Do you know how much it really costs you to deliver a service or programme? If you don’t know the costs of delivering the service, how can you communicate it to others, including funders?
Often organisations undervalue the services and programmes they deliver simply because they haven’t “done the numbers” to calculate the actual costs. It may sound complicated, but it doesn’t need to be.
First, record the direct costs of each service. These are costs directly related to the individual programme or service such as materials, labour, travel, equipment and any other costs specifically related to the delivery of the programme/service.
Then add in the indirect costs, these are overall costs such as your admin team, rent, marketing and promotion, power, phone and internet, insurance, subscriptions to services such as Xero etc, accounting costs and any other costs not directly related to a particular service.
The next step is knowing what percentage of your organisation’s indirect costs goes towards the delivery of each of your services so that you can accurately apportion your indirect costs to each service/programme. Once you know this you can add your direct and indirect costs to get a relatively accurate picture of how much any of your services are costing you over a year, cost per session and also cost per attendee.
See the example below:
Case study – ABC Community Centre has three programmes / services.
- Annual operating costs are $180,000.
- $80,000 expenses relate to direct costs and indirect costs total $100,000
| Programme/service | Direct costs | % | Indirect costs | Total costs |
| Counselling services | $60,000 | 70% | $70,000 | $130,000 |
| School holiday programme | $15,000 | 20% | $20,000 | $35,000 |
| Adult education classes | $5,000 | 10% | $10,000 | $15,000 |
- 720 Counselling sessions delivered – $130,000 ÷ 720 = $180.55 per session
- 60 days school holiday programme – $35,000 ÷ 60 = $583.33 per day
- 48 Adult Education Classes – $15,000 ÷ 48 = $312.50 per class
Once you know this, your organisation will be in a powerful position to negotiate with Government agencies when contracts are renewed. It’s also great information to have when fundraising or asking for donations or sponsorships as you can tell supporters what their contribution helps to fund.
If you have a Government contract, it’s also a good opportunity to review the service you provide against what is included in your agreement. Are you delivering more than what’s covered in the agreement?
You’re definitely not alone. Many for-purpose organisations do this as they want the absolute best outcomes for their clients. However, it does negatively affect the financial sustainability of your organisation, particularly if you’re delivering more than you are contracted for over a number of years.
If you can’t renegotiate to get more funding to cover everything being delivered, consider separating out what you are over delivering on into a separate service that you can then seek other funding for.
For example, an organisation has a government contract to deliver 260 counselling sessions per year and it’s delivering 350 sessions per year. While there is no difference in the service being delivered, separating out the additional 90 sessions makes it clear to other funders what they are paying for and that they are not subsidising Government services, which many philanthropic funders will not fund.
The current funding environment is the perfect opportunity to review your services to see if they are still meeting the needs of the community and if the funding model works.
SociaLink’s ‘Organisational Advisor – Funding and Finances’ can help with any stage of this process.
Contact Tracy tracy@socialink.org.nz