It is not that difficult to make a common-sense case to funders that it is in their foundation’s own self-interest to invest in grantee staff and the organizational systems that support that staff (AKA “overhead”).

But once the theoretical case is made, the question becomes: What exactly should funders do differently? At this point in the conversation, funders often ask if there is a “best practice” percentage of their restricted program and project grants that should be allocated for investing in talent capacity – is it 5%? Is it 10%? More?

If there was a simple percentage, presumably they could take it and run with it. Offering a formula would be a lot easier than keeping things customized and complex. Yet I always resisted the temptation because I felt that funders should respond to real need and customize their interventions accordingly.

However, I’m pleased to propose a formula that I think will satisfy funders and nonprofits alike. And it’s as simple as 1-2-3:

  1. First: Identify your current overhead percentage formula. Example: up until now, you’ve allowed 20% “overhead” costs and 80% “program” costs in your grants.
  2. Second: Flip the formula on its head. Now you offer 80% for the cost of grantee  leadership growth, staff development, and operational excellence. Plus you offer 20% for the cost of zoom accounts, muffins, marketing, and handouts for events and programs. That new formula reads like an actual nonprofit budget.
  3. Third: Encourage grantees to use your funds to significantly invest in the well-being, support-systems, and development of staff. Make it widely known that you care about the effectiveness, equity, and endurance of grantees by sharing your new funding formula on your website, in your grant guidelines, and in any grant budget templates.

The overly-generous amount grantees used to pretend they spend on program expenses? No more. Now you and your grantees can spend that on growing a healthy (i.e. less burned-out and more stable), highly-skilled, productive team supported by smooth operations (like good H.R. policies and services) that make their vision and mission sing! And that unrealistic sliver of money you used to allow grantees to use for supporting their staff? Now you spend that sliver on the more realistic, relatively modest cost of programs.

Read the full article about funding formulas by Rusty Stahl at Fund the People.