Nonprofits and Inflation: What’s the Plan?

Nonprofits negotiated the pandemic in ways that served their communities and their own sustainability even under great stress. Still, the changes the crisis caused — both directly and in our operating environments — demanded that we transform the way we worked. In some cases, this meant significant additional investments of time and money. But the Fates were not done with us, because then came inflation, driving up costs for certain organizations while simultaneously driving need way up for those they serve. This dynamic creates a classic nonprofit vise that should be recognizable not only to nonprofits, but to their funders.

How is inflation affecting your nonprofit? What strategies are you considering in order to mitigate inflation’s negative impacts?

When nonprofits budget, their “profit margins” are generally so marginal that any significant increase in cost can create a deficit. This is compounded by increased demand for services in inflationary times as personal budgets threaten essentials like housing or food security — consumer staples affected by commodity costs. For many safety net organizations, these rises in service demand and the cost of consumable materials can spawn a viselike effect.

Back in the for-profit world, inflation doesn’t diminish demand for essential services; there, inessential services are at more risk. The dynamic here is similar to parts of the nonprofit sphere — the battered arts and culture sector feels the pinch of low usage even as food programs are more highly subscribed than usual.

For-profits often deal with inflation’s effects by increasing costs to the consumer. But many nonprofits, like food banks or day-care centers, cannot do the same: either the consumer is not the revenue source, or doing so would violate the mission bottom line.

So, in plain terms, certain nonprofit organizations — those whose consumable materials costs are high — need significantly more revenue to operate during inflationary periods.

As we look, notice that the organizations most immediately affected by inflation often do not have personnel as the highest line item in their budget — a divergence from the general standard. Here’s an example grabbed from the GuideStar 990 reports portal: a safety net food pantry in Wisconsin.

This profile suggests that there may be more consumable goods involved in the work, and that can lead more immediately to extra costs than for other organizations. But nonprofit vises are the result of more than one pressure point, and there may be more than two accelerating risks in some specific types of nonprofits!

For instance, as regards food programs, there’s long been speculation that individual cash donations might be depressed during inflationary periods. That doesn’t appear to be a given, but food donations from individuals and corporate donations from inflation-affected industries like food companies may indeed be depressed, providing another source of vulnerability.

One such story comes from Louisiana’s Northshore Food Bank. WDSU’s Morgan Lente reports that they have seen “a drop in donations” with an accompanying “increase in residents needing its services.”

“What we have seen just in the past month, during the month of May, is an uptick (in new registrations) of about 10%,” said Terri Turner-Marse, the food bank’s CEO. “But the biggest impact that we have felt thus far has been a reduction in food donations and contributions. What we’re seeing is the people who normally donate to us just cannot do that to that extent that they were previously.”

Turner-Marse said in response that the nonprofit group is forced to purchase more food.

“We were budgeting about 92 cents per pound of food that we purchased. We’re now up to about $1.09, $1.10,” Turner-Marse said. “That becomes significant when you purchase about 30% of the food that comes out of our doors.”

Many nonprofit business models have complexity embedded in them. But now we are also looking at supply chain problems and a workforce that is revising its expectations. Consider housing development nonprofits; they were dealing with unsustainable price hikes in materials even before inflation took hold because of supply chain and scarcity problems. Habitat for Humanity in Saline County, Arkansas, for instance, must cope with the costs of materials that they could not get as donations — even though those costs are half what they were last year.

The 117-year-old Humane Society of North Texas is facing all of the above: skyrocketing prices for medication, supply chain costs for kitty litter boxes, and transportation costs. Add to that widespread reports of pets being given up in response to a potential recession, and you see shelters adding to their service arrays even as costs go up.

Finally, there’s another consideration — the ability to access services. For instance, in rural locations, the price of everything presents more of a challenge than in urban or suburban spots. Besides the additional requirements for and cost of travel, reports Amanda Peacher in Marketplace, “basics like food, furniture, energy, and even new and used cars cost more” according to Aditya Bhave with Bank of America Research. Access issues like these create barriers that nonprofits have to work hard to overcome.

Have you made plans to counter price increases, either for your organization or your constituents, as the specter of a potential recession looms? The Financial Commons is interested. This is the place for those “what do we do now?” questions to be asked — and get answers from those with grounded experience in similar situations.