Cost recovery is the process through which charities and nonprofits cover the full costs of their programs and services, including indirect expenses like administrative, operational, and support costs. Rather than relying solely on fundraising or grants earmarked for direct expenses, cost recovery ensures that organizations can sustainably cover all aspects of program delivery. These indirect costs are often essential for keeping an organization running efficiently but are sometimes overlooked in budgeting and funding proposals, leading to financial strain.
For charities, mastering cost recovery is vital as it contributes to long-term financial health and program sustainability. When charities fail to recover full costs, they may face operational shortfalls that could undermine their impact. By incorporating a robust cost-recovery approach, organizations can negotiate fair contributions from donors for administrative costs, align budgets to account for these, and ultimately strengthen their capacity to deliver services. This approach fosters transparency with funders, emphasizing that these “indirect” costs are essential to achieving the mission.
