The Nonprofit Guide to Inflation

In October, the Bureau of Labor Statistics reported that the index on consumer prices rose 6.2% year-over-year, the fastest that metric has grown since 1990. As of January 2022, the annual inflation rate accelerated to 7.5% the highest since 1982.

Many leaders believe this impact is temporary – some have called it transitory – but others believe that inflation will be elevated for some time. However, even if the rate of increases slows down, prices are unlikely to “go back to normal.” Put simply, these higher prices are here to stay.

What does this mean for you as a nonprofit leader and for your organization?

Rising prices means that your money buys less. Each dollar that you raise or that’s in your bank account buys fewer books, food, and paper than it used to. Inflation means that your money is worth less today than it was a year ago. Certain sectors like energy impacted inflation substantially with gas prices surging. Shelter, food, and medical services all increased and have unique implications for many nonprofits.

This can have significant impacts on your organization and your ability to deliver on your mission. For example, if you are earning 1% on your savings account (and that would be several times the national average of 0.06%) while inflation is 7.5%, you would be losing money. Your saved up money is worth less than it was last year.

Here are some real life, nonprofit examples:

• If it used to cost $50 to provide a medical exam to a patient last year, it costs $53 today.
• If you provide a 3% cost of living increase to staff, they are actually getting a 4.5% pay cut. If you don’t provide a salary increase, that pay cut is more significant.
• If it used to cost $1000 to send out your end of year renewal mailing, it will cost at least $1,075 (probably more with the cost of stamps!)

The bottom line is that if nonprofits don’t take steps to manage the impact of inflation, it will negatively affect their ability to deliver on current programs as well as their long-term financial health.

A Note to Funders

It’s not just nonprofits who are impacted by inflation. Grant-making organizations need to appreciate that their previous funding levels are insufficient to deliver the same impact as it did in the previous year. Some funders have outlined specific dollar amounts that are available e.g. grants up to $5,000 or $50,000 are available. These expectations should change and should keep up with the inflationary pressures that nonprofits are facing. Likewise, nonprofit requests should be higher than last year (and previous years) in order to expect the exact same outputs. Increasing outputs would require additional expenditures.

How can nonprofits manage for inflation?

While each nonprofit organization is different, all nonprofits should be aware of the impact that inflation is having on your organization, your vendors, your donors, and your beneficiaries. Inflation has an impact on everyone.

Thanks to a strong stock market, a nonprofit that has invested wisely and strategically in a balanced and diversified portfolio has probably generated inflation-beating returns. This is also likely to be true for many individual investors, particularly high net worth individuals.

That’s why we believe every nonprofit should be able to accept gifts of stock. Even if you have been accepting gifts of stock before, confirm whether you are paying commissions or transaction fees. These can add up and significantly impact the amount that is going to your mission. At Endowment Partners, we charge zero fees to open a brokerage account or to accept gifts of stock. Start here to learn more!

Step 1: Review your fundraising and earned income plan

If you are currently planning appeals, consider how inflation is impacting your organization and how those donor levels or offers might be modified to correlate with your existing, increased need. Messaging this thoughtfully is a great opportunity to connect with your donors and help them to understand what it costs to deliver impact.

If you earn income through ticket sales, service fees, or merchandise, it’s likely that you’ve already considered fee increases due to downline issues that have impacted your budget. In addition to reviewing your pricing, it would be wise to also consider what parts of your service model have a high cost or low margin that could be modified.

Step 2: Review your budget and expenses

Most importantly, if you are a board member or executive team member and are making decision about compensation, remember that turnover of staff is significantly more expensive than retaining current staff. While compensation is only one of many factors involved in employee retention, it is perhaps one of the easiest to control. If it is more expensive for your employees to go to work today than it was a year ago, this should be a key factor in budgeting.

Trimming costs centers is certainly easier said than done. Jen Love says that “there ain’t no guilt like mom guilt, except for nonprofit guilt.” There’s a lot of truth to that statement. For nearly all of us, we do this work because of how meaningful and impactful it is. To cut services can seem like anathema to why we even exist. But to paraphrase Jon Acuff, if you are passionate about your mission but bad at your budgeting, sooner or later you don’t get to do your mission anymore. Nonprofits, just like people can’t do it all. We must make choices about what we’ll prioritize and how. If one or more of your programs is unsustainable in its current form, it’s best to identify that early, hit pause, and reassess.

The bottom line is that if your revenue equals your expenses and you have nothing budgeted for strategic reserve, it may be time to reconsider. Try cutting a small amount from your expenses to give yourself a cushion. Put another way, do less until you can do more.

Step 3: Review your long-term strategy

Most nonprofits don’t have credit cards or variable credit interest rates like individuals do. But if you do, now’s a perfect time to think about alternatives. With rate increases on the horizon, carrying new debt will be more expensive and if your revenues don’t increase to match that increase, that can be an additional challenge.

We’re also seeing lots of organizations considering capital and capacity building campaigns, endowment campaigns, and starting or reinvigorating their planned giving programs. Nonprofits are realizing how important donor retention is rather than trying to woo new donors through acquisition only to lose them a year later. Most importantly, we’re seeing smart nonprofit engage donors in a long-term vision rather than just emergency fundraising. These are all wise choices especially if they eliminate debt and/or increase your ability to deliver on your mission now and in the future.

As prices continue to increase, albeit probably at a slower rate than last year, how will your organization adapt and continue to do the important work it’s doing? How will you involve donors in that narrative? A long-term strategy can help you navigate these challenges and adapt to whatever the future holds.

Conclusion

While the news, even today, can seem ominous, don’t panic!

First and foremost, very smart people are working to address the inflation issue. There are signs that there will be some easing on the horizon, and you can rest assured that the staggering pace of inflation will slow.

However, it’s important to note that there’s always going to be some rate of inflation. It’s never, ever going to cost fifteen cents to buy a hamburger again! Your organization will need to have an inflation proof strategy no matter what. That begins with managing income, expenses, and your investments well. As always, having wise counsel around you who have specific expertise in the sector and can help you ask the right questions is invaluable.

The news out there can be scary! What other questions do you have about inflation and how it is impacting your nonprofit? Do you have other advice to share?

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