How can funders and nonprofits get on the same page when it comes to communicating the actual costs of running a nonprofit organization? Nonprofits operate with incredible resourcefulness, but many still struggle to find the necessary funding to cover their overhead and long-term expenses.
The Full Cost Project, a joint initiative of Philanthropy California and the Nonprofit Finance Fund (NFF), aims to tackle this challenge by training both funders and nonprofits on how to calculate the full cost of achieving outcomes and talk openly with one another about these costs. Adopting a full cost budgeting approach allows nonprofits to work with realistic administrative and fundraising costs and manage successful programs.
Recently, Philanthropy California asked Harder+Company Community Research to conduct an evaluation of Phase Two of the Full Cost Project. Our goal was to understand how nonprofit executives and funders/program officers developed their knowledge and practices in order to move toward a full cost approach. We also explored what further resources are necessary to help make changes in practice and culture.
We identified five practical steps for nonprofits and funders to consider as they begin to shift their practices and mindsets toward a full cost approach.
1. Address power dynamics between funders and nonprofits
There’s a power imbalance built into the funder-nonprofit dynamic, with funders holding significant decision-making power over the terms of funding. While nonprofit executives need to share with their funders the full cost of programs and organizational operations, the responsibility of starting the conversation rests on funders. Openly discussing power dynamics can help break down implicit and explicit barriers to supporting the full costs of nonprofits.
2. Start a conversation about full cost internally and externally
Since full cost is an emerging concept, it is crucial for funders and nonprofit executives to speak openly within their organizations and with their peers about the benefits of a full cost approach. Through candid conversations across the philanthropic sector, commitment to this approach can grow.
3. Access resources to train staff about full cost
Continuous learning is key to supporting awareness and adoption of this approach. Many nonprofits and funders were able to take what they learned in the Full Cost Project trainings and share back to their organizations. Philanthropy California provides access to online resources to further reinforce and encourage this learning process.
4. Adopt/Adapt full cost principles and practices within the constraints of your organization
While each funder and nonprofit has its own particular operational and financial structures, full cost principles and practices can be adopted within any organizational framework. It is not the goal of the Full Cost Project to get every funder or nonprofit to opt into all the practices immediately, but rather to adopt and adapt the practices that make sense within their organizational contexts and constraints.
5. Empower staff to question existing practices that are detrimental to the success of nonprofits
Staff at all levels can participate in improving policies and procedures that strengthen nonprofit impact. Organizational leaders need to be intentional about shifting their mindset to one that allows more people to play a role in making a full cost approach happen.
Steps Toward the Future of Full Cost
While our evaluation made clear that funders and nonprofits agree with the principles of a full cost approach, lots of barriers to implementation still exist. Particularly, both funders and nonprofits recognize that power dynamics make it difficult for nonprofits to have honest conversations with their funders about the full cost of operating. Even though funders are beginning to change their mindsets and practices, they are also struggling with how to incorporate new approaches under their restrictive funding structures. Work still needs to be done to move further along from principles to practices.
The Full Cost Project is now entering Phase Three of its work, which will focus on:
- Deepening relationships between funders and nonprofits to support candor,
- Creating a toolbox for full cost conversations and investments,
- Supporting institution-based deeper dives into the full cost approach and implementation, and
- Spreading the full cost message even further.
If you want to learn more about the Full Cost Project and our evaluation findings, check out our final report.