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.