Full Cost Project

The Full Cost Project is a joint initiative of Philanthropy California and Nonprofit Finance Fund to support a funding model that honestly assesses the full cost for organizations to deliver on their missions and to be sustainable over time. We are bringing together education, advocacy, and skill-building with the goal to increase the number of funders that provide full cost funding and to build the skills and capacity of all those engaged in grantmaking: foundations, corporations, individuals, and government.


By Changing The Way We Fund Nonprofits Right Now, We Can Fundamentally Improve Their Ability To Do The Work and Achieve Our Shared Goals 


Nonprofits are often built with remarkable resourcefulness—but a lack of sufficient funding is a serious threat to their ability to deliver social good. The expectation to continuously work with unrealistically low administrative and fundraising costs can exact a high price from nonprofits, many of whom are compelled to contort their budgets and skimp on staffing in order to deliver results within funders’ budget structures.


Funders across the country are beginning to recognize that a low budget does not equate with organizational effectiveness. In order to manage successful programs, nonprofits must have the capacity to invest in infrastructure and the people at the heart of their work over the long-term.


Where We Are: Phase III 


In light of the feedback and insights we have garnered to date, we continue to believe we can play a constructive role in shepherding the culture change necessary to overcome some of the barriers that still exist in shifting to a full cost approach. We see value in continuing to deepen and expand the successful approaches we developed in Phase Two, and to elevate the visibility of the approach in the sector more broadly.  As such, we are preparing to embark on Phase Three of the Full Cost Project.

Our efforts will fall into four categories, with related objectives linked to each:


Be Part Of The Full Cost Project


The Full Cost conversation is happening nationally, and funders here in California have a special opportunity to lead the way and make an impact on grantmaking practices far beyond our own region. Many look to our state’s philanthropic and nonprofit sectors to pioneer bold ideas.


By getting involved in this exciting statewide effort around Full Cost, you are helping to bring important best practices into the mainstream for funders and the nonprofits that provide essential services to communities across the country.




Kate Seely

Project Manger of the Full Cost Project
kseely@ncg.org  I  (415) 872 - 1021
Dave Sheldon

Vice President, Programs and Strategic Initiatives
dave@socalgrantmakers.org  I  (213) 680 - 8866
Michelle Jaramillo


The Full Cost Project aims to shift the focus from overhead to outcomes and what good outcomes really cost. Simply put, the full cost includes all necessary costs for a nonprofit organization to deliver on mission and to be sustainable over the long term. Like any enterprise (think of for-profit corporations), nonprofits and social enterprises must be able to cover the whole cost of their programs and operations if they are to deliver excellent outcomes over time. Whether an organization is serving returning veterans, providing health and human services to the most needy, or building vibrant communities, the cost of delivering results includes not only direct programmatic expenses but also the capacity and capital needs of the organization.


Misguided policies are not the only factor driving the low ceilings on overhead; culture and behavior tend to play an even bigger role. Cost decisions are drawn from many different sources and individuals in an organization; some costs make the cut and others don’t. The formula varies from one funder to another, and sometimes from one program officer to another within the same grantmaking organization. The Full Cost approach helps to overcome these inconsistencies and better aligns the missions of nonprofits with the funders who support them.


The Overhead Question


There has been much written on the idea of nonprofit overhead and whether or not it is a good indicator of nonprofit effectiveness. Our aim here is not to rehash old arguments around the overhead question. In fact, we believe we need to move beyond the overhead question and adopt a new approach that shifts the focus of grantmaking from inputs (overhead costs) to funding social outcomes.


One of the biggest challenges around funding for nonprofit overhead is that there is no consistent definition of “overhead” – in fact the term ‘overhead’ is not an official accounting term. To make it more confusing, you may also hear terms such as ‘indirect costs’, ‘administrative costs’, or ‘shared costs’ being used as the equivalent of ‘overhead’.


In the for-profit world, the customer buys the product and pays the fully loaded cost for that product. For example, when you go into your local coffee shop, you don’t restrict how much of your payment can be used to cover overhead or indirect costs. In an article in the Seattle Times, writer Melissa Allison provides a breakdown of the direct costs, indirect costs and profits for a small latte. She shows that only 25%-30% of the price you pay is for direct costs while the rest of your payment goes to cover marketing, administrative, and operating costs along with profits for the coffee shop.


