Net Grants - How Much Is That Grant Really Worth?

deep_down_inside_we_all_love_math.jpg

I just got back from the Grant Professionals Association conference in St. Louis.  It was a great conference with lots of learning opportunities for grant pros.

I presented a session entitled "The State of Grantseeking and Its Implications for Grant Professionals" that drew some conclusions about what the current state of grantseeking means for everyone involved in the grantseeking process.  One of the issues that rose to the forefront was the increased competition for grants with limited available resources. 

Several people asked about how to make the case to others in their organization (say, senior management) that a particular grant was not worth pursuing, particularly given limited resources.  I mentioned the concept of a net grant calculation, and enough people asked me about it that I figured it was worth writing a blog post (it's something I've talked about before, but not in this forum).

So here goes. Fair warning: this is going to be a bit long.

The net grant calculation is a tool to help discern the net monetary value a grant will provide to your organization -- so the grant revenue net of expenses to get and manage the grant.  Fundamentally, it is:

Grant Amount - Total Grant Cost = Net Grant

For simplicity, just taking the amount requested as the grant amount is a good starting point, but it doesn't accurately reflect the expected amount of the grant.  Since this post is going to get long, and I want to get to the meat of this calculation quickly, I'll put the more  nuanced version of the grant amount (the expected amount) further down, and you can read all the way through if you're so inclined.

The total grant cost is not the cost to actually run the program you're trying to get funded.  You'll need that information, too, and it figures into the decision-making process about whether or not to pursue a grant, and which grants to include as part of your grants strategy, but it's not part of the net grant calculation.

The total grant cost is the total cost to find, apply for, get, report on, and otherwise manage the grant.  The individual components may vary depending on your organization or the particular grant you're pursuing, but here are the basic elements:

Total Grant Cost = (Hours Spent Researching Opportunity + Hours Spent Writing LOI (if there is one) + Hours Spent Writing Application + Hours Spent Communicating with Funder + Hours Spent Writing Reports + Hours Spent on Any Other Miscellaneous Grant-Related Activities) * The Hourly Salary of the Person Doing the Work

This can get a bit tricky.  Your organization may have multiple people working on different parts of the grant process.  And people get testy about salary information.  The most accurate version of this calculation will take into account the different hourly salaries for each person working on a particular part of the grant, but if you don't want to get into that level of detail, you can ballpark it or use industry averages.

And the components that go into the cost will vary, as indicated above, per organization and per grant.  Does your organization have multiple approval stages?  Do several people read and edit every grant application?  Does the funder do a site visit?  How many staff members are involved in that process?  How much of their time is committed to preparing for the site visit, beyond the time spent on the visit itself?  There are a bunch of other potential variables, and your mileage may vary. 

But at a basic level, and to make this more concrete, let's assume there's one person doing all facets of the grant process, and that person's salary is $60,000/year.   If that person has 2 weeks vacation per year, their hourly wage is $30.

Let's then say that this particular grant requires (and will require) the following number of hours from start to finish:

  • Research and find opportunity: 8 hours
  • Writing LOI: 8 hours
  • Writing proposal: 27 hours
  • Communicating with funder: 8 hours
  • Writing reports (interim and final): 20 hours
  • Other miscellaneous time spent: 10 hours

(These numbers are very rough ballparks, some drawn from data in Drowning in Paperwork)

Total number of hours spent: 81

Hourly rate: $30

Total cost grant cost: $2,430

Note: as indicated above, this is not the cost of running the program the grant will fund.  This is just the cost of getting and managing the grant. 

And this is a pretty simplistic example.  If you work in anything larger than a pretty small organization, more than one person is almost always going to be involved in the process.  And the larger the grant, generally the more complex and involved the application and the oversight, so all of the numbers are likely to be higher.

