Anatomy of the Nonprofit Starvation Cycle: An Analysis of Falling Overhead Ratios in the Nonprofit Sector

Jesse D. Lecy, Elizabeth A.M. Searing

Research output: Contribution to journalArticle

56 Scopus citations

Abstract

The nonprofit starvation cycle is a debilitating trend of under-investment in organizational infrastructure that is fed by potentially misleading financial reporting and donor expectations of increasingly low overhead expenses. Since its original reporting in 2004, the phenomenon has been referenced several times, but seldom explored empirically. This study uses 25 years of nonprofit data to examine the existence, duration, and mechanics behind the nonprofit starvation cycle. Our results show a definite downward trend in reported overhead costs, reflecting a deep cut in administrative expenses partially offset by an increase in fundraising expenses. The organization’s size is instrumental to its behavior, with a sharp rise in reported overhead occurring when revenues equal $100,000, but diminishing at $550,000. Finally, the brunt of the cuts have fallen on nonexecutive staff wages and professional fees, which heightens the concern of potentially ill effects derived from a fixation on overhead cost reduction.

Original languageEnglish (US)
Pages (from-to)539-563
Number of pages25
JournalNonprofit and Voluntary Sector Quarterly
Volume44
Issue number3
DOIs
StatePublished - Jun 9 2015

Keywords

  • accountability
  • expense ratios
  • overhead costs
  • starvation cycle

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)

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