Millions of people have no problem walking into their local coffee shop every morning and paying the fully loaded cost for their latte. However, when it comes to funding organizations working with the homeless, disabled veterans, or children in foster care, these same donors want to limit how much the nonprofit organization can spend on infrastructure and operational support. How long would any for-profit business last if its customers limited the amount of money the company could spend on overhead, operations and profits? Probably not very long. Yet we expect nonprofit and social sector organizations to achieve great outcomes while we continue to starve their organization’s infrastructure and operational needs. Clearly we need a new approach. If we want impact and great outcomes, then we need to begin with an approach that starts with the outcomes in mind, understands what those outcomes really cost and determines what role funders want their money to play.


The Full Cost of Great Outcomes


As defined by the Nonprofit Finance Fund, the full cost of delivering outcomes includes six key elements: Total Expenses, Working Capital, Reserves, Debt Principal Repayment, Fixed Asset Additions, and Change Capital. 



Total Expenses


Total expenses are the day-to-day expenses of running your organization. They include:

  • Regular or recurring expenses (i.e. salaries, Phone bill, program supplies)
  • One-time or extraordinary expenses (i.e. legal fees to defend a law suit, or the cost of launching a capital campaign)
  • Depreciation, which is a non-cash expense that estimates the decreasing value of your fixed assets (e.g. building, vehicles, computers) over time until they are expected to need replacement
  • Upfront and ongoing cost of impact measurement
  • “Direct” program expenses
  • “Indirect” or “overhead” expenses
  • Unfunded Expenses


Unfunded expenses are those expenses that are not currently incurred, but, if covered, would allow your organization to work at its current level in a way that is reasonable and fair. One common example in the nonprofit sector is overworking and underpaying staff.


Example: An Executive Director works 60 hours per week. The organization should hire a part time assistant, so the Executive Director can reduce her hours to 40 hours per week (without taking a pay cut). The salary of the assistant would be the unfunded expenses.


Other examples of unfunded expenses include making due with outdated software, slow internet, or sub-par supplies.


Unfunded expenses are NOT associated with expanding or doing more; they support what is already being done by your organization.


The income statement reflects total expenses, with the exception of unfunded expenses. Unfunded expenses are not captured in financial reports


Total Expenses do NOT include:

  • Any purchase that is capitalized, such as a building or equipment; such purchases are captured in Fixed Asset Additions (see below)
  • Repaying debt principal; this lives in Debt Principal Repayment (see below)

Working Capital



Working capital is the dollars to cover the predictable timing of cash ebbs and flows in the normal course of business. Organizations with sufficient working capital are able to pay bills on time, even during months when there are no cash receipts.


Working capitals is needed by all organizations. It should be easily accessible to management, without restrictions or strict designation. Working capital dollars are usually held in the organization’s main checking account.


The amount of working capital needed is highly variable from organization to organization, as it depends on the unique timing of cash in-flows and out-flows within each nonprofit. Some organizations have minimal gaps between cash in-flows and out-flows. Less than one month of working capital may be sufficient for them. Others have very large gaps between cash in-flows and out-flows. They may need to have 11 months of working capital at their cash high point in the year to make it through their cash low point in the year.


Securing a line of credit from a bank or credit union is one way to manage cash flow. The line of credit can be used to increase working capital during cash low points, and repaid during cash high points. Banks will rarely extend new lines of credit when cash is at a low point. Organizations should establish a line of credit “when they don’t need it” so it is available when they do.


Working capital is NOT meant to cover lost revenue, pay for annual deficits, or continue unsustainable activity.




Reserves are savings that mitigate risk for the organization – whether that be the risk inherent in your funding streams, the risk of trying something new, or the risk that something may go wrong with your building or equipment.   


Reserves are needed by all organizations, but the size and purpose vary – there is no one-size-fits-all.


