For example, some watchdogs believe nonprofits should spend no more than 35% of their donations on overhead. The  Better Business Bureau suggests that nonprofits should spend less than 10% on executive compensation. Charity Navigator suggests that under 35% of funds should be spent on fundraising to raise each dollar. Keeping this ratio favorable enhances financial sustainability and reassures donors that their contributions are maximized. One way to explore revenue models is to conduct a “competitive analysis.” Pull the publicly available Form 990s of nonprofits in your community that are similar to yours in size and/or mission.

• As an example of one of an infinite number of nuances, federal funding in one program cannot be used as a match in another federally funded program.
• Unlike for-profit businesses, most nonprofit organizations operate on shoestring budgets, which makes the question of how a founder of a nonprofit gets paid a highly contentious one.
• To help you avoid these pitfalls, here are some essential budgeting best practices to keep your nonprofit financially stable and mission-focused.
• Look at your ratio in the whole context of your mission and organizational culture.
• Keep in mind that total compensation includes all your expenses for salaries, wages, benefits, and other compensation.

How organizational values influence salaries

Sometimes, though, organizations get into trouble because a staff member, usually the CEO or executive director, is paid an excessively high salary. When considering a career in the nonprofit sector, one of the critical factors potential employees evaluate is salary. Unlike the corporate world, where compensation can often be substantial and incentivized by profit margins, nonprofit salaries operate within the constraints of donor funding and mission-focused budgets.

• As a rule of thumb, organizations should strive for a current ratio of 1.0 or higher.
• And donations and other grants can qualify as matching, but they must be committed.
• They acknowledge that different types of organizations will have different goals here, but in general they say it should cost between 3 cents and 20 cents to raise a dollar.
• Typically, the non-profit board includes a president, vice president, treasurer, and secretary.
• However, in my experience, the vast majority of unpaid executive directors would prefer some form of compensation but the organization may not have the funds.
• In order to take initial seed money and grow it into a substantial nest egg for use toward those longer-term charitable purposes, nonprofits are allowed to invest in stocks, bonds, funds, and other typical investments.

What percentage of your nonprofit budget should salaries and administrative expenses be?

Cost of labor is how expensive it is to hire people in an area—not how expensive it is to live in that area. Organizations should keep in mind that inflation is short-term while base pay increases are more permanent. Inflation has been low for the last decade with most salary budget increases trending above the inflation rate. Employers experienced a similar situation and set of choices in 2008 with the Great Recession. Restraint is recommended in how much an organization should add to their overall salary budget to prevent longer-term consequences of paying more than an organization’s desired market position. More disturbing than generally low salaries are the gender differences in salary.

Board Cafe: How Much to Pay the Executive Director?

Challenges abound in calculating the revenue and expense numbers that will populate your one-page budget. Nonprofit HR hosts dynamic educational, networking and collaboration events designed to explore the critical talent and culture issues facing the nonprofit sector. From culture management to harassment prevention to diversity, equity and inclusion, Nonprofit HR provides the needed knowledge and insights for your organization to best support your people. Also, it’s easier for popular charities such as food banks, children’s issues, and animal welfare organizations to have success with fundraising instead of less popular causes such as the LGBTQ community or AIDS support. Considering this, certain large fundraising events such as high-ticket galas or telemarketing campaigns may move nonprofits over the 35% threshold, yet they can be very profitable.

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• However, you could have bylaws that allow for two people to be co-presidents and share duties.
• Keeping this ratio favorable enhances financial sustainability and reassures donors that their contributions are maximized.
• Although the IRS does not have rules on how much a 501c3 can spend on overhead, spending more than 35% on overhead could hurt your credibility and drain funds that should be going toward your programs.
• If your organization is mostly grant-funded, is your plan to sustain current grant funding while seeking new foundation or government grant sources?
• However, I can tell you that in churches, the ratio is consistently and predictably closer to 55% regardless of the church’s size.
• A board member on the same board who makes $300K a year may feel that $90K is too low to get anybody competent.
• Every nonprofit should use compliant employment and compensation practices that are in consonance with IRS standards when allocating funds for the payment of salaries.

However, salary is not the only thing that a job candidate can negotiate. I am a huge believer that organizations and executives are well-served to have an employment contract in place. Diversity, equity, and inclusion are also important considerations for many organizations. For example, if an organization is trying to right past wrongs regarding equitable pay, it may bump the salary up if it has hired a woman or BIPOC leader. Don’t starve your organization in an effort to divert every penny of your donations to programs. This will stifle your growth while you chase a goal that most donors do not expect you to achieve.

The following article is in reference to operating budgets and should not be confused with endowment funds that are accumulated, invested and held in perpetuity the income from which is used to fund the organization. The chart below reflects the overall distribution of payroll spending among the 3,098 churches surveyed to date. Use Candid’s free dashboards to accounting services for nonprofit organizations learn how billions in grant dollars flow in the U.S., and compare foundation funding by state with data on foundation grants given and received by nonprofits in each state. Location also remains a key factor when it comes to median executive compensation. Nonprofit organizations in the Midwest have the lowest median executive compensation compared to all other U.S. regions. Organizations located in the Northeast have the highest— with District of Columbia being the state with the highest median compensation overall.

The work that volunteers perform must be in service to the organization’s charitable purpose and not for any commercial venture. However, most nonprofits manage a diverse workforce of both paid staff and unpaid volunteers. For example, an equine therapy nonprofit might pay an executive director, an accountant, a fundraiser, a volunteer coordinator, and a therapist. Nonprofit salaries can vary widely based on role, location, and organizational size.

How much of my expenses should be fundraising costs?

The leverage ratio measures how heavily leveraged an organization is.  In other words, how reliant is an organization on debt? This nonprofit ratio also is an indicator of https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ how sustainable an organization is. In its simplest form, it shows how many dollars of current assets an organization has to cover its current obligations. The benchmark for this nonprofit ratio may look different for each organization, depending on how service-based the organization is. In order to stay competitive and to keep up with technology and infrastructure, organizations need to spend money on overhead. Regularly update budget estimates based on real-time information and feedback from staff involved in program delivery.

One of the most common questions nonprofit organizations face, especially when they are new or small, is how much to pay their executive director. The widely accepted metric is 15% or less of a nonprofit’s budget should be spent on fundraising costs. According to an analysis of IRS Form 990 statistics for 209,755 nonprofits, 87% of funding was spent on program expenses, 12% on Management and general expenses, and 1% on fundraising. The answer to how much of one’s budget should be dedicated to salaries is influenced by both accountability and perception. For instance, the Better Business Bureau standards for charities say that at least 65% of a nonprofit budget (including salaries) should be devoted to programming expenses.