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For many charities, covering core costs is a constant challenge, so what are the ways in which fundraising charities can tackle this successfully?
Firstly, we need to agree what core costs are. They are basically all those central costs which are not directly applicable to service delivery, such as management and admin, general office costs, accountancy and audit, fundraising, governance and compliance costs. The challenge is that they are not seen as exciting by donors and may even be perceived as "wasteful" by some. So how can a charity best cover its core costs? There are broadly speaking five ways, as follows:
1. Basic Budgeting
In this approach, each project budget includes an allocation to cover core costs, typically at between 10% and 20%. This can be broken down where necessary to show the specific costs involved. It is not a perfect answer, as it does not always cover the whole core and may need a range of projects to do so, but it is at least a partial answer for some charities.
2. Full Cost Recovery
This is an accounting approach, whereby all the core costs of an organisation are allocated across its projects, based for example on how many staff are involved in delivering each. The benefit is that it covers all your core costs. However, it can make some of them look quite expensive and it requires a solid finance and admin system to calculate, allocate and track costs.
3. Project Repackaging
Question: When is a core cost not a core cost? Answer: When it is a project! Some core costs can be redefined as projects in their own right and funding sought for them. An example might be your rent or consumables. This will vary greatly from one organisation to another. The place to start is with the annual budget. So take your current version, review the budget headings and be creative. There are many examples of where core costs have been reinvented and funded as projects. You do have to be able to make a good case for them and the trick is to link them to the benefits for your charity's clients. This approach is also budget relieving, as monies raised will cover what you were going to spend anyway.
4. Unit Costing
Another effective approach is to identify all the costs of an operation or project and then work out some basic unit costs, such as that per client or per day or per month etc. A few minutes with a calculator will produce a good choice of unit costs. You then need to choose the ones that sound best value for money and build them into your appeals. The beauty of this approach is its flexibility. For example, a unit cost of £100 can be multiplied to make appeals for £1,000, £5,000 etc. This approach works well with individual donors and with small to medium sized grant makers.
5. Fundraising Techniques
A final way to cover core costs is to employ fundraising techniques that raise general funds. So cash appeals to individuals, community fundraising, corporate fundraising, legacies, trading etc all bring in money that can be spent wherever needed. Investing in these areas over time will reap benefits of additional core funding over time.
In practice, most organisations use a combination of several approaches to cover their core costs. There is no magic wand, although full cost recovery claims to be this. For fundraisers, some creativity and imagination is required and this should be reflected in your fundraising strategy. Over time, it is often possible to solve the core cost challenge.
If you are struggling with this or any other fundraising issue, feel free to call Simon George on 01785 663600 for an informal chat.
There is a further resource on this topic here.
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