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Is Your Nonprofit Planning to Fail?

Thursday, July 6, 2017   (0 Comments)
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GrantStation conducts a semi-annual survey on the State of Grantseeking™, with responses ranging from 2,900 to 3,300 nonprofit organizations, educational institutions, and government entities. Based on these response rates (and as always, a heartfelt thank-you to the participants) I have confidence that the data is a fair reflection of trends at the grassroots level.

(Alliance members receive access to GrantStation free of charge with their membership.)

Now, I do have a passion for the underdog, but that isn’t unusual in the world of NPOs (nonprofits)—it goes together with the desire to help your community and your world. This passion translates into one of my biggest pet peeves as I work with State of Grantseeking™ data: the continued prevalence of the self-defeating cycle of a lack of time and staff combined with staff reductions to contain administrative costs.

Of course, this issue isn’t anything new. In fact, in 2013, “GuideStar, BBB Wise Giving Alliance, and Charity Navigator wrote an open letter to the donors of America in a campaign to end the Overhead Myth—the false conception that financial ratios are the sole indicator of nonprofit performance.” What is new, at least based on our most recent data, is that there has been almost no movement away from the perception that administrative costs are “bad” and that the continual reduction of those costs is “good.”

So here is the question: If an organization lacks staff and time, but continues to reduce the number of staff members to meet artificially imposed overhead cost limitations, are they planning to fail?

We ask our respondents about their indirect and administrative costs, including questions on the budget percent, the trends, and control techniques. Here is what we’ve learned:

  • NPOs are pretty amazing at the stewardship of their monies. Our respondents generally kept their costs low; 69 percent reported indirect/administrative costs as 20 percent or less of their total budgets. Let us pause to digest that figure—over two-thirds of our respondents kept their costs at 20 percent or less of their annual budget—and I doubt that most for-profit businesses could report a similar low result. In fact, only 22 percent of survey respondents reported these costs as over 20 percent of their budgets (although, scarily, 9 percent were unsure of the budget percentage of their organization’s indirect/administrative costs).

    Is Your Nonprofit Planning to Fail?
  • These costs aren’t going away or even decreasing for the most part. Compared to indirect/administrative costs for the prior year, 57 percent of respondents reported that these costs had remained the same, while 31 percent reported that these costs had increased. Indirect/administrative costs decreased for 13 percent of respondents.

    Is Your Nonprofit Planning to Fail?
  • We also asked respondents, “How did you reduce your indirect/administrative costs?” Nearly two-thirds (65 percent) reported that they had reduced indirect/administrative costs by eliminating staff, while 29 percent reported increased reliance on volunteer labor.

Of greatest interest and concern was that while reducing the number of staff was a cost-control technique for 65 percent of respondents, it was a 5 percent increase from the Fall 2016 Report, and a 20 percent increase from the Spring 2016 Report.

These continued staff reductions are reflected in the slow increase shown in reduced services and programs and reduced organization hours. Decreases in staff sizes are doing more than stressing the remaining employees—they are impacting those who require the organization’s services.

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While numbers and statistics speak to some of us, many people prefer to learn from the personal experience of others. Here is a sample of representative comments from survey respondents about cost-reduction techniques:

  • We reduced the number of events for fundraising and utilized existing staff to plan and carry out necessary events. We also focused more time on individual giving.
  • We reduced expenses through a hiring freeze, very limited professional development, and travel, and a 5 percent cut in all departmental budgets.
  • Since we do not have sufficient money, we have reduced the number of paid staff members. We do everything to continue working at least. People need us. We have to be present for them.
  • We were forced by cuts to our state funding over the past two years to reduce administrative costs through layoffs. We have also joined a group purchasing program to reduce supply costs and have gone without necessary items for medical care until we were able to secure them through donations.
  • We looked at what things cost, putting out to bid insurance, the audit, and computer upgrades; changing back to an in-house server as opposed to the cloud; asking membership organizations for annual membership discounts; buying in bulk; changing vendors, etc.
  • We used stipends and put everybody on volunteer status.
  • We reduced our expenditures on rent, office supplies, bank charges, and utilities through conservation efforts by staff.

The resourcefulness of nonprofit organizations shines through in these comments, but so does the frustration and sadness resulting from continual staff reductions.

Is there a solution to this negative cycle? Perhaps, if each organization took a stand at a grassroots level and spoke out as frequently on the need to draw the line on further cost containment as they have spoken out about their success in reducing costs, a sea change could start. Because it is that very success in cost control that keeps NPOs from meeting missions, retaining staff, and building capacity.

You and your organization are in my thoughts as you attempt to meet your mission and do the work of many with fewer and fewer staff on board.

Ellen Mowrer is president of GrantStation, a premiere online funding resource for organizations seeking grants throughout the world. Providing access to a comprehensive online database of grantmakers, GrantStation helps nonprofit organizations, educational institutions, and government agencies make smarter, better-informed grantseeking decisions. GrantStation is dedicated to creating a civil society by assisting the nonprofit sector in its quest to build healthy and effective communities.

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