Common examples of reserves:

  • Operating reserve: To protect the organization from short-term risk (e.g. lost funding, unexpected expense, leadership transition) or pursue opportunity
  • Facilities reserve: To maintain fixed assets and pay for repairs and/or replacement (e.g. building, equipment, etc.)
  • Research and development reserve: To allow for experimentation, risk-taking, trial and error; to investigate a new program or approach
  • Investment reserve: To generate revenue through investment vehicles


You can name and define reserves for your organization in a way that best supports your mission and vision. An operating reserve is often a good first priority when it comes to reserves. It is possible to have a single reserve that can serve multiple purposes.  For example, you could have an operating reserve that can also be used for research and development of new programs. However, you should carefully define the criteria of the reserve and the amounts needed for different purposes. One aggregated reserve can give a false impression that resources are adequate to meet your needs.


Reserves should be accessible to management depending on the immediacy of need. Some may be board-designated and require board approval to spend. They may be held as cash in a bank account or as investments that can be liquidated in a reasonable timeframe. Most reserves are intended to be replenished once they have been used.


Debt Principal Repayment


Debt principal repayment are the dollars to pay down debt (e.g. line of credit, mortgage, loans, other forms of borrowing, etc.). 


Debt can be a valuable financing tool if used strategically. It may seem obvious that when you borrow money, you need a plan to pay it back. But the structure of financial reporting can obscure debt repayment. If an organization makes a monthly mortgage payment, the principal reduction does not appear on the income statement (or P&L) as an expense.  Only the interest appears as an expense. Instead, principal repayment appears on the organization’s statement of financial position (or balance sheet) as a reduction in cash and a reduction in the mortgage principal due. In other words: repayment is commonly financed through year-over-year surpluses.


Consider how quickly your organization’s existing or planned debt needs to be repaid.


Fixed Asset Additions


Fixed asset additions are the dollars to purchase new equipment, buildings, furniture, land, leaseholder improvements or other fixed assets.  Fixed asset additions are NOT replacement or simple maintenance of existing fixed assets (this lives in a reserve) or small equipment purchases that are expensed.


Change Capital


Change capital is a large, periodic, investment into an organization to change the business model in a significant way (e.g. the size or reach of mission and/or how you make and spend money).  Change capital should be large enough to cover up-front costs of change and deficits incurred until the change is complete, when ideally the new business model revenue exceeds the new expenses. For this reason, change capital should nearly always include adequate funds for the launch or scaling of contributed or earned revenue generating activities.


Change capital that seeks to scale programs, but does not invest in revenue generating activities, will result in short-term program expansion, followed by program contraction when the change capital runs out. This is an improper structuring of change capital.


Change capital typically comes from an external source and is ideally large, flexible, and multi-year. Capital campaigns are one way to raise change capital dollars. Change capital is not often sourced through saving year-over-year surpluses.


Once an organization has received an infusion of change capital, we would not expect them to need change capital again for a long time: 10, 20, or even 30 years! The total amount of change capital needed can be difficult to calculate, because it is based on future projections of how the change will roll out, including how quickly new or expanded sources of revenue will be generated.




Full Cost Definitions and Images Copyrighted by Nonprofit Finance Fund

Commitment to doing good means commitment to providing for the actual cost to make change happen. We’re accustomed to seeing certain expenses on a balance sheet, but others are often disguised or hidden from view in order to meet the restrictions built into grants. To position our work together for success, we must recognize that many types of costs are real and necessary to do the work.


Full Cost funding is about more than making things better for nonprofits—it’s about rolling back the habitual funding practices that diminish the effectiveness and vitality of the entire nonprofit sector.


Problematic grantmaking practices have been in use for many years, but nonprofits now face other compounding challenges. In the midst of today's political, social, and economic tensions, there is widespread concern and even fear about nonprofit sustainability. Federal budgets are tightening, increasing pressure on crucial service providers to deliver more with less. 

  • Governments at the Federal, state and local levels are changing how they fund and approach social problems – often resulting in less money for many nonprofits.
  • Government funders are trying to be “smarter” about allocating limited dollars; and trends such as “pay for success” are shifting the risk from government onto philanthropy.
  • Increased focus on collaboration and collective action presents incredible possibilities and significant challenges for the sector.
  • A new wave of donors is looking for innovative means to invest in social outcomes that is blending the capital and social markets.
  • Technology and ‘big data’ are changing how organizations work, presenting a new set of opportunities and potential barriers.
  • The increase of big money in political campaigns is threatening to drown out the voices of those who lack the resources to compete.

