Many requests for proposal will ask for an administrative rate, also known as General & Administration (G&A) expense rate, or indirect rate. In this blog we address some of the most frequent questions we get in our consultations and with clients. This is a basic introduction of key concepts. Indirect expenses can get complex, with multiple rate structures and multiple tiers or rates. If you have additional questions, feel free to contact us at no charge for a quick response.
What Is an Administrative (G&A) Rate?
Your agency has costs that cannot be charged directly to any one project. Such costs include heating, lighting, rent, and administrators’ salaries. In a simplified model, your G&A rate is the total amount of indirect costs for, say, a whole year, divided by the total direct costs for that same period of time.
The Administrate rate, by the way, is not the same as the cost of fundraising, a statistic that occasionally is requested by funding agencies. The cost of fundraising is a topic for another blog article.
Why Do Funders Want to Know Admin Rates?
Some foundations will not pay for G&A costs in their awards. Others will allow you to include G&A costs in a budget as a percentage of direct project costs. For the latter type of proposal, you need to know your G&A rate so you know what to request.
Also, some foundations prefer to fund grants with lower G&A rates, or put a cap on the maximum percentage you can request for G&A. The philosophy is understandable; a funding agency would like to maximize the dollars going to direct project work, minimize the foundation funding for indirect work, and reward organizations for operating efficient operations. (It’s an ongoing debate whether the G&A rate is in fact an accurate gauge of efficiency.)
What are Typical G&A Rates?
As you might expect, there is no single, hard-and-fast number. In our experience, G&A rates in the low teens are not questioned by experienced funding organizations. Higher rates can be approved with sufficient justification. We’ve see several Department of Education grants capped at 8%. The public is apparently used to higher numbers, as evidenced in a 2012 survey by TheNonProfitTimes.
What if I Haven’t Calculated an Administrative Rate?
There is a short-term and long-term answer to this question. If you need a number for an application that’s due soon, you can estimate your indirect rate using best-judgment estimates of which budget costs fall into which categories, direct or indirect. In the longer term, you can set up timekeeping and bookkeeping mechanisms to provide more accurate numbers over time. The details of these are, again, a possible topic for a future blog.
As mentioned above, we can help with all aspects of the funding cycle, including budgets and financial system. Contact us for a consultation at no charge.