Giving pains: The cost of grant-making
Assessing the cost of foundation funding applications
The process by which charities apply for foundation funding “embeds inefficiencies” and leads to small and medium charities spending more than a third of their grant income on applications, according to new research.
A new study for the Law Family Commission on Civil Society has found that inefficient application processes overseen by charitable foundations and trusts mean the charity sector is spending at least £900 million each year on grant applications alone.
The research, carried out by Giving Evidence for Pro Bono Economics as part of the Commission, highlights the high number of funding applications which are ineligible and unsuccessful, as well as finding many processes “unnecessarily laborious”.
The Commission calls for more funders to pay serious attention to the costs created by their processes and redesign them to improve efficiency and reduce the number of ineligible and unsuccessful applications.
It recommends that trusts and foundations publish funding priorities and criteria, provide eligibility checkers, collect only necessary information and ensure application forms have questions visible upfront, as well as encouraging more funder collaborations and joint application forms.
The study found small charities (with income of up to £100,000) spend 38% of their total grant income on fundraising applications, while medium charities (with revenues between £100,000 and £1m) spend 35%. Large charities (with income of £1m and above) spend 16% of their grant income on the application process each year.
The financial burden imposed by grant application processes currently is compounded by a drop in charity income driven by the pandemic and subsequent cost of living crisis, which has seen inflation increase costs and reduce the value of grants and donations in real terms.
However, the new report also points to examples of good practice, where funders have taken the initiative to make changes to reduce the costs they create, by redesigning their application processes to improve efficiency and reduce the levels of ineligible and unsuccessful applications. In other instances, groups of funders have come together to create single application forms, pooled funds or a ‘shared front door’ for charities seeking support.
The report, titled Giving pains: The cost of grant-making, identifies four key issues that underpin the inefficiencies in the grant-making system:
In the UK, there are more than 10,000 charitable trusts and foundations. In 2019-20, the top 300 foundations, which account for about 90% of foundation giving, gave approximately £3.5 billion in grants.
Research by the Directory of Social Change found that between a third and a fifth of grant applications were ineligible – representing a significant level of wasted resources for charities.
High levels of demand mean that most funders are oversubscribed. A 2019 study by Bath University – which estimated the annual cost of grant applications at £1.1bn – found that two-thirds of applications were unsuccessful, meaning that the £1.1bn cost equated to £374m spent on successful grants and £726m on unsuccessful applications.
The new Commission research found that a lack of shared working among foundations and trusts meant most organisations have bespoke application forms and approaches – meaning charities must enter similar information many times, often in different formats.
Among various issues identified by the study, the Commission found that many foundations do not publish eligibility criteria, meaning charities cannot be sure they are eligible before starting an application. The research also found application processes are often excessive – with one respondent describing a 60-page form being required for a grant of £500.
Many application forms are also often poorly designed, hard to navigate, do not make the questions visible to applicants at the start of the application (so that they can gather information and plan their answers) and cannot be saved when applicants need to pause and come back to them.
The Commission has recommended a range of “incremental improvements and initiatives be undertaken by individual funders” and called on more funders to come together in collaborations. A future study will explore in greater depth how such changes in funder behaviour can be spread at scale across the funding system.
Helen Barnard, Research and Policy Director at Pro Bono Economics, said:
“Much of the vital work carried out by charities around the country would simply not be possible without the billions of pounds of funding made available by foundations and trusts each year.
“However, this crucial pipeline of charitable funding embeds inefficiencies which are requiring many charities, especially smaller organisations, to spend significant sums of money on the application process.
“There are various examples of innovative funders already taking action to streamline their processes and cut down on inefficiencies, but this needs to be done at scale across the sector in order to save charities from considerable expense each year.”