Many have assumed that to be true, but we now know through the analysis of CFC pledge reports that donors do indeed care whether a group is spending a sizeable amount of money on administration and fundraising.
The CFC formula for calculating the AFR is
(Fundraising Expenses + Management Expenses) ÷ Revenue = CFC Administrative Overhead %
The first and second numbers are found on page 10 of the 990. The third number is found on page 9 of the 990.
You can see, of course, that the CFC formula uses revenue as the denominator. People commonly assume that overhead compares fundraising and management costs to an organization’s expenses. The government has resisted arguments that they shift to this more intuitive formula for the CFC.
However the calculation occurs, donors pay attention to the percentage figure published for each group in the CFC Charity List. In the last three years (2009-11) charities with the lowest AFR (under 10 percent) have received, on average, more than 3.5 times the pledges received by groups with overheads above 40 percent.
Here is a chart that shows the impact of overhead on pledge support for the 2009, 2010, and 2011 CFC.
Impact of Charity Overhead