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Overhead Ratio

Source: R/get-overhead-ratio.R
get_overhead_ratio.Rd

Combined management and fundraising expenses as a share of total expenses.

Formula:

overhead = ( mgmt_expenses + fundraising_expenses ) / total_expenses

Definitional Range

Bounded [0, 1]. Empirical range approximately [0.05, 0.50] for most operating nonprofits.

Benchmarks and rules of thumb

  • 25% or less: Charity Navigator threshold for a full efficiency score.

  • 35% or less: BBB Wise Giving Alliance standard.

  • Low overhead can indicate underinvestment in organizational capacity (the "starvation cycle") rather than genuine efficiency.

Calculated For: 990 filers only.

Usage

get_overhead_ratio( df,
  mgmt_expenses             = "F9_09_EXP_TOT_MGMT",
  total_expenses            = "F9_09_EXP_TOT_TOT",
  fundraising_expenses      = "F9_09_EXP_TOT_FUNDR",
  winsorize  = 0.98 ,
  range     = "zo",
  sanitize   = TRUE,
  summarize  = FALSE )

Arguments

df

A data.frame containing the fields required for computing the metric.

mgmt_expenses

Management and general expenses.

total_expenses

Total functional expenses.

fundraising_expenses

Fundraising expenses.

winsorize

Winsorization proportion between 0 and 1 (default 0.98).

range

Character string specifying the theoretical range of the ratio, used to set winsorization bounds. Default "zo". Options: "np" (negative to positive), "zp" (zero to positive), "zo" (zero to one), "nz" (negative to zero), or a custom "lo;hi" pair (e.g. "0;10").

sanitize

Logical (default TRUE). If TRUE, imputes zero for NA financial fields before computing, respecting form scope.

summarize

Logical (default FALSE). If TRUE, prints summary statistics and density plots for all four output columns.

Value

The original data.frame with four columns appended: overhead, overhead_w, overhead_z, overhead_p.

Details

Primary uses and key insights

The overhead ratio measures the combined share of total expenses devoted to management and fundraising. It is the standard definition used in the nonprofit accountability literature and by charity watchdog ratings. The overhead ratio complements get_program_expenses_ratio(): the two sum to 1.0. However, its use as a primary quality indicator has been widely criticized.

Formula variations and their sources

(Management and general + Fundraising) / Total expenses (Part IX lines 25C + 25D / 25A). The administrative-only version (get_expenses_admin_ratio()) excludes fundraising.

Canonical citations

  • Charity Navigator. Financial Health Methodology. charitynavigator.org.

    • Uses overhead ratio as a primary rating factor (target: overhead 25% or less).

  • Lecy, J.D. & Searing, E.A. (2015). Anatomy of the nonprofit starvation cycle. Nonprofit and Voluntary Sector Quarterly, 44(3), 539-563.

  • Hager, M.A. & Flack, T. (2004). The pros and cons of financial efficiency standards. Nonprofit Overhead Cost Project Brief 5. Urban Institute.

Variables used:

  • F9_09_EXP_TOT_MGMT: Management and general expenses (mgmt_expenses)

  • F9_09_EXP_TOT_FUNDR: Fundraising expenses (fundraising_expenses)

  • F9_09_EXP_TOT_TOT: Total functional expenses (total_expenses)

Examples

library( fiscal )
data( dat10k )
d <- get_overhead_ratio( df = dat10k )
#>    :: Total expenses equal to zero :: 77 case(s) replaced with NaN
head( d[ , c( "overhead", "overhead_w", "overhead_z", "overhead_p" ) ] )
#>     overhead overhead_w  overhead_z overhead_p
#>        <num>      <num>       <num>      <int>
#> 1:        NA         NA          NA         NA
#> 2: 0.1384701  0.1384701  0.08996751         64
#> 3: 0.1315314  0.1315314  0.03150629         62
#> 4:        NA         NA          NA         NA
#> 5: 1.0000000  1.0000000 10.84640410         99
#> 6:        NA         NA          NA         NA