The full cost approach to funding is fully aligned with, and complementary 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:
1: 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 how 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 knowledge and language they need to advance a multi-year unrestricted funding strategy within their foundation. It also helps funders to encourage their grantees to consider important costs that can be covered with unrestricted funding (i.e., paying down debt or building 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, so it is important to have an open dialogue about opportunities and expectations.
2: 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 needs is part of doing the homework.
3: Simplify and 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 make smart and responsible choices while streamlining burdensome paperwork.
4: Be transparent and responsive
Full cost gives language to clarify the nature of philanthropic funding and its intentions. It also gives funders language to ask about specific, common challenges nonprofits experience so they have better data about what grantees need and how to respond.
5. Solicit and act on feedback
Full cost conversations help center the voices of grantees and inform better funding requests and grantmaking. Funders will be more effective grantmakers when they understand how to align resources with the full picture of nonprofit needs.
6: 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 nonprofits need technical assistance in certain areas like cash flow planning; the impact of unfunded expenses on staff; the types of retreats, professional development or networks that would support them; the kinds of board or staff candidates you should introduce them to; and what funder introductions would be helpful to make.
If you want to dive deeper, explore NFF’s full cost consulting options.