Craig Dearden-Phillips: the price is wrong

Full cost recovery punishes lean and dynamic charities, says our columnist

Craig Dearden-Phillips
Craig Dearden-Phillips

Full cost recovery: it sounds like something from a Polish steelworks circa 1973. But it's actually the most widely known pricing system for services in the third sector - something we are all supposed to believe is a good thing.

I don't. I think FCR is damaging to the sector's credibility, its efficiency and its capacity to grow.

Think about what it says. In effect, the message is: "You, the funder or commissioner, owe it to me, the charity, to pay the full cost I have incurred in producing this service. This is what you should pay - no more, no less. Not what you want to pay; not what I am willing to accept; just the full cost. Full stop."

This does nobody a service. For charities, FCR eliminates the prospect of profit, even if they've got a knock-out new service that is in high demand. It also straitjackets pricing for services that you may need to offer at a discount.

FCR seeks to ensure that our prices, like those of the Polish steelworks, reflect production costs only - regardless of what the service is actually worth to anybody.

FCR is even worse for funders and commissioners. For a start, it obliges them (with a side-chorus from the woeful Compact) to pay charities' production costs, whatever these happen to be, and no matter how flabby or lean the charity has made itself. In the fiscal storm that is to come, I can imagine the sector's moral certitude on FCR becoming a laughing stock.

So why are we so in thrall to it? Well, I for one have never bought into the moral status of charities' costs, which suggests we are somehow immune to overhead drift or ridiculous waste. To even imply that someone else has a duty to meet such costs is a joke.

It is equally daft of us as a sector to sign up to a model of pricing that eschews profit. But basically, FCR does just that. Indeed, by publicly lashing us to the mast of costs, FCR punishes those organisations that need the most support: lean, dynamic charities with knock-out services that could be creating profit to plough back into the mission.

So, when you've calmed down, consider this: shouldn't you really be thinking not about how you recover your costs, but about how you offer so much value in the first place that your costs are not an issue? Or, better still, thinking about how to create the superlative new services that enable you to charge top prices, make profits and make your organisation sustainable?

Let's have less FCR and more FVD - full value delivered. Full stop.

Craig Dearden-Phillips writes in a personal capacity. Craig Dearden-Phillips, is founder and chief executive of Speaking Up

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