During the startup phase of any organization this kind of behavior is not unusual, and often doesn’t even feel like a sacrifice. But my board knew I couldn’t do that for more than a few years without burning out, so they gently prodded me to make the programs self-sustaining. As a result, we have extremely robust programs for an organization of our size.
It turns out that I had a basic misconception of how an effective nonprofit organization should function. My early philosophy was that donations to our programs should be straight pass-throughs, with some large fund or donor financing oversight and program development. I figured I would just pay that out of my pocket until such a fund or donor arrived on the scene.
My board encouraged me to consider the costs of implementing of such a high-minded plan. I soon found out that it was easy to give money away, but hard to make sure it was used effectively. For beneficial long term results, simply throwing money at a problem wasn't enough. As an example, for our scholarship program we have to evaluate potential scholarship recipients, track their progress, distribute funding in regular amounts to the right person to prevent spree spending, and perform many more checks and balances. This requires coordination by local staff, which costs money.
At this fork in the road, some organizations stick to their guns and pledge to raise separate funding for those activities. Some lucky ones have large donors in their back pockets. Others, however, must raise a massive amount of unrestricted funding every year to cover this.
Unrestricted funds are notoriously difficult to raise. They also fluctuate with the economy more than donations to designated programs. I finally realized that tying the viability of an organization’s programs to the ongoing success of unrestricted fundraising was pretty risky. Later I saw first-hand some of the problems encountered by other small organizations working in Guatemala which had taken this approach. Pura Vida does rely on some unrestricted funding, but it’s one stream of many. Thanks to our sustainable financial model, we has never had to cut staff, or defund programs, or drop students.
So what is our model for sustainability? It simply involves covering the full cost of each program with designated donations. This includes what I will refer to as direct and indirect costs. Using the example of a student sponsorship, a sponsor’s donation covers direct costs like tuition, books, uniforms, supplies, and transportation. It also covers indirect benefits such as helping to fund the education of scholarship students who are not yet sponsored, costs of keeping records on sponsored children, translating and forwarding letters, and meeting emergencies. As long as there is a critical mass of sponsored students, the program can survive on it’s own financially without huge infusions of unrestricted funding. That frees up our staff and volunteers to do more meaningful work developing programs and growing relationships.
Prospective donors often ask how much of a designated donation goes to direct vs. indirect costs. This ratio can often be useful as an indicator of a nonprofit’s priorities. Our target is to apply 80% towards direct costs and 20% towards indirect costs. That number will vary by program and year, but it’s a guideline we take seriously.
For student sponsorships, factors that can affect reaching this target include the number of unsponsored students carried vs. funded, the sponsor dropout rate, and each student’s specific school and family situation. For work trips, variables such as airfare, final passenger count, and dropout rate factor in. It’s hard to hit the target exactly, but we generally come close.
Looking back, I’m happy that my board nudged Pura Vida in the right direction for long-term success. We still have a need for reliable unrestricted funding, and I want to thank our unrestricted donors for their ongoing support. We hope to continue funding and growing our programs in the future with this self-sustaining model.