The Cost of a Free Couch

Posted by Julee Nunley on Monday, September 26, 2016

I recently led a workshop on cost allocations for nonprofits.  The workshop covered both why fully allocating costs is valuable and a high-level methodology for completing the allocation exercise.  As we were discussing the details of allocating overhead, a woman who works for an organization that provides home furnishings to those in need talked about all the costs related to picking up donated furniture.  Those costs include direct expenses such as labor and gas, but there’s also wear and tear on the truck and the storage space required to hold the donations.  As she finished her list of related expenses, she said, “There’s a lot of cost in that free couch.”

Her comment struck me as being a good maxim for thinking about nonprofit costs in a broader sense.  It is easy to see the direct costs related to a program, but we often fail to consider those costs that are less obvious.  The effects of not understanding and therefore, not being able to communicate the costs of programs is twofold.  First, without knowing exactly what the program costs us, we are unable to accurately evaluate its performance.  Second, it is difficult to secure grant funding for overhead costs, and therefore identifying costs that can clearly be linked to programs can result in more funding.

Nonprofit Quarterly hosted a webinar last week that included a speaker from the Nonprofit Finance Fund (NFF) on the topic of full costs.  NFF has developed a framework for looking at full costs in an even broader sense than the typical model of direct costs plus indirect costs.  Their framework includes day-to-day operating expenses + working capital + reserves + fixed asset additions + debt principal repayment.   The focus of their work is on helping nonprofits secure funding for more of their costs.  If you are interested in learning more about this concept, a recording of the webinar may be accessed through this link.

Outfitters4 has staff members who are experienced in both cost allocations and in funding strategies.  Contact us to learn more about how we can help you understand your costs and help you direct your fundraising efforts.

 

Julee Nunley

Director of Financial Services