We tend to think of a $50,000 grant as $50,000 of funding. But what if the organisation receiving it spends $15,000 of its own resources getting, managing and reporting on that grant? Then the grant isn’t really worth $50,000, it’s only $35,000.

This is the idea behind net grant: the value of a grant after accounting for the costs imposed on the organisation receiving it.

Those costs might include writing applications, preparing budgets and evidence, attending meetings, managing relationships with donors, collecting data, evaluation and reporting. They can even include less obvious expectations—such as attending events or making appearances to thank or acknowledge funders. These activities may be worthwhile. But they are not free.

The Nonprofit Finance Fund coined the term “net grant”, and the concept was explored by PEAK Grantmaking, who argued that recipient organisations should estimate net grant when making the decision whether to apply for funding or not.

What does it cost an organisation to receive our money?

Caroline Fiennes powerful example is recorded in Effective Philanthropy: Towards a Research Agenda; A White Paper. While running a charity, she pursued a £5,000 grant from a family foundation. The application involved extensive conversations and meetings, followed by further meetings once the grant was awarded. When she calculated the staff time involved, it had cost the charity approximately £4,500.

When asked to report on what was done with the grant, she thought, “What grant? You spent it all!” The net grant was almost zero.

Funders should not just be celebrating how much they gave, but how much was left after their requirements were satisfied.

And what about everyone who didn’t get the grant?

There is an even bigger issue. Suppose 50 organisations each spend $2,000 applying for a grant, but only one is successful. The successful organisation receives a grant. The other 49 receive nothing—but collectively they have spent almost $100,000 pursuing the opportunity. Their net grant is negative.

That doesn’t necessarily make competitive grantmaking wrong. Competition can have a legitimate purpose. But it does mean that the cost of the funding process is much larger than the amount appearing in the funder’s accounts.

What does this mean for impact measurement?

This is something I have been thinking about in my own work. As someone who designs social impact measurement frameworks and systems, I sometimes wonder whether I am contributing to the funding burden. Measurement practitioners can feel that we aren’t doing our job unless we ask organisations to step up and change their systems to produce more and better data. But our actions are costly!

If measurement helps an organisation understand what is working, improve its services, communicate its impact or reduce the cost of future funding applications, then it is creating value. If measurement uses administrative data or data that has already been produced for other purposes, it reduces the burden on the organisation. Even better, if the reporting requirements of funders can be aligned or duplicated for other funders. And then the funder is in a unique position to add a whole heap of value, by collating and sharing the valuable information in reports. If the report is to tick the box and be put on the shelf it should not be asked for.

Aligning everything around outcomes

The organisation delivering the service, the funder providing the money and the people measuring the impact ultimately want the same thing better outcomes for more people. So we can keep asking – does this decision further or hinder our ultimate outcomes?

Does this meeting help improve outcomes?

Maybe. If it builds a relationship that leads to more resources or better collaboration. Probably not if it is simply an obligation imposed on a grantee.

Does this measurement improve outcomes?

Yes, if it helps the organisation learn and improve. Less so if it simply proves to a funder that money was spent according to an agreed budget.

Does running another competitive grant round improve outcomes?

Perhaps. But if organisations are constantly diverting resources and subjecting themselves to mission creep by chasing short-term grants, we should consider whether longer-term funding would create more stability and ultimately better outcomes.

Should we fund projects or core costs?

Sometimes the best investment in an outcome is not another project. It is giving an organisation the security, capability and flexibility (even freedom – imagine???) to pursue its mission.

What can we bring to the table to reduce the burden?

Can we share resources? Provide back-office support? Open networks? Offer strategic expertise? Reduce duplication? Help build capability?