Overhead ratio
The fraction of a nonprofit's spending that goes to administration, fundraising, and infrastructure rather than direct programs. A famously bad standalone metric.
Overhead ratio measures the portion of a charity's spending that doesn't go directly to programs. A charity that spends 10% on staff and offices and 90% on programs has a 10% overhead ratio; charity watchdog sites and rating agencies have historically graded on this number.
The problem: overhead ratio badly proxies for effectiveness. A well-run organization investing in data systems, staff training, and financial reserves might have a 20-25% overhead ratio and produce substantially more impact per program dollar than a "lean" organization with a 5% overhead that can't retain staff, plan long-term, or catch fraud.
The nonprofit sector calls this the "overhead myth" — the false belief that low overhead equals good stewardship. Three major charity watchdogs (Charity Navigator, GuideStar, BBB Wise Giving) publicly denounced the metric in 2013 and shifted toward evaluating outcomes and management practices instead.
The honest way to evaluate a nonprofit is program outcomes (does the intervention work), transparency (can you see what they do with money), and financial health (reserves, staff continuity, systems) — not the fraction of spending you can label "overhead."