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Laying the Groundwork: A Quick Primer for Securing Overhead Expenses

Wednesday, June 29, 2016
Grantseeker Monthly
Grant Connect
Fundraising
Amy Rector

According to the Center for Philanthropy at Indiana University, contrary to popular opinion, increased overhead and administrative costs can improve program and mission effectiveness. However, writing overhead costs into grant proposals can be daunting, especially as definitions of overhead and appropriate overhead percentages change from funder to funder. Here are three basic tips on integrating overhead costs into your grant proposal.

1. Get it in the Budget

While it’s easy to recognize the need to write in the cost of food, salary, and specific supplies, don’t forget the equally important costs required to rent space, heat the building, and use the phone. There are also the costs associated with human resources and legal fees, necessary to run a non-profit, and therefore needed for your grant project to exist at all.

Even if you overlook your overhead costs, funders won’t. Because of their experience examining countless grant proposals, funders understand what a reasonable budget looks like and expect to see overhead costs, especially if they give allowances for it within their guidelines. Without these expenses written in, your project may appear unrealistic, and your organization may appear financially imprudent, a major red flag for funders.

2. Keep it Simple

A simple calculation to determine a reasonable ask for covering overhead expenses is to use a percentage of the whole funding request towards operating costs. Many funders already suggest a specific percentage for overhead expenses- so be sure to use it! In the case that there is no specific percentage listed, it is generally reasonable to include an ask of 10-15% for overhead costs. Be sure to calculate the percentage of overhead before the inclusion of any in-kind expenses if required to do so in the guidelines. For example, if your project has $35,000 in total expenses, which includes $5000 of translation donated by a third party, calculate the overhead percentage based on $30,000. However, if you have the option, calculate overhead on top of the in-kind expenses because managing in-kind donations are typically associated with the same (or even greater) overhead costs as other expenses. 

3. Your Budget Will Do the Heavy Lifting

Of all the sections in a grant proposal, the budget is arguably one of the most important. In fact, many funders read the budget first in order to get a sense of what the program can realistically accomplish. To report overhead costs accurately, you can either list these expenses as a single line item or multiple line items, whichever makes most sense given the funder’s guidelines. But take note- if no guidelines are given, you can list it as a single-line item but be sure to describe what the costs entail in your notes. 

Don’t forget to include line items for ongoing costs (such as salary) that will be allocated to the project, as these should be covered over and above any funds given for overhead. To calculate these ongoing expenses, multiply the time allocation for a specific resource that a project will be using by the total cost.

The best example to illustrate this point is the case of salaries: If a worker spends 30% of their time on a project, the corresponding line item would be 30% of their income. Therefore, if their income (including all benefits!) is $50,000 a year, the line item would list $15,000. And don’t forget what your third grade teacher taught you – always show your math so the funder can see how you arrived at each amount. This method can be applied generally to other ongoing organizational costs associated with the grant project.

At the end of the day…

Overhead is an essential cost that enables charities and non-profits to do the amazing work they do. By taking these three tips into consideration, asking for overhead won’t feel as unclear and demanding, but will become an integral part of obtaining the support for the important work you do.

 

Additional Resources

Looking for more guidance on asking for overhead expenses? Explore the list below to find more information on this topic.

  • Introduction to Project Budgets (Grantspace): A free training course on how to create a project budget, including how to include overhead.
  • How to Calculate Overhead for a Non-Profit (Chron): A good reference for how to comprehensively determine your overhead costs.
  • Sample Line Item Budget  (Nonprofit Works): A small and easy to use sample budget which includes operating expenses as line items. Navigate to the budgets section of the resources to find this sample budget in both PDF and XLS file formats.
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