How Charities Can Justify Including Overhead Costs in Grant Applications

For many small charities, the hardest part of writing a grant budget isn't estimating programme costs – it's defending the overhead. Years of pressure to keep "admin costs" as low as possible have created the belief that the best charities operate on a shoestring. But funders are increasingly open to full-cost recovery, and the evidence is clear: strong programmes require strong foundations.

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Here's how charities can confidently and effectively justify overhead costs in grant applications.

1. Explain That Overhead Is Part of the True Cost of Delivery

Charities cannot run impactful programmes without infrastructure. Rent, utilities, HR, finance, insurance, safeguarding, compliance, IT systems, leadership oversight – these are the essential ingredients that keep services running.

A simple line in your proposal can reframe this for funders:

"These overhead costs are not extras; they are essential components of delivering this project safely, efficiently and sustainably."

Many funders now expect applicants to budget for full cost recovery, including a proportionate share of core costs. Present your overhead as the realistic cost of delivering the work they want to fund – because it is. As the National Council of Nonprofits explains, operating a charitable nonprofit is not free, and investing in staff and infrastructure is essential to advancing the mission. For more guidance on preparing strong grant applications, see our Grant Writing 101 guide.

2. Link Every Overhead Cost to Improved Impact or Accountability

Funders care deeply about outcomes. Help them see that overhead isn't a drain – it's an impact multiplier. Make explicit connections:

• Finance & audit: Ensures accurate reporting, high accountability and compliance.
• Management time: Provides quality assurance, supervision, safeguarding, and project oversight.
• IT systems: Enable secure data handling, monitoring and evaluation – essential for measuring success.
• Staff development: Ensures safe, skilled delivery and reduces turnover, keeping programme quality high.

When a funder sees how core costs strengthen outcomes, overhead stops looking like admin and starts looking like programme infrastructure. As ICAEW research demonstrates, training, monitoring and evaluation often sit within overhead budgets but directly increase effectiveness.

3. Use Evidence to Reassure Funders

Many funders worry that overhead = inefficiency. Counter this with well-established facts:

• Underfunded overhead harms outcomes. The "nonprofit starvation cycle" – a well-documented phenomenon in Stanford Social Innovation Review – shows that unrealistic funder expectations lead to systematic underinvestment in infrastructure, resulting in staff burnout, outdated equipment, poor reporting, and weaker results.
• Healthy overhead (typically 15–25%) improves impact. Research on 2,500 nonprofits found that organisations investing 15–25% of their budgets in infrastructure outperformed peers spending under 10% on admin across sectors including education, health and poverty reduction.
• Leading charity bodies reject the "overhead myth." In a landmark open letter, GuideStar, Charity Navigator, and BBB Wise Giving Alliance denounced the overhead ratio as a primary measure of performance. UK bodies including ICAEW and NCVO emphasise that 86% of UK charity spending goes directly to charitable purposes, and that overhead ratio does not reflect effectiveness.

One sentence in a proposal can shift a funder's mindset:

"Evidence shows that appropriate investment in core costs leads to stronger, more accountable, and more sustainable programme outcomes."

4. Show That Overhead Investment Protects the Grant Itself

Funders want to ensure their money is well spent. Overhead funding is how charities protect their grant by:

• Ensuring financial controls
• Providing safeguarding and risk management
• Maintaining organisational stability
• Preventing staff turnover mid-project

A useful line is:

"These core costs safeguard the effectiveness and integrity of the investment you are making."

5. Present Overhead as Proportionate and Transparent

Funders appreciate clarity. To build trust:

• Show how you allocate overhead (e.g., % of staff time, proportional rent)
• Keep the rate reasonable (commonly 10–20% for small nonprofits)
• Explain your methodology briefly and confidently

Note that block grants typically offer more flexibility in how overhead costs can be allocated, while categorical grants may have stricter requirements. Understanding these differences can help you target the right funding opportunities for your organisation's needs.

For practical guidance on calculating and presenting overhead costs, see these resources:

• Charity Digital: How to apply full cost recovery to grant applications
• Bayes Business School Cost Recovery Guide

Transparency builds credibility, and funders are far more likely to approve overhead that is clearly justified.

6. Position Overhead as an Investment in Sustainability

Funders increasingly want their grants to create lasting change, not short-term wins. Without overhead support, charities often have to subsidise projects using unrestricted income – a major drain for small organisations.

You can say:

"Including overhead costs ensures this project is financially sustainable and prevents the organisation from diverting unrestricted funds away from other essential services."

This addresses what PEAK Grantmaking research identifies as a critical issue: tight caps on overhead and people costs lead to understaffing, burnout and harmful turnover that undermines long-term impact.

Final Thought: Overhead Is How Impact Happens

The most compelling message you can give funders is simple:

Overhead isn't separate from impact — it enables impact.

When charities confidently justify overhead as part of the true cost of delivering high-quality work, funders are far more likely to invest in it. The sector is shifting away from the "overhead myth," and charities have a vital role in leading that change by being clear, transparent, and unapologetic about what it really takes to deliver meaningful outcomes.

As the National Council of Nonprofits reminds us: "The talented people that work for charitable nonprofits are worth investing in!"

Further Resources

For charities preparing grant applications:

• The National Lottery Community Fund: What is full cost recovery?
• GoCardless: Why your charity needs full cost recovery
• Sage: Full cost recovery for non-profit organisations

Evidence to share with funders:

• Stanford Social Innovation Review: The Nonprofit Starvation Cycle
• ASU Lodestar Center: How investing in overhead impacts nonprofit success
• Fund the People: Investing in the nonprofit workforce