At Sydney Children’s Hospitals Foundation, we’re committed to driving impactful change for sick children, but achieving this requires an honest conversation about the true costs of making a difference. The "Pay What It Takes" report, prepared by Social Ventures Australia and the Centre for Social Impact, shines a light on the critical issue of funding indirect costs and the need for sustainable support in the charity sector.

Key insights from the report

1. Indirect costs and impact: Indirect costs, including IT, HR, and finance, are essential for charities to deliver their missions effectively. However, these costs are often underfunded due to misconceptions that lower overheads equate to greater impact. Research shows that effective not-for-profits typically invest more in these areas to sustain long-term outcomes.
2. The cycle of starvation: The report identifies a damaging cycle where charities underreport their true costs to meet funders' unrealistic expectations. This "starvation cycle" deprives organisations of the resources they need to innovate, retain talent, and maintain compliance.
3. Sector vulnerability: With 25% of Australian charities operating at a deficit and 77% reporting financial strain, the report underscores how underfunding indirect costs jeopardise their ability to meet growing demands and navigate economic challenges.
4. The real cost of delivering impact: The average indirect costs for not-for-profits are closer to 30% of total expenses, yet many funders limit these costs to 10-15%. This disparity hampers charities' abilities to function effectively, risking both their sustainability and the quality of their services.
5. Call to action: Funders are urged to adopt full-cost funding models, ensuring that not-for-profits can cover both direct and indirect costs. By doing so, they empower organisations to achieve greater impact without sacrificing their long-term viability.

Why it matters

The report challenges the outdated notion that overheads are wasteful, advocating instead for a shift toward understanding them as integral investments in achieving social change. For funders, charities, and the public, embracing this perspective is crucial for building a sustainable sector that can address complex challenges.

To explore the full findings and recommendations, read the complete “Pay What It Takes” report on the Social Ventures Australia website.

By supporting charities holistically, we can ensure they have the resources to drive meaningful and lasting impact for the communities they serve. Let’s work together to break the cycle of underfunding and champion a more effective future for social change.