Net Grants

Flaw #3 identified in the Project Streamline report examines the concept of “net grants”

Nonprofits don’t really receive grants. They receive “net grants”—the total amount of funding minus the true cost of getting and managing the grant. Nonprofits must weigh the possibility of funding against the cost of seeking it…

…The grant and organization size were not found to be good predictors of the time spent during application and reporting: small and large grants can be equally time consuming, according to CEP’s data. In fact, nonprofits in our study reported that smaller foundations can be harder to work with: despite small grants, they often have highly specialized requirements.

In a recent post I mentioned that a friend of mine (who’s opinion I respect very much) disagrees with my use of “investing” as a frame for understanding philanthropy and thinks that philanthropy is better understood through models of “consumer behavior” (ie. donors do not invest in nonprofits, they “buy” the “social good” that nonprofits are creating). [quick tangent: George Overholser thinks both views are correct and differentiates between the two viewpoints in his article “Building is not buying”]. When thinking about the concept of “net grants” it is useful to look at the issue through the investing frame. If you are buying a product, you do not care about the seller’s costs. You just want to get the best value. But as an investor in a company, you want to help them as much as possible. Therefore you should be interested in reducing their costs. You want the size of your “net grant” to be as large as possible.

If you are buying the services of my firm Ensemble Capital, you don’t care what our company’s “client acquisition” costs are. But if you are investing in the company, you care very much about these costs. Another way to think about it is this; all of the money in a foundation has already been given to nonprofits, it is just being held for future delivery. This is factually the cases since the IRS only grants an income tax deduction for gifts to nonprofits because the gift is considered a “completed gift” to a nonprofit. That money literally belongs to the public. So whether a cost is paid for by a nonprofit or paid for by a foundation, the end result is the same. We know that foundations care very much about keeping their own administrative costs down, so the logical extension of this decision would be to minimize the cost to nonprofits of obtaining grants.

I think the concept of “net grants” is a powerful one and something foundations should understand when they think about their grant making. Realize too that the costs of the nonprofit that actually obtains the grant are not the only relevant costs. If 100 nonprofits spend $1,000 each to pursue a $100,000 grant, they the net grant would be $0. Nada. Nothing gained. In effect the foundation has just taken $1,000 away from the 99 nonprofits that failed to get the grant and delivered the money to the winning grantee.

One Comment

  1. New Nonprofit Metric – Dollars Raised per Word Written

    (In grant applications, fundraising letters, workplace giving catalog descriptions, web page donation forms, etc.)

    By Bill Huddleston, CFC Expert

    Why is workplace giving the most cost-effective means of fundraising for non-profits? My particular expertise is with the Federal Government’s workplace giving program the Combined Federal Campaign (CFC), and this analysis is based on the CFC.

    If the CFC were a foundation, in terms of actual giving, it would be in the largest corporate foundation in America, with Federal public servants donating more than $270 million dollars in the 2007 campaign. (The largest corporate foundation is the Aventis Pharmaceuticals Health Care Foundation which gave $221 million in 2006).

    CFC streamlined approach to fundraising:

    Each year there is an application process, less time consuming than almost any grant application. Ninety-four percent of charities who apply are enrolled, and the six percent that do not get in, are in general, those that failed to read the directions. (They have been some exceptions to that, and there is an appeals process). This application we will say is about 10 pages worth of material (similar to a grant application in length, but only the campaign management sees it, the individual donors do not see the applications).

    Each fall, all Federal employees are given their region’s CFC catalog, which has 25 word descriptions of all charities in that region’s CFC. The CFC non-profit is the one who writes the 25 word description. So the written material that the donor is basing her or his giving decision, is the 25 word description, plus the website if desired.

    It’s not unreasonable for a small to medium size local non-profit to receive $10,000 in donations from CFC donors — certainly some non-profits receive more, and some receive nothing. More than 90% of the donated funds are designated to specific charities. It’s also reasonable for a national non-profit (not the huge ones) to receive $50,000 from the more than 250 regional CFCs.

    So using those numbers: Let’s compare what is the most efficient means of fundraising:

    Foundation Grant Application:
    10 pages, 400 words per page, Total: 4000 Words

    For a $50,000 Grant
    Dollars per word: $12.00

    For a $10,000 Grant,
    Dollars per word: 2.50

    CFC Nonprofit:

    $50,000 in CFC donations
    (multiple donors, but the non-profit only had to write one 25 word description:

    $50,000 in CFC donations Dollars per word: $2000.00

    $10,000 in CFC donations
    Dollars per word: 400.00

    So in terms of dollars raised, per effort expended (the definition of leverage), CFC fundraising is 160 times more efficient than the grant application (2000/12 or 400/2.50 equals 160).

    With the CFC, there is an added bonus to the leverage equation:

    Follow-up activities after monies are awarded:

    Foundation Grants – Extensive, varies by foundation.

    CFC – Zero, no red tape for follow-up. Pretty good for a government program!

    The CFC charity has to apply each year, but there are no follow-up requirements.

    If you would like to learn more about the CFC, please go to and request my special report about the CFC.


    Bill Huddleston, CFC Expert,