Full Cost: Trust-Based Philanthropy
The Full Cost approach to funding is fully aligned with, and complimentary to, Trust-Based Philanthropy. The Trust-Based Philanthropy Project articulates six principles funders can practice to mitigate power imbalances between funders and nonprofits. Here’s how Full Cost can help you deepen your trust-based funding practice.
Trust-Based Philanthropy Principle: Provide multi-year unrestricted funding
The full cost framework helps funders understand the depth to which multi-year unrestricted funding is necessary for nonprofits: It goes far beyond covering gaps in day-to-day operating expenses. Unrestricted surpluses are the accounting mechanism by which nonprofits build financial health and resiliency. When efforts to fund fairly are reduced to paying a reasonable overhead rate, they ignore the liquidity, adaptability, and durability needs that organizations can only meet when their unrestricted revenue exceeds their expenses for the year. By deepening conversations about why unrestricted funding matters, the full cost framework gives funders the language and knowledge they need to advance a multi-year unrestricted funding strategy within their foundation. It also helps funders remind their grantees of important costs that can be covered with unrestricted funding (i.e., pay down debt or build working capital to manage cash flow). Even when funds are unrestricted on paper, nonprofits can be hesitant to spend money on needs that the average funder doesn’t understand.
Trust-Based Philanthropy Principle: Do the homework
Full cost helps funders understand the range of costs that every organization needs to cover to operate over the long-term in a fair and equitable way. Understanding organizational need is part of doing the homework – especially if we are to move beyond biases related to financial health.
Trust-Based Philanthropy Principle: Simplify & streamline paperwork
Many of the questions, forms, and documents funders require of their grantees are rooted in concerns that dollars will be misspent. When funders have an understanding of the full cost framework, they know what kinds of costs are normal and appropriate. Understanding full cost helps funders feel confident that they are making smart and responsible choices in the paperwork they choose to streamline.
Trust-Based Philanthropy Principle: Be transparent and responsive
Full cost gives language to be very clear about the nature of your funding and its intentions. It also gives language to ask about specific, common challenges nonprofits experience, and therefore gives the funder better data about what nonprofits need and how to respond.
Trust-Based Philanthropy Principle: Offer support beyond the check
Similar to “be transparent and responsive,” full cost gives funders language to understand nonprofit needs in a more complete way. For example, conversations about full cost will reveal: when they need technical assistance in certain areas like cash flow planning; the impact of unfunded expenses on staff and the types of retreats or networks that would support them; the kinds of board or staff candidates you should introduce them to; and the other funders with whom you should help them establish relationships.