What is the percentage of administration costs in non profit organizations?
Executive summary
Across watchdogs and sector guides, a common rule of thumb places administrative (overhead) costs for nonprofits broadly in the 20–35% range of total expenses, with many funders and raters urging that around 65–70% or more be spent on programs and the remainder—roughly 30% or less—on administration and fundraising [1] [2] [3]. That said, experts and sector groups emphasize there is no single “right” percentage: acceptable administrative shares vary by mission, size, funding source and program model, and some organizations legitimately exceed these benchmarks for good operational reasons [4] [5] [6].
1. Why people ask for a single percentage—and why it’s misleading
The public appetite for a single overhead percentage comes from donors seeking a simple efficiency signal, and from historic charity-rating heuristics that framed low overhead as proof of effectiveness; those heuristics produced tidy thresholds—often “keep overhead under 20%” or “programs should be 65–70% of spending”—but nonprofit authorities now warn these rules oversimplify how organizations function [7] [3] [8]. Charity Navigator’s shift in 2023 to de-emphasize the administrative expense ratio illustrates the sector’s evolving view that rigid overhead cutoffs can punish necessary investments in staff, technology, and compliance [1].
2. What watchdogs and guides actually recommend
Major rating organizations and sector guides commonly recommend that 65–70% or more of total expenses be allocated to program services—an implicit ceiling of roughly 30–35% for combined administration and fundraising—while some practitioner guides frame a narrower target under about 20–25% specifically for administrative costs [1] [3] [9] [2]. Historical surveys and older guidance sometimes show higher averages—Grey Matter’s 2012 survey reported roughly 36.9 cents of every dollar raised went to administrative costs—which underlines how benchmarks, practices and definitions have shifted over time [10].
3. Why administrative percentages vary between organizations
Administrative ratios depend on mission complexity, geography, program delivery model, and scale: research universities and large institutional research projects routinely show much higher “overhead” rates than small direct-service charities because their infrastructure supports research, compliance and facilities (examples cited include 48–68% overhead in academic contexts) [6]. Funders’ rules also drive variability—some foundations permit or require specific overhead rates, others limit or disallow indirect costs—which means a nonprofit might report different administrative shares depending on funding composition and accounting allocations [4] [11].
4. How definitions and accounting choices reshape the percentage
What gets classified as “administration” versus “program” is often a judgment call: salary lines, shared staff time, technology and rent can be allocated to programs if directly supporting service delivery, or to administration if supporting overall operations; this allocation materially changes headline percentages and is why many advisors urge transparent functional expense reporting rather than chasing a numeric target [12] [9] [8]. The National Council of Nonprofits and other experts argue that labeling necessary investments as “overhead” creates perverse incentives and misleads donors about organizational effectiveness [5].
5. Practical guidance: reasonable ranges and what to watch for
For practical assessment, use these working benchmarks: program services should typically be at least 65–70% of total expenses (implying administration plus fundraising around 30–35%); many practitioners still target administrative costs below about 20–25% when isolating administration alone, but deviations above these ranges can be legitimate and warrant scrutiny of context rather than automatic condemnation [1] [7] [3] [9]. Donors and board members should ask how overhead investments enable program quality, sustainability and compliance, and review functional expense allocation rather than fixate on a single percentage [4] [5].
6. Conclusion: a percentage—useful, but never definitive
A short answer: administrative costs commonly fall in the roughly 20–35% band of total expenses depending on whether fundraising is included and how costs are allocated, yet no universal standard applies and sector leaders now emphasize context, transparency, and mission-aligned investment over rigid cutoffs [2] [4] [5]. Where reporting or ratings cite a percentage, readers should follow up on definitions, funding mix and the nonprofit’s explanation of how administrative spending supports mission outcomes [12] [9].