Nonprofits not only have to run programs, but they have to be adaptable and sustainable over time. Now more than ever, funders must open honest dialogue with nonprofit partners to ensure they have the necessary resources to be adaptable and sustainable.


Commitment to Social Change Means Commitment to Funding
the Actual Cost to Make that Change Happen


Philanthropy will not be able to respond to these profound shifts in the sector by continuing business as usual. Grantmakers have a responsibility to address nonprofit financial needs more realistically, and to help nonprofits, communities, and funders prepare for these fundamental changes. As Clara Miller, President of the F.B. Heron Foundation, wrote in outlining her foundation’s new strategy, “We have come to conclude that unfortunately, our comfortable habit appears to have outlasted the accuracy of the premises on which it was founded, and in the process has grown less useful year by year. The world has changed, and so must we. It’s time for a new approach.”


Recognizing this imperative, the Full Cost Project seeks to present a new approach to funding nonprofits, a different way to engage with our grantees, and a means to better leverage limited resources to achieve maximum impact.

Across the nation, numerous initiatives and programs are converging to create an increased focus on nonprofit overhead and funding the full cost of program delivery. As this conversation takes place nationally, we are engaging California funders in a dialogue that can shape better outcomes for the sector.


Nonprofit Finance Fund (NFF)



In addition to serving as co-leader in Philanthropy California's initiative, Nonprofit Finance Fund (NFF) is working with mission-driven organizations around the country to unlock their potential through tailored investments, strategic advice, and accessible insights. NFF has been working with a full cost framework for decades. With a rich and long history in the full cost approach, NFF is spearheading the development of our statewide workshops and resources to equip funders and nonprofits with the skills to measure the full cost of outcomes and have conversations that look realistically at what it costs to achieve outcomes. 






CalNonprofits – the state association of nonprofit organizations – is leading the Nonprofit Overhead Project and working with state and county governments for full implementation of the new Office of Management and Budget Uniform Guidance on indirect costs. They are developing trainings for nonprofits and a Nonprofit Overhead Toolkit to help with accounting for overhead, managing indirect cost rates, and analyzing business models.






Forefront – the regional association of grantmakers, nonprofits, and advisors in Illinois – launched the Real Talk About Real Costs project to increase dialogue and discussion about the importance of funding overhead costs of nonprofit organizations.



Grantmakers for Effective Organizations (GEO)


For more than 15 years, GEO has advanced smarter grantmaking practices that enable nonprofits to grow stronger and more effective. Recently, Heather Peeler, vice president of member and partner engagement at GEO, wrote an article on the three myths about overhead – The Truthiness About Overhead.



National Council of Nonprofits


The National Council of Nonprofits is leading a national effort to educate nonprofits about the new OMB guidance and what it means for them. Download the guide or learn more here.




Bridgespan's True Cost Project


Bridgespan's True Cost Project helps grantmakers realize that different types of nonprofits have different cost structures. An effective true-cost analysis accurately allocates direct as well as indirect costs across focus areas such as programs, geographic sites or particular products, allowing nonprofit leaders to make more informed decisions about strategy and funding.



Office of Management and Budget (OMB)


The Office of Management and Budget (OMB) has implemented new guidelines around providing a minimum level of overhead for nonprofit organizations receiving Federal funding.




The Overhead Myth


GuideStar, BBB Wise Giving Alliance, and Charity Navigator launched the “Overhead Myth” project to end the false conception that financial ratios are the sole indicator of nonprofit performance.




Social Venture Partners


Paul Shoemaker, founding president of Social Venture Partners, recently initiated a new effort entitled Reconstructing Philanthropy from the Outside In which advocates for providing unrestricted funding and focusing funding on mutually agreed upon outcomes.




The Wallace Foundation


The Wallace Foundation in partnership with Fiscal Management Associates, a leading financial management consultant for nonprofits, created a library of resources to help your organization become "fiscally fit."



