Fundraising costs: why a fully-funded project is not money for jam

Fundraising costs: why a fully-funded project is not money for jam

Having grown up in the UK – and lived in various country villages – I know a thing or two about village fêtes – and raising money by selling jam.

Picture home-made jam in jars with frilly tops and hand-written labels stacked on trestle tables jostling for space with the tombola, the White Elephant stall, the, cake stall, second-hand books, the tea tent and quirky games such as the coconut shy, Catch the Rat and Guess the Weight of the Cake. The purpose of the village fete, held annually in the grounds of the village manor house (think Midsommer Murders without the murders!), was to raise money for the church.

About 20 or so years later, I was employed as a fundraising professional at a Wildlife Trust in Oxford. On a weekend back home in my parent’s village, a neighbour questioned why I was being paid to fundraise. She thought, much like the village fête, that charities should all be volunteer run. She had no concept of charities as for-purpose organisations employing specialists to carry out programs in the community – from local projects to huge overseas projects requiring complex logistics – AND that these programs fill gaps in services not met by Government and other stakeholders.

It’s the same scenario when you meet someone in a social setting and they confront you with that line about charities spending too much on marketing, administration and overheads. From time to time the media jump onto a story and zoom in on a charity whose overheads are apparently too high. Skewed ratios, poorly presented facts, variations in how different organisations attribute their costs, and a lack of understanding about what constitutes direct and indirect costs further muddies the waters.  The truth is that indirect costs are not a reliable benchmark of the efficiency or effectiveness of a not-for-profit.

Delivering life-changing and planet-saving programs requires skilled staff and all the elements that make the wheels turn from desks, computers, rent and electricity to staff training, OH&S, legal and accountancy fees and more. Imagine if we went to a shoe shop and demanded to only pay the cost of the leather not the skilled labour, the shop front, the fit-out, the rent, the electricity and the marketing!

Expanding on the example above, the truth is that, under many current funding models, many not-for-profits are only covering the cost of the shoe leather not the point-of-sale shoe.

Recent research, by Social Ventures Australia and the Centre for Social Impact shows the extent to which NFPs are underpaid for their indirect costs in Australia. Nine Australian NFPs, ranging in size from $100k to $100m in annual revenue across the arts, disability, and family services sectors, had average indirect costs of 33% of their total expenses, with a range from 26% to 47%. Given that many funding agreements stick to a rule-of-thumb of around 10- 20% indirect costs, there’s a yawning gap here.*

Moreover, the same research – and I see this in my work with clients – shows that NFPs are reluctant to show their true indirect costs for fear of reputational damage and negative media reporting. Or they whittle the costs down in their desire to show value for money and win a grant. By under-representing the true costs and not giving the full picture, they are effectively perpetuating underfunded models. And underfunding impacts an organisation’s operational efficiency, staff retention rates and the ability to thrive and grow.

That’s why it’s so heartening that the Pay What it Takes Model is a growing trend and conversation in the sector. Encouragingly, some funders are open to a more honest and equal relationship with their grantees, and willing to look at the full cost of project delivery, providing untied funding for organisations to direct to their greatest need projects, and moving away from short-term funding contracts.

I always encourage my clients to capture all the costs of project delivery in their funding submission budgets. One simple way to do this is to ask yourself about each cost: without this line item would this project happen? If the project would be impeded without it, then it’s a valid project cost and should be included.

If you need some light-hearted inspiration when working out your fully-costed budgets– watch the Monty Python Argument Clinic on YouTube with Michael Palin and John Cleese. It’s gold.  Michael Palin pays £1 for a five-minute argument with John Cleese, and they argue about everything including whether, when Cleese dings the bell, the five minutes is up. “If you want me to go on, you’ll have to pay for another five minutes. I am not allowed to go on unless you pay,” says a poker-faced Cleese.

NFPS take that on board – sorry funder – we can’t do this project unless it’s fully funded. We can’t go on unless we get fully funded!

Program and operational costs are not money for jam! And we shouldn’t have to argue over them.