Funders realize that inadequate grant support for the indirect costs associated with implementing grant-funded programs weakens the infrastructure of nonprofits and there’s a ripple effect. As nonprofits become less able boots-on-the-ground, communities suffer too. This is a critical issue that affects the health of nonprofits and their ability to fulfill their missions. It’s encouraging that grantmakers are elevating the discussion and working towards change.
Unfortunately, I recently read that when exploring how to improve this problem, grantmakers are finding that some nonprofits don’t understand their organization’s indirect costs. Indirect costs are generally calculated as a percentage of direct costs (through one formula or another) and funders are saying that some nonprofits don’t know what percentage they should request in order to cover the full costs of a grant-funded program.
If your nonprofit doesn’t have a handle on indirect costs, now is the time to put your house in order. Unless you understand your organization’s indirect costs, you can’t hammer out full-cost program budgets or advocate effectively for realistic indirect support. Here are some ways you can do your part to support the full-cost funding movement.
- Figure out your organization’s indirect costs. If your financial staff doesn’t have the expertise for the task, hire a competent consultant. You can’t request full-cost funding if you don’t know what your full costs are.
- Not every nonprofit will need to apply for a negotiated federal indirect cost rate. But If you deal with federal funding and you haven’t done that work, please get started. The 10% de minimis rate most grant applicants can request from the federal government is better than nothing, but is far short of the real cost associated with implementing federal grant-funded programs.
- Become informed. Read articles and reports published on the topic and talk to knowledgeable colleagues. This will prepare you to make a case for adequate program support when applying for grants.
- When requesting grants, clearly articulate the necessity for full-cost funding. Advocate as much as possible with the foundations and government agencies with which you work.
When you understand your organization's full costs and are well versed in this discussion, your strong, well-reasoned voices can help move this change forward.