Real Costs

Why can't the organizations I meet with each week tell me the real cost of their programming?

Time and time again I have conversations in which people who are hoping to receive support from Catalyst explain their desire to offset some of the fees required by their participants, but need to be prompted to explain the difference between those fees and the total cost of providing their services.

This is a problem for several reasons. While it is admirable to minimize the charge for helping people (though discerning the appropriate limits of that will be the subject of several future posts), it is often a path to unnecessary difficulties.

In our contemporary North American culture the value of most things is determined by the amount someone will pay for them. Charging less for a workshop or program than it actually costs to provide practically diminishes the worth. The examples of this are numerous. If we want people to respond to our efforts we are generally better off making them aware of the expense involved in providing them.

Fundraising is one of the most demanding and time consuming aspects of most nonprofits. Time, strategy, and effort invested in this area is exhaustive and frequently exhausting. Failure in this area can spell the untimely end of otherwise outstanding organizations. Dealing in the real costs of our programs is beneficial here.

When approaching possible funders, telling us your program charges (for example) $700/participant gives us that as a benchmark wheen we consider potential grants. If your real cost is $1000/participant you've potentially decreased the scale of your grant by 30%. (Please note: foundations also have operating and administration costs and like you we try to minimize them. We aren't surprised or offended when you acknowledge them as part of your needs).

The more difficult matter when it comes to fundraising is one of scale. Most effective nonprofits are in some way interested in growing. But if we are operating at a deficit for every participant than every bit of expansion creates a larger hole for funding to fill. That may be a legitimate approach, if it is acknowledged properly, but a failure to deal in real costs makes this more challenging.

Determining real costs can be quite simple. Dividing the organization's total operating budget by the total number of participants gives a workable figure.

None of this is to suggest that we must charge participants the full cost of the program. Our suggestion is to openly reference the real cost of providing our services and the amount that is being subsidized (regardless of whether that subsidy is through a direct sponsorship or through the fundraising efforts of the organization). Those who are able to pay the full cost of their program can do so, those requiring assistance can receive it. This is a strategy that may add an additional administrative loop, but may also provide additional funds through increased program funds.

Most importantly, dealing in real costs is simply honest. It allows all the stakeholders (funders, staff, participants, etc.) to know and respond to the full story of our work. There is great value in what we're providing to society, let's not be bashful about it.