The Full Cost Project is made possible with generous funding from the following funders:










The Full Cost Project Advisory Council helps us to identify and develop best practices, policies, and guidance on what it takes for funders to effectively change their grantmaking.

  • Aden Bliss, CFO,The Ford Family Foundation
  • Vera de Vera, Philanthropy Leader
  • Sylia Obagi, Philanthropic Advisor, The Generative Group
  • Lindsay Louie, Program Officer, Effective Philanthropy Group, The William and Flora Hewlett Foundation
  • Linda Baker, Program Officer, Organizational Effectiveness, David and Lucile Packard Foundation
  • Judy McDonald, President, The Parker Foundation
  • Jennifer Price-Letscher, Senior Program Officer, The Ralph M. Parsons Foundation
  • Elizabeth Dodson, Director of Grantmaking and Grantee Impact, Silicon Valley Venture Fund
  • Vy Nguyen, Program Director, Weingart Foundation

General Operating Support: A Guide for Trustees



This report provides a thorough introduction to general operating support by clearing up common misconceptions and offering key definitions, resources, examples and steps trustees can take to advance dialogue on the feasibility of making general operating support grants. You can use this piece as a way to broach this topic and have candid conversations with your board.



Is Grantmaking Getting Smarter? A National Study of Philanthropic Practice


This national field survey from Grantmakers for Effective Organizations examines some of the key shifts in grantmaking practice, including trends in general operating, capacity building and multiyear support, and what they mean for supporting nonprofit resilience.




Treatment and Reimbursement of Indirect Costs Vary Among Grants, and Depend Significantly onFederal, State, and Local Government Practices


This in-depth research report from the Government Accounting Office reviewed gaps in terminology, classification, and reimbursement of overhead costs in government grants.





On the Money


This publication from Grantmakers for Effective Organizations highlights the financial challenges nonprofits face and the ways in which grantmakers are both improving the situation as well as perpetuating the problem. 




General Operating Support: A GEO Action Guide Vol. 1



A report inspired by a spirited discussion on GEOList among members of Grantmakers for Effective Organizations about general operating support, its limitations, and its advantages. 





Assessing the Impact: General Operating Support Vol. 2



A presentation from Grantmakers for Effective Organizations of two approaches in assessing the impact of general operating support grants: one that emphasizes pre-grant assessment and one that relies more on assessment during and after the grant.




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Why Funding Overhead is Not the Real Issue: The Case to Cover Full Costs


Claire Knowlton, Director in Advisory Services at Nonprofit Finance Fund, breaks down how the myths and misinterpretations of the true full costs of delivering vital programs have contributed to a chronically fragile social infrastructure for our communities.


Nonprofit Full Costs Realized: How Two Nonprofits Transformed their Budgets


In this Nonprofit Quarterly webinar, explore how the failure of funders to cover full costs, and of nonprofits to understand and be clear about what they are, has produced a cycle of distrust between nonprofits and funders and resulted in a sector-wide discussion and debate around the issue of overhead. Ultimately, the lack of full funding puts program delivery to communities at risk.


Dan Pallotta: The Way We Think About Charity is Dead Wrong


Activist and fundraiser Dan Pallotta calls out the double standard that drives our broken relationship to charities. Too many nonprofits, he says, are rewarded for how little they spend -- not for what they get done. Instead of equating frugality with morality, he asks us to start rewarding charities for their big goals and big accomplishments (even if that comes with big expenses).


501 (c)onference 2015: Real Outcomes, Real Cost


Across the country, every year, millions of donors decide which organizations to support, linking low administrative and fundraising costs to strong performance. There is a growing recognition that while financial transparency is vital, governance, leadership, and the infrastructure necessary to get results should be included in that equation.


Money Matters: The True Cost of Running Nonprofits


In this video from Grantmakers for Effective Organizations, nonprofit executives talk about the struggle involved in keeping their organizations adequately funded.

The size of many grants, and the strings attached to them, often dont align with the results grantmakers are asking of their grantees. Research shows that many of the ways grantmakers provide financial support to grantees are actually counterproductive. In this video, nonprofit executives talk about the struggle involved in keeping their organizations adequately funded.


