Impact Costs – the costs that social enterprises incur to deliver their social purpose that their non-social enterprise competitors don’t – are not news to anyone running a WISE.
You deal with them every day, in how you support your people and deliver your social purpose through your operations.
What’s been harder is turning that lived experience into something you can clearly use in decision-making, and to communicate with confidence to your board, funders, buyers and investors.
Dr Libby Ward-Christie, Director at the Centre for Social Purpose Organisations (CSPO) at Melbourne Business School and her colleagues have spent the better part of a decade working with WISEs to change that.
What’s emerged is a practical framework with 11 Impact Cost Categories, and a way of working, that allows organisations to identify, quantify, understand and communicate what it actually costs to deliver impact.
We sat down with Libby to talk about why understanding your Impact Costs matters, and what becomes possible when WISEs understand them more clearly.
Where the 11 categories came from
This work didn't start in an ivory tower. Impact Costs kept coming up in discussions between the leaders of WISEs, researchers, funders and government, and came to a head at the Social Enterprise Evidence Forum hosted by CSI Swinburne in 2019.
“What emerged was a need for a consistent and robust way of estimating and understanding Impact Costs,” Libby explains.
“The idea was to ask: if you were the same kind of business, in the same industry, the same sort of size, but you weren't a social enterprise, where would your costs be different? What costs would you not be incurring, or would you be incurring to a much lesser extent? It's a cost differential calculation.”
Early attempts to quantify Impact Costs from audited accounts didn’t work.
“Impact Costs are hidden in a whole lot of areas and you’ve got to have a deep understanding of an organisation’s model to really know where they are,” Libby says.
So the team changed approach. Instead of analysing from a distance, they worked directly with WISEs, sitting down with CEOs and CFOs, understanding their models and working through their management accounts line by line.
Over three rounds of co-design with 10 WISEs (building on earlier exploratory work with five), supported by the Westpac Foundation and Social Enterprise Australia, 11 consistent categories emerged that capture where WISE Impact Costs commonly show up:
- Vehicle and Transportation Costs – both to support target employees and costs associated with driver inexperience
- Property Costs – to provide better physical access and space for impact-related activities
- Professional Services and Legal Costs
- Internal Employee Costs – people providing supports, coaching, and job-based supervision
- Insurance Costs – more, different and higher premiums
- External Training and Support Costs – bringing in training and expertise from outside the organisation
- Equipment Costs - equipment and uniform wear and tear and losses
- COGS and Raw Material Wastage Costs– production wastage due to inexperience
- Social Financing Costs – higher costs of capital and servicing funders and investors
- Marketing and External Relations Costs – impact advocacy and partnerships
- Licence, Membership and Subscription Costs
“They are evidence-based categories, not something we sat in a room and invented. They came from what actually manifests across real organisations,” Libby says.
The categories are consistent, but the weighting varies. An organisation with a logistics component might see transport costs dominate. One focused on more complex cohorts may carry far more in supervision and wraparound support costs. The framework captures both.
Once familiar with the process, WISEs were able to classify their costs in roughly an hour, using their own management accounts.
The insight most people are missing
When Libby’s team stepped back and looked across the categories the project had identified, one pattern stood out.
Most Impact Costs are not fixed. They’re variable.
In fact, nine of the 11 categories increase as you create more jobs.
That has a direct implication for how WISEs think about growth.
“Economies of scale work when you're spreading fixed costs across more units of production,” Libby says.
“But for a WISE, the unit of production isn’t a widget, it is a meaningful job for someone with complex needs and the cost of that social impact production – the Impact Costs – are predominantly variable.
“Every additional person you support brings additional supervision costs, additional training costs, additional wraparound supports. They scale with the number of target employees, you can't dilute them by growing.”
This helps explain something many WISE leaders have felt for years but lacked the evidence to articulate: the conventional logic of economies of scale doesn't apply to WISEs in the way it does for conventional businesses.
The scaling myth
Libby calls this the ‘WISE impact scaling myth’. It’s the widespread assumption, embedded in government programs, philanthropic funding frameworks, and board advice, that growth leads to financial sustainability.
In practice, the dynamic often runs the other way, setting up a vicious cycle: WISEs face pressure from Impact Costs, so funders push for more jobs as a requirement of support. WISEs scale to meet those expectations, but Impact Costs increase with more jobs created, and the financial pressure intensifies.
“WISEs take on advice to seek economies of scale because it builds legitimacy - we're going to get bigger, that makes us more credible - and because of this underlying belief that it's what leads to financial sustainability. But our research shows that's not how it works for most WISEs,” Libby says.
This doesn’t mean WISEs shouldn’t grow. It means growth needs to be grounded in a clear understanding of costs, and an ability to separate commercial scaling from social impact scaling.
Five ways WISEs can use this framework
This is where the work becomes useful.
Understanding your Impact Costs is not about reporting. It’s about making better decisions.
- See where your costs actually sit
The framework gives you a breakdown by category, not just a total. You can see which costs are largest, how they differ across business units, and where the pressure points are. For WISEs running multiple operations, this is critical information that's otherwise invisible.
- Question what you’ve always done
Once you can see your Impact Costs structure, you can challenge it. Are all of these costs actually driving impact? Or have some become embedded over time without being re-examined?
“Some organisations have assumed it's really important to provide lunch for their target employees. For some cohorts, that's absolutely true, it's a significant cost that genuinely matters. For others, it may be completely unnecessary, but someone at some point in the evolution of the organisation thought it was a nice thing to do. The tool lets you have that conversation with evidence,” Libby says.
The goal isn’t to cut costs. It’s to make sure they’re linked to impact.
- Test decisions before you commit
WISEs involved in the work have already started using the data to run scenarios.
What happens to your Impact Cost structure if you grow the commercial operation while keeping the target cohort stable? What if you adjust your support model?
This replaces instinct with evidence.
- Change how you talk to funders and buyers
This is one of the most powerful shifts.
Being able to show, with evidence, the cost differential between your organisation and a mainstream competitor changes the nature of every important stakeholder conversation.
“We had one organisation in negotiations with a corporate procurer who kept asking why they couldn't come down on price,” Libby explains. “They were able to say: our competitors are running at 12% margins, we're running at 2%, and here's the documented reason why. That's a fundamentally different negotiation.”
This isn't about asking funders or buyers to pay above market rate for CSR reasons. It's about understanding your pricing floor and being able to explain it.
- Know when to say no
This is often the hardest part.
Understanding your Impact Costs gives you the foundation to decline funding or work that will cost more than it contributes.
“It empowers you to have those conversations with your board, with government, with social procurement buyers with philanthropy, with potential impact investors. And it means you can make decisions about refusing funding or refusing a job, being prepared to say, we can't afford to do that, because it's going to cost us more than it's worth,” Libby says.
There’s a tool for that
The framework currently sits in a detailed Excel spreadsheet. To make it more accessible, with the support of Westpac Foundation and the Paul Ramsay Foundation, it’s now being turned into a free web app for WISEs.
It builds on the approach already tested and will allow you to:
- Upload your management accounts
- Identify and classify Impact Costs
- See your Impact Costs structure and margin impact
It is expected to launch in early 2027.
But you don’t have to wait that long. Libby and her team are currently looking for WISEs to be involved in the development and testing of the web app.
For participating organisations, this isn’t just about contributing to the sector, it’s a chance to gain immediate insight into your own Impact Cost structure.
If you’re interested in being involved, reach out to the CSPO team at Melbourne Business School: [email protected]