How Much Does Your Program Really Cost?

From the National Council of Nonprofits' Nonprofit Knowledge Matters October Newsletter:

Your Mission: What Does it Really Cost?
Too often the grant or contract a nonprofit receives to deliver a program or service, whether from a foundation or the government, simply does not cover the full cost of delivering that program or service. This problem is highlighted in the National Council's recent Special Report: Costs, Complexification, and Crisis: Government’s Human Services Contracting "System" Hurts Everyone. The report illustrates how government contracts that do not cover the full cost of services cut into the muscle of the nonprofit providing the services, and ultimately weaken our communities.

In fact, failure to cover the full cost of services and programs was the #1 problem uncovered by the first-ever national survey documenting the serious and widespread problems experienced by nonprofit human service providers under contract with local, state and federal governments. View the findings from the survey conducted by the Urban Insitute.

The "full cost recovery" problem is echoed by the experience of nonprofits receiving funding from private philanthropy. Foundation grants frequently fall short of covering the actual cost to the nonprofit of delivering programs and services covered by the grant. For instance, a survey by Grantmakers for Effective Organizations (GEO) found that only 20 percent of foundations say that their grants "often or always" include the appropriate overhead to cover the amount of time grantees spend reporting on their grants. Read a national study by GEO.

In order for nonprofits to be sustainable this paradigm has to change.

Whether from the perspective of capacity builders, or nonprofits that are striving to build their own capacity, we should recognize that part of the problem – and a big step towards a solution – lies with nonprofits themselves. Here are three things you can do:

1. Know how to calculate the full cost of delivering programs and services – not the "budgeted" costs (often a euphemism for anticipated or projected costs) but the actual costs of service delivery.
2. Advocate for your organization by communicating the actual costs of program delivery to funding sources.
3. Communicate to funders that shortchanging nonprofits by not paying the full cost of service delivery is a barrier to the sustainability of individual nonprofits.

The bottom line is that without knowing how much to ask for, and without receiving full cost recovery, nonprofits will never be able to build their capacity or provide sustainable services to our communities.

Wondering where to start? The National Council's Capacity Building Hub shares resources to help nonprofits understand and calculate the full cost of delivering their mission, and to help grantmakers understand the importance of full cost recovery.