Funding core costs: In principle and in practice

For many fundraisers, few topics generate more frustration than core costs.

Charities know these costs are essential. Without leadership, finance, administration, governance, buildings and utilities, services simply cannot operate. Yet many funders still phrase their criteria around projects rather than organisational infrastructure, leaving charities wondering how to secure funding for the functions that keep everything running.

In a recent webinar, Directory of Social Change Training Consultant George Knight tackled one of fundraising’s most persistent challenges, sharing practical ways charities can think about, calculate and present core costs in funding applications.

The key message was simple:

Core costs are not the problem. How we talk about them often is.

What Are Core Costs?

Core costs are typically defined as costs that are not directly linked to delivering a specific service or project.

Examples include:

• Leadership and management
• Finance teams
• Administration
• Governance
• Compliance
• Buildings
• Utilities
• IT systems
• Human resources

These functions often sit behind the scenes, but they are fundamental to delivery.

As George pointed out throughout the webinar, services cannot operate if the organisation itself cannot operate.

Without finance staff, salaries do not get paid.

Without governance, charities cannot function legally.

Without buildings, many services cannot be delivered.

Rather than viewing these as optional overheads, charities should recognise them as essential parts of delivering impact.

Are Core Costs Really “Costs”?

One of the most thought-provoking parts of the session challenged the language itself.

The term core costs can sometimes imply that these are expenses separate from the mission.

In reality, they are part of delivering the mission.

George encouraged charities to move away from the common narrative that says:

“80% of our money goes to the cause.”

Instead, he argued that:

“100% of our money goes to the cause.”

The organisation’s infrastructure is what enables services to exist. Without the organisational backbone, the charitable work cannot happen.

This shift in mindset can help charities communicate their needs more confidently to funders.

Why Core Costs Matter More Than Ever

Many charities face increasing pressure on both income and expenditure.

Demand for services continues to rise while organisations balance inflation, staffing pressures and operational costs.

At the same time, funders increasingly expect:

• Strong governance
• Effective safeguarding
• Robust evaluation
• Financial resilience
• Sustainable organisations

Delivering all of these requires investment in organisational capacity.

Core costs are not distractions from impact. They help make impact possible.

Fundraising and Service Delivery Must Work Together

A recurring theme throughout the webinar was the need to give fundraising equal status within organisations.

Too often, service delivery dominates internal conversations while fundraising is treated as a secondary function.

George challenged charities to consider whether fundraising receives the same attention as programme delivery.

After all, without funding, services cannot continue.

Fundraising, finance, leadership and service delivery teams all have a role to play in understanding and communicating the true cost of charitable work.

Three Practical Ways to Fund Core Costs

The webinar focused on three common approaches.

1. Basic Budgeting

This is often the simplest method.

Charities build a percentage contribution towards overheads into project budgets.

This might involve adding a fixed percentage, often between 8% and 20%, to cover organisational costs.

For example:

• Project costs: £25,000
• Overhead allocation: £5,000
• Total funding request: £30,000

Where funders explicitly allow overhead contributions, this approach can be highly effective.

2. Full Cost Recovery

Full cost recovery takes a more detailed approach.

Instead of applying a standard percentage, charities allocate actual organisational costs across projects based on usage.

This may include:

• Finance team time
• Leadership input
• Office space
• Utilities
• Administrative support

For many organisations, full cost recovery provides the clearest picture of what a project truly costs to deliver.

It allows funders to understand the real resources required and prevents charities from unintentionally subsidising funded projects.

3. Project Repackaging

Perhaps the most interesting approach discussed was project repackaging.

Rather than describing an activity as a core cost, charities can frame it as a mission-critical project.

Examples could include:

• Funding a safeguarding lead
• Funding a policy manager
• Maintaining a community building
• Supporting a finance function
• Investing in governance capacity

These activities may not sit directly within frontline programmes, but they are essential to delivering services effectively.

In many cases, reframing core functions in this way helps funders better understand their value.

Work Closely With Your Finance Team

One of George’s strongest pieces of advice was for fundraisers and finance teams to collaborate more closely.

Finance teams often hold information needed to develop realistic budgets, including:

• Organisational overheads
• Staffing costs
• Building expenses
• Utility costs
• Shared service costs

The more accurately charities understand these costs, the more confidently they can present them in funding applications.

Fundraising should not be responsible for calculating these figures in isolation.

Don’t Forget In-Kind Contributions

Another useful recommendation was to recognise the value of voluntary and in-kind support.

Many charities benefit from:

• Free meeting space
• Volunteer hours
• Donated equipment
• Professional expertise
• Pro bono services

While these may not appear in funding requests, they still represent real value.

Including them when describing project costs can demonstrate:

• Organisational strength
• Community support
• Existing investment
• Value for money

It also helps funders understand the true scale of resources involved in delivering services.

Educating Funders Is Part of the Process

Not every funder explicitly mentions core costs.

That does not necessarily mean they cannot be included.

The webinar encouraged charities to confidently explain the relationship between infrastructure and impact, helping funders understand why those costs are necessary.

Many funders are becoming increasingly aware that sustainable organisations require sustainable funding.

By presenting clear budgets and explaining costs effectively, charities can help shift perceptions and contribute to wider sector change.

Final Thoughts

Funding core costs remains one of fundraising’s biggest challenges, but it is also one of its most important conversations.

Strong services rely on strong organisations.

Rather than treating core costs as an awkward afterthought, charities should be confident in presenting them as essential investments in impact.

Whether through overhead allocations, full cost recovery or project repackaging, there are practical ways to ensure organisations recover the true cost of delivering their work.

As George reminded attendees throughout the session, charities must be just as committed to funding their services as they are to delivering them.

Because when organisations invest in the foundations that support their work, they are ultimately investing in the people and communities they exist to serve.