Breaking the nonprofit starvation cycle: Fund what it takes
For-purpose organisations in Australia struggle under the weight of the nonprofit starvation cycle. This systemic issue forces nonprofits to underinvest in core infrastructure—salaries, administrative costs, technology—just to survive.
The Pay What It Takes (PWIT) initiative is a direct response to this, encouraging a fundamental shift in how funding is distributed across the sector. At its core, PWIT challenges the outdated belief that overhead minimisation equals effectiveness. While funders often focus on keeping overheads low, research shows that sufficient funding for operational costs is critical for long-term success.
A recent study by Social Ventures Australia and the Centre for Social Impact highlights the consequences of this starvation cycle. Findings indicate that many nonprofits operate at the brink, with overheads comprising as much as 33% of total costs—yet funding agreements often allocate only 10-20%. This gap leads to financial vulnerability, staff burnout, and stifled growth, ultimately limiting the impact nonprofits can have on communities.
The solution? Funders must embrace multi-year, flexible funding models. By covering the full cost of operations, including indirect expenses, funders can build genuine partnerships with nonprofits, fostering trust and resilience. In fact, the most impactful nonprofits don’t skimp on overheads; they understand that building organisational capacity leads to better outcomes.
Moreover, true funding transformation requires collaboration. This is where the PWIT initiative shines—working across sectors to co-create guidelines that help funders and nonprofits alike move beyond outdated narratives of scarcity. The approach reframes funding as an investment in social change, encouraging funders to go beyond the surface metrics and focus on genuine impact.
“A love letter to our sector. It’s packed with insights from inspiring leaders who tell it like it is. They share their wisdom and experiences—the good, the bad, and sometimes the ugly sides of funding practices that can either amplify or hinder our aspirations for creating lasting change in Australia.”
Funders that shift their thinking from "doing more with less" to "funding what it takes" empower nonprofits to thrive, ensuring they can meet the complex challenges of our time.
Here’s a TL;DR summary of the latest 93 page Pay What It Takes (PWIT): New Perspectives on Applying PWIT Principles in Australia report which you can download here.
The report focuses on the nonprofit starvation cycle in Australia, where underfunding of overheads restricts operational capacity. It emphasises the need for funders to move towards flexible, unrestricted, and multi-year funding models to ensure nonprofits have the resources required for sustainable impact. Through candid interviews with sector leaders, the report explores challenges like mistrust, regulatory pressures, and the outdated focus on overhead minimisation, offering actionable steps to foster collaboration, transparency, and a more supportive funding environment.
