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Mark Salway, Managing DirectorMarcus Lees-Millais, Manager (Finance)
Moore Kingston Smith Fundraising & Management
28 May 2020
Cost recovery
MOORE KINGSTON SMITH
2.
MOORE KINGSTON SMITH FUNDRAISING AND MANAGEMENT
Impact
Finance Fundraising
Impact Management
• Predictive impact modelling
• Linking impact to strategy
• Stakeholder engagement
• Impact review and audit
Good Financial Management
• Building finance models and scenario
planning
• Business model development
• Finance and funding reviews
• Costing and cost recovery
Strategic Fundraising Advice
• Funding reviews
• Strategic fundraising support
• Strategy and case for support reviews
3.
Cost Recovery
Organisations need to
understand their cost
bases
in order to run themselves
effectively
in order to help
discussions with funders
and management about
the true cost of providing
services or outputs
to focus on sustainability
5.
WHY UNDERSTAND OUR COST BASE?
Source: Bridgespan Group in the Stanford
Social Innovation Review
• Many organisations have badly depleted their overheads and cannot now
scale up as they lack infrastructure
• Grants and philanthropy are leading to perverse incentives
• InsideNGO report on starvation cycle of charity overheads …
6.
THE STARVATION CYCLE
• Local Authority bid submitted as 7% because that was what it was
assumed the Local Authority would pay
• Actual overheads 19% - not transparent to funder as reports and
accounts showed overheads as 4%
• Bid submission for £300,000
• 12% loss on this bid alone
• Have already locked in £36,000 loss into this bid which they have to
find from unrestricted
BEHIND THE SCENES – AN EXAMPLE
7.
KNOWING YOUR COST BASE
Do you know what your
overhead percentage is?
Go to www.slido.com and use
code #MKSFM to vote
8.
• Technical knowledge
• Management information
• Culture – Silos and ‘Not for profit’ thinking
• Information held as cost centres rather than services / activities
• Business models
• Forward thinking (budgets and growth)
WHAT ARE THE TYPICAL ISSUES?
9.
Direct
costs
Direct
Support
costs
Indirect
costs /
Overheads
10.
MARGINS PER INCOME/BUSINESS STREAM
Simple Income and Expenditure Model Workshops Other
Conferences Income /
Service 1 Service 2 Service 3 Membership & Training Costs Total
Income 100,000 97,167 33,333 23,995 75,616 2,136 332,247
Expenditure
Staff: Direct 42,154 49,095 12,466 0 29,945 0 133,660
Non-Staff: Direct 12,542 1,654 0 0 38,439 1,150 53,785
Staff: Indirect & Direct Support costs 26,080 21,580 5,301 5,474 20,759 43,635 122,829
Non-Staff: Indirect & Direct Support costs
6,286 5,371 1,535 1,659 4,624 8,317 27,793
Contribution 12,938 19,468 14,031 16,862 (18,152) (50,966) (5,819)
Net Margin 13% 20% 42% 70% -24% NA -2%
Direct
costs
Direct
Support
costs
Indirect
costs /
Overheads11.
MARGINS PER INCOME/BUSINESS STREAM
Simple Income and Expenditure Model Workshops Other
Conferences Income / Service 1 Service 2 Service 3 Membership & Training Costs Total
Income 100,000 97,167 33,333 23,995 75,616 2,136 332,247
Expenditure
Staff: Direct 42,154 49,095 12,466 0 29,945 0 133,660
Non-Staff: Direct 12,542 1,654 0 0 38,439 1,150 53,785
Staff: Indirect & Direct Support costs 26,080 21,580 5,301 5,474 20,759 43,635 122,829
Non-Staff: Indirect & Direct Support costs
6,286 5,371 1,535 1,659 4,624 8,317 27,793
Contribution 12,938 19,468 14,031 16,862 (18,152) (50,966) (5,819)
Net Margin 13% 20% 42% 70% -24% NA -2%
Allocation of Overheads 15,872 14,165 3,519 1,300 17,095 (51,952) 0
Surplus / (Deficit) (2,934) 5,302 10,512 15,561 (35,247) 986 (5,819)
IMPACT
INFRASTRUCTURE QUALITY
GOVERNANCE
+
Impact measurement
• Capturing data on
outcomes and outputs
• Monitoring and
evaluation costs (MEL)
• Costs of turning
learning into practice
(TULIP)
• R&D
Focused on regulation
• CQC Monitoring Costs
• Regulation
implementation costs
Focused on Federation
• Costs of maintaining
federated ‘Brand’
• Costs of volunteers
General Costs
• Property costs (even
when you own the
building)
• Working capital
• Irrecoverable VAT
Overheads
• IT
• HR
• Finance
• Legal
• CEO costs
• Governance costs
• Internal audit costs
Shouting about our work
• Marketing and Brand
• Advocacy
• Awareness
• Fundraising
• Trading
Commissioning
Business Development
3.
