This post originally appeared on Exponent Philanthropy's blog
When you make a $10,000 grant, the value to your grantee may be $9,000. When you make a $20,000 grant, the value may be $17,500.
Grantees incur costs preparing your grant application. Time is money, and it takes time for nonprofits to fit language to your unique questions and format, and customize financial documents to your specifications.
Nonprofits often spend considerable hours completing one application for one funder, according to Project Streamline‘s research and information gathered by foundations from grantee surveys. Since nonprofits typically apply to dozens, sometimes hundreds, of funders, the hours add up quickly to a major expense, diverting resources from meeting mission or building their capacity.
For small community-based nonprofits with limited staff, the costs can be overwhelming. These costs can disproportionately affect communities of color, which are often served by smaller, grassroots organizations.
Foundations can be more aware of the costs nonprofits incur and take steps to reduce them, making their funding go further. Foundations might also consider compensating grantees for application costs, adding to a grant award to acknowledge their time and effort.
Determine the true cost of your grants
Project Streamline developed a simple way to calculate the proposal-writing costs incurred by nonprofits: the Net Grant, which is the total amount of your grant minus the cost of time and labor the nonprofit spends to apply.
To calculate your Net Grant, you need to know how much time organizations spend completing your application. Ask a sample of your grantees in phone conversations or email surveys. Some foundations ask a consultant to gather the information or choose anonymous surveys, such as Exponent Philanthropy’s Grantee and Applicant Perception Survey, which often generate the most accurate data.
Once you get the data, share it with all your board and staff. The results can be surprising and open doors to conversations and solutions.
Eliminate application pain points
Common pain points include character limits that require applicants to edit language they created for other funders; special formats for financial information that require reformatting existing financials; and unique evaluation measures that force nonprofits to reconfigure data.
Ask your grantees which of your requirements take the most time. And ask yourself whether you really use each piece of information in the decision process, and assess its value versus the cost it imposes.
For smaller grants, consider a one-page application, or even a phone call. The IRS requires no process or documentation for grants to public charities, beyond verifying current tax status. If certain data is important to you, consider covering the costs of gathering it, and add several thousand dollars to your grant.
Build your knowledge and expertise
Many Exponent Philanthropy members scan the landscape of their community or chosen field, and some go on listening tours to talk with nonprofits, government agencies, business leaders, and area residents. Knowledge and insight about unmet needs in your community, solutions and approaches that show promise and success, and the current policy landscape give you greater clarity about what to look for in grantee partners and reduce the need for documentation down the road.
Spending time meeting grantees and potential nonprofit partners, and demonstrating that you want to learn from them, reduces the power dynamic and breaks down barriers. The trust and familiarity that results can reduce the need for many requirements and paperwork, lowering transaction costs.
Create a board culture
Among the board, elevate the idea that your application, reporting, and evaluation processes create costs, and apply the concept of Net Grant in all grantmaking conversations. You might designate one trustee to play the role of internal catalyst to help the foundation pay attention to grantee relationships and grantee needs, and ways to partner effectively. Rotate this role every 12 to 18 months.
The simplicity of the Net Grant embeds a greater degree of self-awareness and intention throughout your foundation’s work. The first step is knowing what your process costs.
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