Nonprofit organizations nationwide are experiencing the challenge of having to provide a greater scope of services while receiving fewer financial resources. According to results from Marks Paneth, LLC.’s 2018 Nonprofit Pulse survey, 38 percent of nonprofit respondents have experienced funding cuts in the past year and 63 percent have seen an increase in demand for services. Additionally, nonprofits also may be faced with a decrease in corporate and individual donations, as changes to the federal tax code may impact how charitable donations are deducted.
Faced with financial challenges and future uncertainties, some nonprofit organizations may consider tapping into their endowments, liquidating assets such as real estate, or cutting back on services provided. However, these strategies should be only used as a last resort. Instead, your organization may be able to stretch its budget by finding savings from within your overhead costs.
Look beyond your GPO
Group Purchasing Organizations are a means to leverage volume discounts on goods/services through the collective purchasing power of the GPO’s member organizations. Nonprofit organizations that utilize GPOs may believe that they are receiving the maximum savings available to them.
While GPOs may offer competitive pricing on thousands of items, those items may or may not be the items that member organizations want or need to purchase. And “off list” purchases may come at a big premium. Often times, negotiating directly with vendors helps them to understand your specific needs and allows them to customize an offer that will result in better overall discounts on the goods and services you actually use.
It should be noted that in addition to the member fees that GPOs generally charge, the GPO is also earning a fee on many transactions from approved vendors in exchange for bringing them more business and through manufacturing rebates for promoting specific products. These built-in fees are eliminated when negotiating directly with suppliers.
Conduct a thorough review of current services and related prices
Often, we learn that due to time constraints and staffing limitations, the review of ongoing various service invoices may not uncover changes in rates paid. Approvers may do a high-level review to assess fees and then sign off. Some examples of things that can be missed include:
- Suppliers not providing notice of periodic price increases or hiding them in a contract’s small print or emails.
- Not fully reviewing auto-pay invoices, as often happens with Payroll invoices. An invoice cross-check isn’t conducted by Accounting (as Accounts Payable isn’t involved in processing the invoices). Fee increases can be missed, as some vendors announce price increases on actual invoices.
- Not canceling redundant services. Some nonprofits have found that in some expense categories services that have been replaced , but not canceled and are still billing.
- After undergoing a thorough review of an expense category, many nonprofits find that the rates being charged differ from what was originally contracted.
- A number of vendors will provide a contract that includes a note to look online for the “Complete Terms and Conditions.” These terms and conditions state things along the lines of “Vendor can increase price one time per year up to 5%. If the increase is more than 5%, the client has 20 days from the time that they receive their invoice to dispute the increase.”
- In Telecommunications, there are numerous vendors that increase the cost for POTS lines and other like services one or more times during the course of a year. Most—but not all—of these vendors do send out some type of notification, but often times these notices slip by and increases happen.
To prevent the above-mentioned situations from occurring, consider conducting a thorough line-by-line review of all invoices. The purpose of this is two-fold:
- Making sure the prices are consistent with active contracts.
- Confirming with stakeholders of the services, that they are utilizing all services for which they are being billed.
Ensure your vendor works with you to streamline expenses
Organizations should work with all of their vendors to cohesively strategize how costs can be reduced. An example of this is insurance. The staff member responsible for insurance at a nonprofit often wears many different hats. While they ensure that coverage is enforced, they usually don’t have the expertise to uncover ways to reduce premiums, enhance coverage, or improve services. Take risk management, for example. What strategies are others in the industry using to mitigate the chance that something bad happens? By reducing the chance that a claim occurs, the nonprofit becomes a much better “bet,” which translates into underwriters vying for the business. This competitive tension drives premiums lower. Developing a risk management strategy for each line of coverage starts with the broker. The broker knows best practices based on their book of other similar clients. With that in mind, nonprofits should insist that a broker provide risk management consulting as part of the service package.
Review your supplier pricing without challenging long-standing relationships
Many nonprofit organizations also have strong relationships with their suppliers that go well beyond the services provided, as suppliers will also provide support through sponsoring annual galas and fundraising events. This is a significant aspect of a supplier relationship and many nonprofit clients are hesitant to ask suppliers to renegotiate their prices out of concern that it may jeopardize donations. However, this support from suppliers should not outweigh paying competitive rates. Suppliers who provide donations, can offset some of the cost within the services provided. With this in mind, it’s important to review your purchasing history and make sure that the cost of services is within a reasonable range. Your organization can seek out a third party to review and negotiate favorable rates, as this approach would keep pricing competitive while maintaining a strong relationship with incumbent suppliers.
Consider a third-party resource for purchasing guidance
Another reason to think about bringing on a third party is to assist with additional procurement needs. Current procurement staff may not have the bandwidth to conduct a detailed review of your organization’s purchasing history and current contracts across numerous expense categories. A third-party resource can take the time necessary to review expenses and effectively negotiate with suppliers on your organization’s behalf. This ensures that you are receiving the best pricing for services provided.
By taking the time to review your organization’s current overhead expenses and incumbent supplier services, your organization can likely find the savings that can help to stretch your budget further amid funding challenges.