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Across the nation, numerous initiatives and programs are converging to create an increased focus on nonprofit overhead and funding the full cost of program delivery. As this conversation takes place nationally, we are engaging California funders in a dialogue that can shape better outcomes for the sector.


Accelerating a Shift Toward Full Cost



This final report is intended to highlight the ways the Full Cost Project impacted participants’ knowledge, practice, and overall understanding about the value of a full cost approach. These findings will help inform Philanthropy California and key partners’ efforts in supporting nonprofits, funders, donors, and trustees adopt/adapt a full cost approach. This report synthesizes key data gathered from surveys and interviews with training participants and is organized in the following way: 1) understanding the value of the full cost approach 2) applying the full cost approach, 3) recommendations for adopting a full cost approach, and 4) conclusion.




Understanding the Full Cost of Social Impact: A Funder + Grantee Pilot



A key strategy in this initiative is to support skills building for nonprofit executives and funders to allow them to accurately account for full costs, clearly identify those costs, and discuss funding mechanisms that allow nonprofits to receive funding that takes those costs into account. To implement this strategy, the Weingart Foundation, California Community Foundation and Nonprofit Finance Fund developed the Full Cost Funder/Grantee Pilot. This report summarizes the findings of Harder+Company’s evaluation of the pilot and elevates considerations for the future implementation and scaling of this and similar initiatives.



Increasing the Impact of Philanthropy in California



Around the country, as well as across the State of California, grantmakers are examining their funding practices and looking to develop new approaches to better support the communities they serve. Recently, numerous grantmakers have begun exploring what it would take to fund the real costs of the organizations they support – that is all of the necessary investments for a nonprofit organization to deliver on mission and to be sustainable over the long term. Building off of this interest, Northern California Grantmakers, San Diego Grantmakers and Southern California Grantmakers launched a joint statewide initiative – the Full Cost Project – to increase the impact of philanthropy across California.





Barriers to Change



Representatives from more than 150 different foundations as well as government agencies and individual philanthropists participated in the Regional Forums help across the state of California to understand the barriers that were stopping grantmakers from adopting new practices. The resulting report, “Real Cost Project: Barriers to Change“, reveals common themes that surfaced from these forums and reflects the issues that participants viewed as the most relevant and urgent. Simultaneously, partners at California Association of Nonprofits held similar forums with nonprofit audiences around the state and a summary of these findings are included in the appendix.




Overhead Madness



In June 2015, representatives from more than 150 different foundations as well as government agencies and individual philanthropists participated in the Regional Forums help across the state of California to understand the barriers that were stopping grantmakers from adopting new practices. A new report, “Real Cost Project: Barriers to Change“, reveals common themes that surfaced from these forums and reflects the issues that participants viewed as the most relevant and urgent. Simultaneously, partners at California Association of Nonprofits held similar forums with nonprofit audiences around the state and a summary of these findings are included in the appendix.




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Here’s what we’re learning from recent funder efforts: the most successful transitions to Full Cost funding have included securing executive buy-in; providing support and training to the staff that structure and disperse grants; and bringing grantees into the process with open and honest communication.

Your peers are leading the way with Full Cost funding:



In response to grantee feedback from the Center for Effective Philanthropy’s Grantee Perception Report issued by the Center for Effective Philanthropy, The James Irvine Foundation announced it was making changes to support greater impact for their grantees by providing more general operating support grants for those organizations whose overarching strategy is highly aligned with Irvine’s own strategies for impact, and by covering the full cost of outcomes their grantees are seeking to achieve.



The Ford Foundation announced it was doubling its overhead designated to project grants to 20%. In his announcement on the new strategic direction for the Ford Foundation, Darren Walker, President of the Ford Foundation, addressed the overhead myth issue:

"Simply put, because of this fiction, foundations, governments, and donors force nonprofits to submit proposals that do not include the actual costs of the projects we’re funding."



The PIMCO Foundation—a corporate foundation based in Orange County—announced in 2016 that it was increasing its indirect cost rate to 25% for all grants in an effort to accurately support the real cost of nonprofit work.



The Los Angeles-based Weingart Foundation has been a stalwart supporter of Full Cost funding practices in the Southern California region and across the country for many years.





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