But let's say you're applying for a $50,000 grant.  In the best case scenario, the net grant value is:

Grant Amount - Total Grant Cost = Net Grant

So:

$50,000 - $2,430 = $47,570

Not too bad.  But if you're applying for a $10,000 grant:

$10,000 - $2,430 = $7,570

The most money you will then have to spend on the program you're trying to fund is $7,570.  Is that enough?  Is that all restricted funding?  Will it cover any overhead?  That's another topic for another day, but something you need to take into account when creating a budget for a program and looking at income streams.

Now, to get more nuanced about the grant amount, the grant amount isn't really the grant amount.  Seems pretty simple, right?  The grant amount is the requested funding amount.  That's one way to look at it.  A more nuanced approach would look at the expected amount of the grant.  This can get more complicated, but I would propose taking three factors into the expected amount of the grant (which you can then choose to combine in the way that makes the most sense for your organization):

  • The amount requested
  • The amount the funder is likely to award
  • The probability of getting the grant

The amount requested: pretty straightforward.

The amount the funder is likely to award: even if the funder decides to award the grant (more about that below), the amount you requested isn't necessarily the same as the amount the funder will choose to award.  Look at the funder's history (what size grants have they awarded to your organization in the past?  To other organizations?  Are you a first time grantee?  Are you a repeat grantee that they're trying to wean from their funding?  Be realistic about all of these things) - and assess what you think the funder is likely to award, even if it's different from what you requested.

The probability of getting the grant: if this has been a repeat funder for years, the probability of getting the grant may be close to 100%.  If it's a new funder, or a new program, or funding priorities have changed, or funder personnel have changed, or the economy isn't doing well, or any number of other things, the probability of being awarded a grant will likely be less than 100%, sometimes much less than 100%.

You may choose to simply take the amount requested and the probability to calculate the expected amount.  I think looking at the amount the funder is likely to award is a better data point to get to the true expected amount, and ultimately the true net value of the grant.

To make this a bit more concrete, here's a specific example.  Let's say you're applying to a new funder (new to your organization, that is).  You see from their grant history that they tend to award grants ranging in size from $10,000 to $50,000.  If you can get more detailed information, you may see that the average grant size is $30,000.  So your math on the expected amount of the grant would go like this:

Amount requested = $50,000.  Amount funder is likely to award = $30,000 (this may be a bit conservative, but it's supported by data in this case, and it's better to be conservative than to overestimate the amount awarded).  Probability of getting the grant = 50%. 

So the expected amount of the grant = $30,000 * 0.5 = $15,000.

To apply that to the net grant calculation for the $50,000 grant we were looking at earlier:

Expected Grant Amount - Total Grant Cost = Net Grant

$15,000 - $2,430 = $12,570

That $50,000 is looking less appealing, isn't it?

Ok.  We've run through a lot of numbers and permutations here, but what does this all mean?  How can you use this in your day-to-day grantseeking activities?

  1. Take this framework as a starting point.  Put in the steps (anything that involves someone's time) that are relevant to your organization, and get as close as you reasonably can to hourly wage information for the people involved.
  2. Estimate the number of hours that will be involved in each grant you're thinking about pursuing.
  3. If nothing else, prioritize those with the highest net value.
  4. Think about opportunity cost.  If you're considering pursuing two grants, do you have the bandwidth to pursue both?  If not, which has a higher net value?  If you're looking at a whole portfolio of grants, what grants are you not pursuing (or what other fundraising or related activities are you not pursuing) that might yield positive results for your organization?
  5. Use the data produced from your calculations to help make the case to your boss or your board as to why you should or should not be pursuing or spending time on particular opportunities

You made it to the end.  You must be really interested in this topic.  This was long.  Particularly since you read this far, I'd love to hear your thoughts!

 

Image source: https://flic.kr/p/8aTZ8x

Author: Dahna Goldstein
November 20, 2015, 12:33 PM

Subscribe to Email Updates

Grant Software Finder

Answer a few questions to find the right grant software solution for your organization.

Find Grant Software

Posts by Topic

see all

Recent Posts