How to Navigate Rising Nonprofit Costs

In a recent article we published our team members offered their perspective on the most important topics facing nonprofit leadership these days.

​Liz Swanson, a nonprofit professional with over 30 years of experience leading mission-driven organizations, offered a key insight: 

---

The biggest issue I hear from Executive Directors is the rising cost of doing business… [they] are struggling to find balance between doing right by their staff (and compliance of the law) and doing right by the organization financial sustainability, especially in a time of declining donors.

We want to highlight this challenge specifically because it’s one that all organizations are currently facing and will continue to face in the coming years. Our hope is that by highlighting the underlying causes of today’s rise in nonprofit costs and identifying some strategies to combat these challenges, we can equip nonprofit organizations to operate sustainably into the future. 

​Why are Nonprofit Costs Rising?
​Like all industries, nonprofits are currently dealing with added costs due to:

• Inflation
• Rising wages
• Rising benefits costs
• Increased technology costs

In every category, costs are up. Increased inflation means that the goods and services that nonprofits rely on are now more expensive. A hike in the wage exempt thresholds means employees are making more than they were previously; and a tightening labor market means that organizations need to pay more to retain key staff so they can ensure continuity with their programming and other efforts. Additionally, rising benefits costs (specifically around healthcare) means it costs more to hire in-house employees than it did previously. Lastly, increased tech infrastructure costs mean an organization’s ongoing technology needs to ensure efficiency and maintain deliverability across programs are more expensive as well.

The compounding effect of all these elevated costs coming together has created a cost storm that has been enough to sink some smaller organizations already, while other organizations continue to wrestle with how they can pivot their strategy to respond.

Understanding the Bigger Picture of Nonprofit Financial Management Challenges
While widescale rising costs are certainly an important aspect of nonprofit management to understand these days, they do not tell the whole story of what nonprofits are facing because the problem is not simply that costs are up. The other issue that nonprofits are dealing with is that donations are down.

Charitable donations have been decreasing in recent years due to:

• Ongoing economic uncertainty
• A rise in the cost of living
• Competition from other organizations
• Donor fatigue

With the cost of living up significantly many one-time individual donors have curtailed their charitable giving. And, with the perception of economic uncertainty still on the horizon many loyal donors and corporate partners have scaled back their ongoing giving efforts as well. The result is a reduction in charitable gifts across the board, which is being felt even more severely because the number of nonprofit organizations has been on the rise over the last decade, leading to heightened competition in many nonprofit spaces and communities. And yet, competition for donations is not merely limited to other established nonprofit organizations operating in the same region or for the same cause. Individuals are also experiencing donor fatigue because more and more these days they are being inundated by private donation requests from friends and family through platforms like GoFundMe. As a result, many nonprofits are cash constrained in ways that they have not experienced previously, or to a degree that they have not dealt with before.

Strategies for Navigating Nonprofit Cash Constraints
Organizations are legally and ethically obligated to maintain fair compensation by offering competitive salaries and benefits, practicing compensation transparency, and maintaining compliance. However, they also need to practice good financial stewardship to ensure that they are using funds well. So, how can nonprofits balance these two responsibilities?
​
There are several core strategies that organizations can implement to navigate today’s cash constraints:

> Collaborating Strategically
Knowing when to collaborate and how is a key strategic decision that organizations must make based on factors like their financial position, shared goals, what kinds of opportunities are available, and expected outcomes. The best collaborations not only reduce costs but also improve efficiency, provide fresh perspective, bring in additional assets, increase credibility, and lead to greater effectiveness.

> Fundraising Better
Using innovative fundraising approaches can help to bring in additional donations and create new relationships with major donors. When organizations implement new fundraising approaches by advocating publicly for their cause and highlighting the importance of their work, they are often able to reach new donors and/or connect with existing donors in ways that they have not previously used.

> Leaning on Technology
Where technology is available to streamline operations, lean on it to reduce costs by automating tasks that are repeatable so you can save human labor for more sophisticated tasks and strategic activities. (For example, implementing an online booking platform instead of tasking employees with scheduling services for program participants is a great way to reduce costs by improving efficiency.) Many software platforms, tools, and apps have nonprofit-specific versions of their offerings and/or special pricing for 501c3 organizations that you can take advantage of to help you leverage their power in a way that’s accessible for budget-constrained organizations. But remember, technological advancements should always be accompanied by a shift in mindset by embracing innovative thinking to change the organization from the inside out.  

When your organization needs help navigating today’s challenges, please reach out to us! Our team of nonprofit consultants has the leadership experience needed to help you whether rising costs by advising on strategy and operations. Learn more about the Valtas difference today and find out why so many nonprofit organizations choose us to help them carry out their missions and serve their communities.