“Low overhead makes you a better nonprofit" might be the most expensive myth in charitable giving. After all, supporters want their donations to go toward the actual cause — not expenses like staff salaries or marketing campaigns.
But what if the thinking about overhead costs is completely misguided — and ever counterproductive? That’s at the heart of the documentary “UnCharitable,” which challenges everything we think we know about nonprofit effectiveness.
Based on Dan Pallotta’s 2008 book by the same name and his viral TED Talk (viewed over five million times), the film exposes how nonprofits’ obsession with low overhead costs is actually limiting their impact.
It’s a must-watch for nonprofit leaders and staff, donors, policymakers, and anybody passionate about charitable giving. Want to learn the high points before watching the whole film? Here’s what you need to know.
What is “UnCharitable” about?
“UnCharitable” features interviews with nonprofit leaders like Dorri McWhorter, CEO of YWCA Chicago.
“UnCharitable” makes a simple but revolutionary argument: the belief that nonprofits should minimize overhead costs puts them at a major disadvantage. It prevents the sector from attracting top talent, investing in growth, and ultimately changing the world.
To prove that point, the documentary follows several real stories of nonprofit leaders whose organizations were publicly attacked for their spending decisions — despite raising record amounts for their causes.
Through these narratives, the film illustrates how media coverage tends to focus solely on overhead ratios while ignoring the actual dollars going to the cause. One example highlighted in the documentary is Wounded Warrior Project, which spent 60% of its budget (equaling $148.6 million) on veterans’ programs. That’s significantly more than organizations with “better” overhead ratios on paper, but much smaller budgets.
Dan Pallotta knows this criticism firsthand. His company, Pallotta TeamWorks, pioneered multi-day charitable events like the AIDS Rides and three-day walks for breast cancer, raising hundreds of millions of dollars over nine years. Yet, despite that massive impact, the company collapsed in 2002 following media reports that heavily criticized its marketing expenses and fundraising costs.
This fallout didn’t just damage Pallotta’s company and his reputation — it caused a massive drop in funds raised for breast cancer and AIDS research.
Now, Dan is a dedicated advocate for nonprofits and is the founder and president of the Charity Defense Council, a movement focused on changing the way donors think about charity and change.
How the overhead myth limits impact
Dan Pallotta’s iconic TED Talk on philanthropy has been viewed more than five million times. It is the 16th most commented TED Talks of all time.
When you’ve spent the bulk of your career intensely focused on minimizing overhead expenses, letting go of that metric can feel jarring. So, let’s take a closer look at why the obsession with the overhead ratio is a disservice to nonprofits.
The overhead ratio measures what percentage of a nonprofit’s budget goes to administrative and fundraising costs versus direct program expenses. Donors and rating agencies like Charity Navigator often use this metric to evaluate a nonprofit’s effectiveness, celebrating those that keep administrative costs as low as possible.
But Pallotta argues that this metric is fundamentally flawed. Overhead includes essential investments like:
- Competitive salaries to attract talented staff
- Marketing and advertising to reach more donors
- Technology and infrastructure
- Long-term strategic planning
- Fundraising operations that generate more revenue
When nonprofits are pressured to minimize these investments, they can’t scale their impact. As Pallotta puts it, “Our generation does not want its epitaph to read, ‘We kept charity overhead low.’ We want it to read that we changed the world.”
5 double standards holding nonprofits back
“UnCharitable” also makes the argument that nonprofits face several restrictions and pressures that for-profit companies never deal with. These include:
1. Compensation
For-profit companies can pay whatever it takes to attract top talent. Nonprofits face public outcry if they offer competitive salaries (especially for executives). This drives many of the best candidates to the public sector.
2. Advertising and marketing
For-profit companies spend freely on marketing to grow revenue. Nonprofits are expected to rely on donated media or to keep promotional costs to a minimum. This severely limits their ability to reach potential donors.
3. Risk-taking
For-profit companies are permitted to take calculated risks and learn from failures. Nonprofits are criticized for any program that doesn’t immediately succeed. This fuels risk aversion within the entire sector.
4. Time horizons
For-profit startups can operate at a loss for years while building toward long-term success. Nonprofits are expected to show immediate results and maintain perfect overhead ratios from the jump.
5. Capital
For-profit companies can access stock markets and venture capital to fund growth. Nonprofits have no equivalent mechanism. This severely limits their ability to scale.
These restrictions aren’t just inconvenient — they’re impactful. Between 1970 and 2013, only 144 nonprofits crossed the $50 million annual revenue mark. In that same amount of time, 46,136 for-profit companies reached that milestone.
Why traditional charity ratings miss the mark
With the overhead myth debunked, “UnCharitable” takes aim at how charity watchdog organizations have traditionally evaluated nonprofits.
Rating agencies largely focus on fiscal data from tax returns, with a particular emphasis on overhead ratios. This contributes to the pressure nonprofits feel to cut spending (even when it’s essential).
Ultimately, this leads to backwards math. A nonprofit with a 98% program spending ratio but minimal impact for its cause ends up rated higher than an organization that spends 60% on programs yet raises 10 times more money and helps exponentially more people.
Put simply, the focus on efficiency metrics over actual outcomes means donors inadvertently support less effective organizations.
What’s changing (and what still needs to)
Dan Pallotta is the author of “Uncharitable: How Restraints on Nonprofits Undermine Their Potential,” the best selling title in the history of Tufts University Press.
Pallotta’s book and TED Talk made quite the impression — and “UnCharitable” has continued that momentum. Fortunately, that means the entire sector is making some meaningful progress toward focusing on the right things.
Major organizations like the Ford Foundation have increased funding for general operating expenses, while Charity Navigator and other watchdog organizations have reframed their rating criteria to focus less on overhead ratios.
Those changes are promising, but public perception hasn’t quite caught up yet. Small donors — who represent the majority of charitable giving — still take a magnifying glass to overhead costs. So, nonprofits still face pressure to operate on shoestring budgets while addressing increasingly complex social problems.
“UnCharitable” makes the case that we’re leaving money on the table. If nonprofits could operate with the same economic freedoms as for-profit businesses, we could make an immeasurably larger difference in tackling poverty, disease, climate change, and other pressing challenges.
The goal isn’t to inflate overhead — it’s to give nonprofits the freedom to invest where it counts so they can make the greatest possible impact.
Where to watch “UnCharitable”
We are thrilled to announce that Fundraise Up is now streaming UnCharitable online for free. Watch this groundbreaking documentary at the link below.