When Being Cheap Isn’t Worth the Cost for Non-Profits

Every non-profit I have ever advised, coached and joined has been in a constant state of pinching-pennies, euros and kroner.  In a world where funding is often scarce and pressures from boards and funders to keep overhead low are fierce, it seems that the bottom line is always to protect the organisation’s bottom line. 

Despite persuasive arguments from the likes of Dan Pallotta that the way we think about overhead costs in non-profits is completely wrong, overwhelming pressure still exists to spend as little money as humanly possible in subjugation to a greater social mission.

Despite this, I believe that there are 3 specific areas where it’s imperative that non-profits spend more money, rather than less.  And paradoxically by spending more money in these ways, it will reduce the total amount of money the organization spends over the long-term, all while magnifying the impact.

 1. Professional Development

Nearly anyone going into the non-profit sector is aware that they are making a decision to maximise other factors — purpose, impact, satisfaction — at the expense of reduced lifetime earning power.  The Red Cross will never compete with Goldman Sachs when it comes to compensation — and that’s okay.

What’s crucial, then, to keep employees in the sector and at the organization is to make sure that they are developing professionally, even if their paychecks aren’t keeping pace with those in the for-profit world.

While non-profits spend an average of 1.49% of their budget on professional development according to an NYU Wagner study, for-profit companies spend more than double that (3.6% percent for a total of $164.2 billion just in the US in 2012).   

Sure, this requires an up-front financial investment but as this article in Stanford Social Innovation Review recounts, when GlobalGiving began investing in professional development — offering each employee $1,200 in annual professional development funds — they grew 4x without substantial increases in staff or budget.  Once leaders are able to see the long-term implications, it becomes an obvious place to invest resources.  

2.  Technology

If I had a dime for every time I’ve heard someone at a non-profit complain about their technology, I could buy myself a rose gold iPhone 6s.  And all too often, non-profit employees put up with bad technology in the interest of saving money.  But does it really save money?

Imagine that an employee clicking and clacking away on a decade-old computer and time-abused smartphone loses 10 minutes of productivity a day from waiting for spinning beach balls to stop, restarting machines and grabbing coffee while an application slowly loads.  This works out to over 40 hours of wasted time per year — or 2% of their annual productivity.  

If that employee makes $60,000, that works out to $1,200 in wasted time annually — more than the cost of a brand new MacBook Air.  When you combine the increased productivity with the decreased frustration and increased feeling of care from leadership, it’s an obvious way to invest in and support employees, without sacrificing the budget.  

3.  Coffee

I’m all for non-profits leveraging their status for discounts, pro-bono services and generally reducing costs on the big-ticket items: think free rent space from a law firm, free accounting help from a social-conscious big firm, and videographers giving a discount for the opportunity to use their skills for good.  

But where I’m not okay with frugal spending is when it comes to the little things that actually make a big difference.

Nearly every employee will drink at least one cup of coffee per day.  With the marginal cost of good coffee in bulk being not that much more than the bitter, acidic cups most non-profits serve, it’s an example of losing the forest for the trees.  Sure, cheap coffee will save money over more expensive coffee — but the total savings is only a fraction of the cost of getting a design firm to do your logo for free, instead of charging market rates.  So, take the money you save in other places and apply it to spending slightly more on the things that actually affect employees' daily lives.  

And it’s not just coffee.  It’s little things like ergonomic chairs, celebratory birthday cake and transportation reimbursement; these don’t cost much as a share of the budget, but have a huge impact on how an employee feels at work.  You don’t have to be Google or Facebook, showering your employees with perks — it’s simply recognizing that small investments in the office culture and environment can increase happiness, productivity and commitment.

Investing in these things doesn't require a ton of money.  What it does require, though, is leadership that values the long-term health of an organization and its employees.  After all, it’s only by being around for years to come that a non-profit can achieve it’s mission.  The biggest risk for an organization is becoming unproductive and losing employees.  These investments safeguard against this, in favor of long-term impact.  

So don’t be afraid to spend a bit more money on these three things.  Make these strategic investments and your employees, your budget and your impact will all be better off.