From Cuts to Capacity: 4 Steps to Smarter Nonprofit Cost Optimization

Managing revenue at your nonprofit can feel like riding a roller coaster—unexpected twists, sudden drops, and moments where you’re just hanging on. With the right strategies, you can smooth out the bumps and keep your organization moving forward.

In his webinar, From Cuts to Capacity: A Smarter Framework for Nonprofit Cost Optimization, nonprofit CFO Andrew Horrow shared practical steps to help organizations optimize cash flow and build stability—even when uncertainty looms. Here’s how to make every dollar work harder for your mission.

1. Conduct a Financial Health Assessment

You are already doing a monthly review of income and expenses, but cost optimization requires a closer look at the details behind those numbers. Go beyond the big picture and dig into these areas:

• Aging Forecasts: If your scenario planning is more than a few months old, refresh it. Economic conditions and funding streams change quickly and outdated forecasts can lead to surprises.

• Program-Level Analysis: Break down expenses by program and calculate the true cost of delivery, including staff time. Are some programs consuming disproportionate resources compared to their impact?

• Fixed vs. Variable Costs: Identify which costs are locked in and which can flex. This helps you prioritize where adjustments are possible without disrupting essential services.

• Cash Flow Timing: Look at when revenue actually arrives versus when expenses hit. Even if your annual budget balances, timing gaps can create short-term strain.

• Resource Allocation: Compare spending by location or service line. Are certain areas overfunded while others struggle? This insight can guide reallocation without cutting quality.

• Forecast Accuracy Check: Compare last year’s projections to actuals. Where did you miss the mark? Understanding those gaps improves future planning.

2. Identify Cost Drivers

Once you’ve mapped out your financial health, the next step is to uncover the hidden inefficiencies that quietly drain resources. These aren’t always obvious in a high-level review, so dig deeper into the details. Involve program leaders in this process—they often spot operational redundancies that finance teams overlook. Here are some places to start:

• Vendor Redundancies: In the webinar, Andrew talked about an organization he worked with that had four different accounts at Staples. Check for duplicate vendor relationships—especially for office supplies, printing, or event services. Consolidating accounts often unlocks volume discounts and reduces administrative overhead.

• Software Subscriptions: Your marketing team is creating social media posts, your program team is creating flyers, and your office manager is creating birthday cards for employees—all using different platforms. Tools like Canva, Adobe, or project management platforms can multiply quickly across departments. Audit your licenses to see if you’re paying for more seats than you need or maintaining separate accounts that could be combined under a cheaper enterprise plan.

• Underutilized Space: Office space is a major cost driver. If hybrid work has reduced in-office presence, calculate the cost per occupied desk. Could you downsize or sublease unused space?

• Program-Specific Expenses: Some programs may have unique costs—specialized equipment, travel, or outsourced services—that aren’t delivering proportional impact. Compare program ROI to resource consumption.

• Maintenance and Utilities: Review recurring costs like cleaning services, IT maintenance, and utilities. Are you paying for premium services that could be renegotiated or scaled back without sacrificing quality?

• Event Spending: Fundraising events often carry hidden costs—venue fees, catering, AV services. Look for opportunities to negotiate or partner with local vendors who support your mission.

The goal is to understand where inefficiencies live, so you can redirect resources toward mission-critical work.

3. Implement Cost-Saving Measures that Drive Growth

Cost optimization should strengthen your organization’s ability to deliver on its mission, not weaken it. Think of this step as building a leaner, smarter foundation that supports scalability. Here are ways to approach it:

• Renegotiate Vendor Contracts for Flexibility and Value: Instead of focusing only on lower prices, look for terms that support your long-term goals, like extended payment windows during tight cash flow periods or bundled services that reduce administrative complexity.

• Consolidate Where It Makes Sense: Multiple vendor accounts or software subscriptions often create unnecessary overhead. Consolidating these relationships can unlock better discounts and simplify management without sacrificing quality.

• Invest in Technology for Efficiency and Insight: Automation tools for invoicing, payroll, and reporting free up staff time for strategic work and reduce human error. The right technology positions your organization to scale without adding headcount

• Optimize Staffing for Impact: Instead of eliminating roles, look for opportunities to repurpose talent. For example, combining overlapping part-time positions into a full-time role can improve continuity and morale while reducing administrative costs. And the repurposed roles allow you to support other areas of your organization that might be struggling.

• Streamline Operations Without Sacrificing Service: Review workflows for bottlenecks or redundant steps. Small changes—like centralizing procurement or standardizing vendor evaluation—can create significant savings and improve agility.

• Build Strong Vendor Partnerships: Treat vendors as allies in your mission. Many will work with you on pricing or terms if they understand your impact. Strong relationships can lead to better support and flexibility during challenging times.

The goal is to create a structure that uses resources wisely while maintaining program quality and employee well-being. Every decision should move your organization closer to sustainability and growth.

4. Commit to Continuous Monitoring

Cost optimization isn’t a one-time project—it’s an ongoing discipline that keeps your organization agile and financially healthy. Building this into your culture ensures that efficiencies stick and new opportunities are identified early. Here’s how to make monitoring actionable:

• Schedule Regular Reviews: Move beyond annual audits. Add a line to your monthly and quarterly close process to evaluate spending trends and confirm that cost-saving measures are delivering results. For example, a quarterly review might reveal that a vendor discount negotiated six months ago isn’t being applied consistently, giving you time to correct it before it impacts your budget.

• Use Dashboards and Alerts: Real-time visibility helps you catch anomalies before they become problems. Configure alerts for unusual spending spikes or budget variances. If travel expenses suddenly exceed the monthly average, for example, an alert can prompt a quick review to determine if it’s a one-time event or a pattern that needs addressing.

• Empower Teams with Data Access: Give program managers visibility into their budgets and spending. When teams can monitor their own numbers, they make smarter decisions and feel ownership over results. If a program lead notices that supply costs are trending higher, for example, they can proactively look for a lower cost supplier or possible ways to get the supplies donated.

• Celebrate Wins: Compare current results to previous periods to track progress and spot emerging trends. Share stories of successful cost optimizations across the organization. Recognition reinforces positive behaviors and encourages collaboration. Highlight in a team meeting how implementing tools like automating saves your team time and what tasks they are able to accomplish instead.

The key is consistency. When monitoring becomes part of your organizational rhythm, you’re better equipped to respond to challenges and seize opportunities for growth.

Want to go deeper?

Check out the resource, Confidently Navigating Risk: A Proactive Guide for Finance Teams, for more strategies to build financial resilience.