The budget is often one of the most difficult parts of a grant application. One common point of confusion surrounds direct versus indirect costs in a nonprofit’s budget for a particular project or program.
Let’s break down the difference between the two:
Direct costs are the activities or items associated entirely with the project or program. This may include project materials, program staff salaries, and other fees that pertain only to the program.
Indirect costs include items that are associated with running the organization as a whole, like administrative staff salaries, rent, utilities, office supplies, etc. Your entire organization uses these items both for administrative purposes and for other programs. You can calculate a percentage of these costs for your program, but you shouldn’t include 100% of the costs of these items in your budget.
Some foundations are picky about the percentage of indirect costs they consider reasonable and will be open to financing. Others don’t pay much attention, as tends to be the case with smaller, less sophisticated funders. Larger foundations, as well as government entities, however, may specify their requirements, so pay close attention to those guidelines as you’re writing your budget. We hope this has helped your understanding of direct versus indirect costs in a nonprofit budget.
Quick Tip: You’ll also want to make sure your budget and your narrative tell the same story. If they don’t align, reviewers will note a red flag. And they may not fund your project.
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