Giving Compass' Take:

• Stanford Social Innovation Review makes the argument that building better relationships between funders and grantees is a vital part of "pay-what-it-takes" philanthropy.

• What are we doing to build such trust? It all starts with transparency (making sure everyone knows where the money is going), and it helps to bust out of the overhead myth.

• Here's more about the challenges within the current nonprofit model and how to address them.

This article, “Pay-What-It-Takes Philanthropy,” is a heartening sign of the growing recognition that supporting nonprofit organizations with limited, restricted funding does not work. So what can we all do to make sure this recognition leads to systemic change that sets up nonprofit organizations for success and honors funders with the results their generosity deserves?

The answer is simple in theory. But how do we practically make that work in the absence of a mutual commitment to build trust between funders and grantees?

This understanding recognizes that:

  • Full costs differ over time.
  • Full costs differ by context.
  • Full costs are about more than covering indirect costs or overhead.

Although this particular process may not work for everyone, it may be worthwhile to consider testing it among funders and grantees nationally, adding to the research agenda called for in the article.

Most importantly, all funders and nonprofit leaders can help foster more honest dialogue in these ways:

Funders: Reorient funding discussions and requests around the results you want grantees to achieve, rather than how you want them to spend money. Signal that you understand the constraints your grantees face. And provide general operating support.

Nonprofits: You must articulate clearly the impact you generate with the resources you raise, which takes time and effort you likely do not have. So start by asking the hard questions internally — that will at least make you better informed about your own full costs. Then identify which of your funders would be willing to discuss the implications of these insights.

Read the full article about grantmaking grounded in real costs by Antony Bugg-Levine and Fred Ali at Stanford Social Innovation Review.