How High Is Too High? An Experimental Analysis of Donors’ Aversion to Nonprofit Overhead

Abstract

Despite the abundance of literature related to nonprofit overhead, the following questions remain unclear: (a) How high is too high for individual donors when considering an organization’s overhead? (b) Is there a difference between nonprofit subsectors in individual donors’ aversion to nonprofit overhead? Moreover, (c) Does trust play a role in individual donors’ overhead aversion? This study used a survey experiment and randomly assigned participants to one of four overhead ratio conditions (5%, 20%, 35%, and 50%). We find that individuals’ donations to human service nonprofits substantially decrease when the overhead reaches 35%. In contrast, their donations to health care nonprofits do not decrease until the ratio reaches 50%. In addition, we find that donors lose trust in nonprofits when overhead costs are higher, leading to decreased donations. The findings contribute to the theoretical understanding of donors’ giving behavior, offering practical implications for promoting sustainable giving.