Soaring operating costs and economic uncertainty have left not-for-profits tightening their budgets. Our survey reveals Australian NFPs are responding by seeking to diversify their funding, collaborate with other organisations and invest in technology. Notably nearly a quarter of respondents intend to draw more heavily on their capital reserves, and while this is helping to sustain them in the short term, it underscores the need for structural changes for long-term sustainability.
Many of these themes are also being played out in overseas markets. Leveraging the extensive experience of our international network firm, Baker Tilly (US), who support over 3,600 NFP organisations, we’ve gained valuable insights and contrasts from the highly developed North American NFP market. These insights can guide strategic discussions in the Australian NFP sector.
Cost of operations crisis
Just as the persistent cost-of-living crisis continues to exert financial pressure on household budgets, a cost of operations crisis appears to be hitting NFP organisations. This latest NFP sector survey reveals that operating costs, excluding staff expenses, have grown to become one of the two most significant challenges, with 56% of respondents identifying it among their top four concerns – a notable increase from 32% in 2022. This escalation underscores the broader economic strain impacting the budgets of NFP organisations.
Interestingly, while staffing challenges remain, their perceived impact has lessened, with 56% citing this as a key issue, down from 78% in 2022 which reflects the slight easing in the labour markets we’ve seen over this period. The pressure may continue to ease if the North American market is anything to go by. Baker Tilly (US) notes that “younger generations are being driven towards more purpose-oriented work rather than purely salary-driven roles, which benefits the NFP sector”.
Sustainability of funding, both government and non-government, remains a significant and perennial challenge, noted by over 40% of respondents, which is relatively consistent with our 2022 sector survey. This has put diversification of the funding model at the top of the list of strategic opportunities being considered by over 70% of NFPs.
Regulation and compliance burdens are intensifying for many NFPs, with 8% more charities identifying this as a key challenge in 2025 compared to 2022. These challenges are broad and varied, but include new tax reporting obligations, changing funding models (such as within aged care), increasing accountability and reporting demands from funders, growing expectations for ESG commitments and reporting, increased focus on wage compliance and ongoing vigilance around privacy.
Differing approaches to strategic challenges
A range of approaches are being employed by NFPs to address the cost crisis and diversify funding, with similar strategies observed globally. Baker Tilly (US) confirms that while other advanced economies follow similar trends, there are contrasts in the Australian NFP sector.
Collaborate v integrate
Over 50% of Australian organisations are considering collaborations with other NFPs as a solution to rising costs. It seems Australian NFPs prefer working closely with like-minded organisations rather than pursuing formal mergers and acquisitions. This enables strategic alliances to leverage shared resources and expertise, while maintaining organisational identity.
Baker Tilly (US) said that while collaborative partnerships are currently also more common in the US they believe “these arrangements may not remain sustainable in the long-term. As staffing challenges, technological shifts and financial pressures persist, not-for-profits may need to more seriously consider M&A as a strategic path forward.”
Outsourcing as a solution, or not
In response to the rising operating cost environment, 20% of Australian NFPs were considering outsourcing as part of their armoury, which has barely changed since 2022 (18%). Outsourcing elements of operations can reduce latent resources and provide flexibility to adjust capacity in response to prevailing market conditions.
The lack of a material increase in interest in this solution may be due to the significant initial investment and resources required to set it up. Additionally, utilising lower-cost offshore resources comes with its own set of challenges. Issues of privacy and data security become more acute, necessitating robust governance and risk frameworks to prevent potential damage from breaches.
However, the low transition to outsourced providers stems primarily from the fact that core functions like client support (which drives the majority of costs), cannot be outsourced as these are hands on roles. It may also be that outsourcing is finally being superseded by technology. Adoption of AI to create efficiencies in some operating functions may be viewed as a more appropriate shift in the short term.
Technology plays a part
Technology investment as a strategic opportunity has declined in Australia (down to 51% from 68% in 2022), however it remains significant. This decrease is consistent with our commercial observations, as in recent years the sector has undertaken significant investment in various technologies to support changed funding and operating models (particularly the shift to consumer controlled funding) and systems to support internal operating activities and compliance (particularly around human resource management and wage compliance). In Australia, the focus is now on utilising these tools to improve operational efficiency, stakeholder engagement and program delivery.
Internationally, while operational efficiency and program delivery are a focus, organisations are also embracing technology more to evolve their approach to donor engagement and fundraising. Baker Tilly (US) highlight that in the US “large, long-time donors are scaling back their contributions, grants are being reduced or denied, and federal funding is expiring. Conventional ways of fundraising, including direct , annual year-end gifts and office wide campaigns are not always attractive ways to reach newer generations.”
In this environment some NFPs are turning to less conventional approaches such as:
- personalised giving platforms, with options tailored to the preferences, interests and past contributions of the donor;
- AI predictive analytics to focus efforts on high potential donors with personalised messaging that resonates with individual motivations; and
- peer-to-peer fundraising where charities mobilise individuals to leverage their networks to raise funds for their cause.
Digital experiences delivering interactive websites, virtual reality immersions and multimedia storytelling are also being employed to further stakeholder engagement and demonstrate impact.
Leveraging these overseas experiences, Australian NFPs should seek to utilise a combination of continued traditional engagement methods complemented by digital and AI technologies to engage all stakeholders and demonstrate their outcomes. Examples include the use of enhanced data analytics enabling highly targeted campaigns based on specific donor characteristics and bespoke communications to broaden their voice in the community.
What this means for you
As a NFP, it’s crucial to recognise the shifting landscape and adapt your strategies accordingly.
- Evaluate collaboration opportunities: Identify complementary organisations where shared resources could reduce operational costs while maintaining service quality.
- Explore outsourcing opportunities: Utilise outsourcing to reduce latent resources and increase operational flexibility.
- Implement robust governance and risk frameworks: Ensure that privacy and data security are prioritised.
- Diversify funding models: Move beyond traditional fundraising methods and adopt innovative approaches that leverage technology and community sentiment.
- Strategic technology investment: Select technology tools that further your core mission and utilise available resources, while learning from international digital innovation around engagement.
- Leverage collective wisdom: Connect with other NFPs to share insights and experiences. There’s real value in learning from the experiences of others.