2.
1. 4.
5.
6.
12.
WHAT ARE CHARITIES FAILING TO COUNT?
13.
Building a model
14.
Direct Costs
Direct Support Costs
Indirect Costs
Full
Cost
Recovery
Travel
Service Delivery
Staff Costs
Handyman
Uniforms
Regulation
Training
Premises
Telecomms.
CEO, IT,
Finance
Aim to move
indirect costs up to
direct costs
Profit or ContingencyInclude Profit
element for
pricing
BUT we need to
have balance
COSTING MODEL
Can you think of costs currently
counted as overheads that should be
charged to services?
Go to www.slido.com and use code
#MKSFM to vote
15.
16.
Costing versus Pricing
Direct Costs
Direct Support Costs
Indirect Costs
Risk & Contingency
Surplus
Full Cost Recovery
Profit or
Risk / Contingency
Pricing
COSTING v PRICING MODEL
17.
18.
Calculating day rates
How many days do you use to
calculate your day rates?
Go to www.slido.com and use code
#MKSFM to vote
19.
How to effectively calculate day rates
365 Days
104 Weekends
261 Days
8 Bank Holidays
25 Days Holiday (???)
8 Sick days
220 days
20 Training and on Charity business (say 10%)
200 Days total
We propose to calculate day rates based on 200 days.
Alternatively, 180 days based on 81% utilisation.
20.
WE NEED TO DECIDE ON NUMBER OF DAYS…
21.
COST RECOVERY MANUAL AND SPREADSHEET
https://www.cass.city.ac.uk/faculties-and-research/centres/cce/business-
services/sustainability/cost-recovery
Full Cost Recovery
• Do you cover your costs in Bids?
Tips from previous workshops run by Mark and Marcus
Cost Recovery
• Charities need to know their overheads and be able to justify these
to funders.
• The need to focus on cost recovery, understand our business
models and report transparently on any subsidy you provide to
funders.
• Allocate a fair proportion of overheads into each activity or service to
understand the real cost of doing business.
• Most Charities are calculating day rates on 260 days per year, but
exclude holidays, sick days, bank holidays etc. 200 days is far more
appropriate.
• Walk away from unsustainable work and be able to say ‘no’ or at
least taking a strategic decision to fund this from reserves.
22.
LEARNING FROM PREVIOUS WORKSHOPS:
FULL COST RECOVERY
WHAT’S ON THE HORIZON?
LOTS COMING UP…STAY
CONNECTED!
• Thursday 11 June (4:00pm)
Webinar – Agile fundraising - adapting
cases of support for Coronavirus and
the new normal to follow
• Thursday 18 June (10:30am)
Webinar – Does your charity have an
impact-led strategy? Or are you
focused too much on the money?
• Ongoing services: bid-writing, cost
recovery, impact measurement,
stakeholder engagement, fundraising
• 30-minute surgery slots
• Get in touch [email protected]
Thought pieces, resources and previous webinars:
Evidencing Impact for emergency funding - Karl Leathem
How do charities plan for a future that is so uncertain? –
Webinar
Grant fundraising in a crisis – Webinar
Effective grant applications in Covid-19 - Dan Fletcher &
Penny Court
What I have learned from Humanitarian Response - Mark
Salway
Responding to tough times - Mark Salway
MKSFM Impact Measurement Toolkit
https://mooreks.co.uk/insights/impact-measurement-
toolkit/23.
Mark Salway
MD, Fundraising and Management
Marcus Lees-Millais
Manager (Finance)
Moore Kingston Smith
Fundraising & Management
+44 (0)20 7566 4000
www.mooreks.co.uk
Twitter: @MooreKSLLP
