The issue of how to cover your core costs is a thorny one that has challenged many organisations in recent years. It is hard enough to raise project costs, let alone core costs, so what are the ways in which fundraising charities can tackle this successfully?
First, we need to define core costs. These are essentially all those central costs that are not directly applicable to delivering work, such as management and admin salaries, general office costs, accountancy and audit, fundraising and governance / compliance costs. The challenge is that they are not seen as sexy and may even be seen as wasteful by some potential donors. So what can we do about it?
There are essentially five strategies an organisation can use to cover core costs, as follows:
1. Basic budgeting
This is the approach whereby each project you raise funds for includes in its budget an allocation to cover core costs, typically at between 10% and 20%. This can be broken down where necessary to show the specific costs that are covered. It is not a perfect solution, 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 many charities.
2. Full cost recovery
This is an accounting led approach where 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 benefits are that it covers all your core costs. However, it can make some of them look expensive and also requires a solid finance and admin system to calculate, allocate and track costs.
3. Project repackaging
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 form one organisation to another. The place to start is with the annual budget. So make a cup of tea, sit back and 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 users. This approach is also budget relieving, as any money raised will cover what you were going to have 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 handy unit costs, such as the cost 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 or whatever is needed. This approach works well with individual donors and small to medium sized grant makers.
5. Fundraising techniques
A final way to cover core costs is to use 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.
In practice, most organisations use a combination of several approaches to cover their core costs. There is no single right answer, although full cost recovery claims to be this.
For fundraisers, some creativity and imagination is often required and this should be reflected in yourfundraising strategy. Over time it is possible to build general income streams to address the core cost challenge.
There is a further resource on core costs from Wootton George.