Maximizing impact: Cost containment strategies for not-for-profit organizations

As not-for-profits move forward into 2025, economic uncertainty and challenges continue to be conversations with organizational leadership and the board of directors.  Regardless of an organization’s size, operating margins and bottom-line profitability are still key to sustainability. 

While many organizations actively monitor revenue sources by carefully tracking program revenue, contribution support and donor engagement, they still face challenges due to continually rising operational costs. Not-for-profit organizations may see an improvement in their financial health by adopting various cost containment strategies.

Nine effective strategies for not-for-profits to reduce costs and boost their bottom line:

1. Operational efficiency: In the early 2000s, many organizations adopted Lean Six Sigma exercises to improve processes and eliminate operational waste. However, these processes should be routinely revisited. By automating routine tasks and optimizing workflow processes with the help of AI, significant efficiencies can be achieved.  This approach can lead to reduced labor costs and increased productivity through careful review of organizational structure and staffing.
2. Expense management: Regularly review and renegotiate contracts with vendors and service providers to ensure competitive pricing. Assess ongoing subscriptions to determine their necessity. Implementing stricter expense policies can also help control costs. 
3. Energy efficiency: Consider investing in technologies to reduce energy costs. Simple measures, such as switching to LED lighting or optimizing heating and cooling systems, can lead to significant savings.  For a more substantial transition, consider installing solar panels on your facility.  In addition to federal Inflation Reduction Act tax credits, many state and local grant programs exist to assist with these energy improvement projects. Find out how your organization can leverage IRA energy tax credits here.
4.  Volunteer engagement: Increase the use of volunteers for tasks that do not require specialized skills. This approach can help reduce payroll expenses while maintaining service levels and fostering greater volunteer engagement.
5. Shared services: Consider collaborating with other not-for-profits to share resources such as office space, administrative functions or technology. This can help divide costs and reduce expenses undertaken by a single entity.  In addition, consider whether outsourcing of services may be of a greater benefit, learn more about Baker Tilly’s Advantage for how we can support your back-office.
6. Program evaluation: Regularly assess programs to ensure they are cost-effective and align with the organization's mission. This evaluation may reveal programs that are not financially sustainable and could be discontinued or merged.  In addition, it may highlight programs that should have a greater focus due to their increased opportunities.
7. Technology utilization: Leverage technology to reduce costs and optimize efficiency. For example, utilizing cloud-based software such as Intacct, with best-in-class capabilities, may provide both a reduction in the costs of hardware and IT along with personnel cost savings through process automation.  Simple improvements, such as integrating software solutions to automate expense reimbursements or credit card processing, can yield significant savings over time.
8. Fundraising efficiency: Focus on cost-effective fundraising strategies. Many organizations continuously analyze the return on investment (ROI) of various fundraising activities and prioritize those with the greatest impact.  What works for one not-for-profit organization may not be as effective for another.  Being nimble allows an organization to pivot quickly and seize greater opportunities.
9. Budget reporting: Consider how your organization establishes budgets each year.  Instead of operating with an incremental budget, adopt a zero-based or performance-based budget.  This will require your organization to address expenditures annually based on current goals rather than carrying forward prior financial outcomes.

For organizations that have addressed this first layer of cost containment opportunities, now may be the time to develop higher levels of profitability analysis and reporting through a deeper analysis and engagement.  This may include developing measurements such as profitability by segment or department to further enhance operations or establishing benchmarks to support decision-making throughout the year. 

Baker Tilly professionals can help your not-for-profit organization review and evaluate the program and other financial impacts, with the goal of creating greater opportunities for future financial sustainability.

For more information, or to learn how Baker Tilly can help your not-for-profit organization, contact our team.