cents per dollar was practical. This amount is 13.9 cents less than the actual average expenditure.Twenty-seven percent of survey respondents said 10 to 19 percent was reasonable for administrative expenditures.

 

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About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.

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