Technology is worth the investment, but it can be challenging to increase overhead in a nonprofit. Especially when the first question on many donor’s lips is, “How much of your budget goes directly to programs and services?”
With prominent organizations like Charity Navigator using an overhead ratio as a key factor in their ratings, it’s easy to get caught up in this chicken and egg problem. Nonprofit leaders can’t do more unless they have the right technology, but they’re afraid to invest because donors expect low overhead.
The Stanford Social Innovation Review calls this the nonprofit starvation cycle. The cycle begins with donors’ unrealistic expectations about how much it costs to run an effective nonprofit. This results in nonprofits skimping on vital systems and proudly stating their low overhead, which fuels donors’ skewed beliefs.
As the Philanthropy Journal points out, “The pressure to keep overhead costs low can prompt organizational managers to go against smart management strategies... starving themselves of necessary overhead resources and unnecessarily increasing program spending in order to minimize the overhead ratio.” Fortunately, University of North Carolina researchers have developed alternative methods that account for input as well as output. For example, the Data Envelopment Analysis automatically assigns weights to the inputs and outputs that maximize efficiency and calculates an efficiency score.
As your organization considers new technology, you may want to delve more deeply into the literature on these changing models to change the conversation - moving the discussion toward impact instead of financial ratios based on flawed assumptions.
Ready to make the case? Let’s talk now about three ways nonprofit tech can act as a catalyst, enabling your organization to do more than you thought possible. This will elevate your request from simply another expense in the budget to a strategic investment in the long-term effectiveness of your nonprofit.
As consumers, we’re regularly exposed to the ways technology can encourage collaboration, save time, and generally make our lives easier. Your stakeholders - from grantees to reviewers to board members have come to expect a better experience when interacting with nonprofits. We realize this is a bit ironic given the previous discussion about overhead costs, but we’ll leave that aside for the moment!
Your constituents will be more engaged as you remove obstacles and connect with them in a more personalized way. You’ll also make a better impression, which can translate into trust, great public relations, new partnerships, and donations down the road. Not to mention, in an era of heightened security and privacy awareness, you’ll give your stakeholders peace of mind with privacy-compliant technology.
Let’s take a look at how a grant management system can improve the overall experience of each primary stakeholder:
And let’s not forget - having a CRM embedded in your grant management system gives you an easy way to build and maintain relationships. Your CRM can help you send ongoing updates to your database of grant seekers in a very personalized way, referencing previous conversations or previous grants you may have funded.
You might already collect a variety of information about your grantmaking efforts. But if you’re like many nonprofits, it’s housed in a combination of spreadsheets, databases, emails, and even hard copy. This type of disparate data only gives you a glimpse into the true impact of the grant. Imagine what your organization could accomplish if it had a way to look at all this data critically? How would these insights influence the trajectory of your mission?
Grant management software offers a way for grant managers to collect, track, and report on grant impact in a coordinated way. And with over 1000 integration options, organizations can easily export their data - clean and ready for further analysis.
Our grant management software also allows for a more robust review process, enabling grantmaking organizations to feel confident in their funding decisions. You can set up blind reviews, have multiple review stages, and design different scoring mechanisms. Reviewers can discuss applications amongst each other, make notes for themselves, or communicate directly with the applicant. All these tools help your team make better decisions.
As you pitch the idea of nonprofit tech to your decision-makers, you may excitedly share the amount of time you’ll save through various features. And while this is true (and an excellent reason to invest in technology), your argument should also focus on what you’ll be able to do with that newfound time.
This is where using the overhead ratio can mask the true value of investing in technology. For example, you may have a full-time administrative staff member responsible for fielding questions from grantees, organizing grant applications, distributing grants to reviewers, and generally keeping track of the entire process. Let’s say by investing in a grant management system, this person’s administrative duties are cut in half.
Using the overhead ratio as a guide for efficiency, your overhead would go up, and therefore your efficiency would go down. However, this person now is free to do follow-up surveys to grantees, more in-depth grant impact reports, and can proactively stay in communication with stakeholders.
It may take a little time to see the results as the software is implemented and systems are put into place, but there’s no doubt your organization will make more of an impact. That’s what really matters.
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Nonprofits certainly have to make smart choices when it comes to their operations and expenses, but investing in the organization itself and the tools necessary for it to reach its goals should not be seen as a negative. A well-researched purchase of powerful technology can very well be the decision that drives your nonprofit to the next level.
