This is a guest blog post by Instrumentl
Every nonprofit spends money on items that make the organization run but aren’t necessarily tied directly to a program or project. Think rent, internet, marketing, etc.
Without these operating expenses, the work of each nonprofit would likely not happen. Yet funders don’t typically love to grant operating expenses. You can learn how to make a case statement for funding support and read the tips below to help you write winning proposals, no matter your ask—operating expenses or project proposals.
What Are Operating Expenses for a Grant Application?
Operating expenses are the administrative and fundraising costs required to run your organization. Every nonprofit has to spend a portion of their money on operating expenses such as:
Administrative staff salaries and benefits
Rent
Utilities
Internet
Phone
Office supplies
Subscriptions
Marketing and fundraising expenses
Furniture and office furnishings
Software services
There has long been debate between donors and nonprofit leaders about funding for operating expenses, or otherwise called “overhead.”
It’s important to have a healthy balance between operating expenses and program expenses to show the effectiveness of your operations while stewarding your donor’s dollars. You don’t want to overspend on operating expenses, but you also want to ensure you have the resources you need to accomplish the work of your organization each day.
You typically see the standard that at least 65% of expenses are spent on programs, not on operating costs. However, this percentage will vary greatly based on the specific nonprofit because each nonprofit has different overhead needs.
Charity Water does a great job of illustrating how much they spend on their management and fundraising expenses versus actual program services in the image below. The graph is from their 2018 annual report.
Once you have your expenses categorized, you can easily present a breakdown of them to donors, grant funders, and other stakeholders.
Why Should You Care About Nonprofit Operating Expenses?
General operating expenses are crucial to accomplishing your organization’s mission. Without the proper funding, your organization would not be equipped to meet the need that it exists to meet.
Think about it this way: What need would go unmet in your community if your operating expenses were never funded? What would happen if your staff had no building to meet in, no software to manage donations, or no internet or phones to market its services?
Nonprofit leaders know that operating expenses allow organizations to run, yet funders often want to fund projects related to the people being served by the nonprofit, not the operational expenses themselves.
That’s why understanding the importance of operating expenses and being able to communicate their necessity to funders can make all the difference in your fundraising efforts.
How to Write Operating Expenses for Your Grant Application in 5 Steps
When writing a grant for operating expenses, it is important to successfully communicate the need for and impact of the operating funds you are requesting. The five steps listed below will help you do just that to make a strong case for support with any funder.
1. Find Funders That Will Fund Operational Expenses
Every funder has different funding priorities that will affect your organization’s eligibility.
Some funders specifically state they will grant operating expenses while others specify they will not. When seeking operational funding, do some research on the funders before you spend time applying. It’s essential that you find the right foundations for the needs you have.
Grant databases such as Instrumentl make it easy to not only find active funders, but to also gain insight into their different funding priorities and eligibility requirements. Instrumentl is a grant prospecting, tracking, and management tool that makes is easy to locate funders that align with your organization’s mission and needs.
Instrumentl can help you categorize the different funders based on whether they will fund your operating expenses or if they focus more on proposals that center around programs and projects.
Below, you can see a screenshot of an RFP overview from Instrumentl that provides users with a snapshot of an active funding opportunity. You can quickly and easily see from this overview what the funder’s area of focus is, saving you hours of work. You can also see the “Funding Uses'' category. This specific example is for project proposals, so you would not want to submit a grant for operating expenses here.
Rather than digging for this information and trying to find a way to write it all down to remember, Instrumentl does that work for you. Once you know a funder’s requirements and focus, you can begin to formulate your proposal.
2. Develop Your Needs Statement
One of the most important pieces of your grant proposal is your needs statement. Your needs statement is key to making a case for your operational expenses and can help you capture the attention of the funder.
This is the part of your proposal where you can communicate the problem that your community is facing and why it matters. But rather than focusing on the impacts of a specific program or project, you should show how your organization as a whole is making an impact on the needs that you address within your community and how you couldn’t make that impact without operational funding.
You will also want to pull in relevant data and showcase how your organization is the solution to the problem being addressed. Show the importance of your mission through data. And then clearly articulate how operating expenses allow your organization to carry out your mission. Your goal should be to make it clear to the funder how these expenses are part of solving a pressing issue.
3. Clearly Articulate Your Budget
Nearly all grant proposals include budgets.
When writing a grant proposal for operating expenses, the budget you include should be your overall organizational budget. This organizational budget should reflect the percentages of your program, fundraising, and operational expenses that are included in your annual report.
Develop and organize your budget intentionally to showcase how expenses are categorized and to illustrate to a funder how they can impact your mission through operational funding. Talk about how an investment in your operating expenses will increase your organization’s capacity to serve more clients.
Help funders see that every line item on your budget is a part of solving the problem that your mission is seeking to address.
Consider also creating a narrative within your grant budget to tell funders exactly what your grant operating expenses will be used for. Show how these expenses, when funded, contribute to the success of your organization. Communicate how this success will impact lives in your community. This will inspire a funder to see your operating expenses as a way to make a difference in an area they are passionate about.
Check out this post for more tips and insight on writing successful grant proposal budgets.
4. Tailor Your Proposal Narrative for Grant Operating Expenses
Your proposal narrative is typically the bulk of your application where you explain to the funder why your project (or in this case, your operational expenses) deserve to be funded.
Below are a few tips for communicating the importance of operating expenses throughout your grant narrative:
Showcase Your Growth: Show the growth of your organization since inception and showcase why you are a trusted organization to steward money given through this funder. Think about ways you can highlight how you have grown and created more impact as your capacity as an organization has grown. Tell funders how the grant operating expenses, when funded, will allow you to continue your growth.
Highlight Your Organizational Capacity: Show the funder the things you have accomplished so far to prove you are an organization that can make their funds go a long way. Show your history of stewarding dollars for operating expenses well.
Focus on Your Strategy: Instead of writing about a particular program or project plan, use this section to talk about the strategy behind your organization as a whole. Show how your organization is moving the needle on the issue you are addressing to prove the importance of funding your operating expenses to continue this progress.
Don’t Forget Evaluation: Here is a great place to talk about how your operating expenses can help you carry out evaluation methods and implement changes to better your organization’s deliverables. Help funders see that their investment in your organization will lead to lasting change.
For even more grant-writing tips, check out this post.
5. Create a Cover Letter
If the funder requests it, make sure to wrap up your operating expenses grant application with a compelling cover letter.
Even though your cover letter will probably be the first thing the funder reads, waiting to write it until the rest of your proposal is completed is a good strategy to ensure you include the most relevant and compelling details. Doing so will help you capture the funder’s attention from the start.
You should make clear in your cover letter that you are requesting funding for operating expenses and not for a specific project or program. Make sure to include your total request and briefly communicate to the funder why these funds are so essential and how they can help you accomplish your mission.
Really focus on why your organization exists and invite the funder to make a difference through your mission. Your cover letter should pique the funder’s interest and invite them to learn more by reading the rest of your proposal.
Wrapping Up: How to Write Nonprofit Operating Expenses for Your Grant Application
Don’t waste time submitting proposals for grant operating expenses to funders that only fund programs or projects. Instead, use tools like Instrumentl to help you easily find good-fit funders that align with your funding needs. And when you do find the right funders, make sure to follow the tips in this article to develop a compelling grant application.
Will Yang leads growth at Instrumentl, the institutional fundraising platform. Instrumentl brings grant prospecting, tracking, and management to one place. Instrumentl helps over 2,000+ nonprofits save time in finding and applying for more grants, with customers increasing their grant application output by 78% after a year of using the software while saving three hours per team member every week.