Does your board have a formula for determining how much of the budget can reasonably be covered by grants? Or do they typically expect grants to cover all expenses not covered by any other revenue source? If your answer is the latter, beware. You may be setting the wrong expectation.
For the average organization, grants typically cover no more than 25% of the operating budget over the long-term.
And if you qualify for government grants, they typically account for no more than 30% of the budget. Why? Because other funders want to know you really need them, and once you get up above that number, you suddenly look like a government supported agency. If you’re government dependent, you’re also a higher risk investment, especially given the current economic climate. One big cut and your organization could shut down. Not a pretty prospect.
The most common type of grant is a program grant; some of these grants allow for program salaries, others do not. That should be taken into account as you build your budget. Every grant agreement forms a contract, an exchange of money for services you provide to the community. It is critical that grant funds are used only as specified by the funder.
The most sought after type of grant is a general operating grant because of the flexibility it provides, but these are far less common than a program grant since they’re harder to tie to specific results. These grants allow your organization to fund any operating expense, including administrative and program salaries.
The size of the grant you are requesting should always be in proportion to your overall operations. As a general rule of thumb, your organization should not request a program or general operating grant greater than 10% of your program or organizational budget. Few organizations want to be the sole supporter of your programs and services; they want to know they are one of many groups supporting your cause.
In today’s competitive nonprofit sector, grant makers are granting funds to organizations that demonstrate the capacity to make a large scale difference in cooperation with other community benefit organizations.
Grant makers would also like to see that you are not solely reliant on grants for your ongoing operations. As such, it is important to demonstrate a relatively diversified funding base that includes support from individuals, program fees, events, endowment income, and/or other sources.
More supporters and diverse sources of revenue show your organization is sustainable over the long-term, and sustainability means that you are a better investment of their limited resources.
Grants are not a quick-fix revenue solution. Most grant makers review grant applications on a quarterly (or less frequent) basis. Government grants may take a year or more to come through. So if you need money quickly, grants are not the way to go. To be successful requires a sustained effort.
Allow up to three years to uncover giving patterns and assess the overall impact of a new grant seeking effort.