How to calculate overhead cost ratios

How Ci calculates overhead cost ratios

Overhead costs are the sum of two parts, fundraising costs and general & administrative costs.

Part 1: Fundraising cost ratio

To calculate the fundraising cost ratio, we take total fundraising costs and divide by total fundraising revenues. To calculate fundraising ratio, follow the CRA Charities Directorate’s guidance (CRA Fundraising Guidance CG-013, April 20, 2012 - see sources below). Fundraising revenues are commonly donations, grants from foundations and special event revenues.

Please note, government funding is NOT included in fundraising revenues. This is a common misunderstanding in the charity sector. Canada’s policy is consistent with other countries. Government funding is not included in the calculation of fundraising costs per IRS policy in the US. 

Part 2: Administrative cost ratio

While the CRA tells us how to calculate the fundraising cost ratio, the issue is how to combine it with the administrative cost ratio.

But math rules say that one cannot add ratios with different denominators. Charity Intelligence is frequently asked how it can add the overhead cost ratios when each has a different denominator:

Here Charity Intelligence believes that all revenue streams, whether they be fees for service, donations, special events, or government funding, should bear an equal administrative cost. No revenue stream should get preferential treatment or be overburdened by admin costs. Without any additional information provided by the charity, Charity Intelligence uses the assumption that the Admin cost ratio for Fundraising revenues (Admin costs allocated to Fundraising / Fundraising revenues) is equal to the overall charity Admin cost ratio, so the two can be added together.

Notes:

1. Investment income. Investment income is excluded from total revenues as it is standard practice in charity accounting to report investment income earned off investments net of management fees. As such, the admin cost has already been counted.
2. Global Fundraising ratio: Different fundraising events have different fundraising costs. Some fundraising is expensive and some fundraising is cheap. The exact fundraising costs will vary. The fundraising ratio does not show the exact cost of a donor’s individual donation, it shows the charity’s overall fundraising costs.

Sources:

CRA Fundraising Guidance CG-013, April 20, 2012