Impact costs

Impact costs are the additional costs that a social enterprise carries because of its social mission. They are the costs of doing good that a conventional business would never need to pay.

In practice, impact costs show up in many ways. A jobs-focused social enterprise, for example, may employ people who face significant barriers to work, such as people with disability, those leaving prison, or people experiencing mental ill-health. Supporting those employees often requires additional supervision, job coaching, slower production processes, accessible equipment, extra training, and wrap-around services such as wellbeing support or transport assistance. These are costs that a standard business competitor does not face. Research by the Centre for Social Impact Swinburne, commissioned by Social Enterprise Australia and funded by the Westpac Foundation, found that these social impact costs can account for up to 30 per cent of a jobs-focused social enterprise's total running costs. The research also developed a practical framework that any jobs-focused social enterprise can use to identify and estimate its own impact costs.

Understanding impact costs matters enormously for the Australian social enterprise sector, particularly for Work Integration Social Enterprises (WISEs), which are organisations that exist specifically to create employment for people shut out of the mainstream labour market. For too long, these enterprises have absorbed their impact costs without being able to recover them through government contracts, procurement arrangements, or employment service funding. This has made financial sustainability harder and has limited the ability of many strong organisations to grow. The growing focus on outcomes-based funding from government, philanthropy, and impact investors has made it more important than ever for social enterprises to be able to name, measure, and communicate their impact costs clearly. Advocacy from the WISE Hub, a collaboration of leading organisations and funders, has pushed for the federal government to recognise and fund these costs as part of a fairer employment services system.

There are a growing number of tools and frameworks to help social enterprises understand and calculate their impact costs. The most relevant for Australian organisations is the Impact Costs framework developed by the Centre for Social Impact Swinburne, available through the Social Enterprise Australia website at socialenterpriseaustralia.org.au/wise-impact-costs-report. The Australian Social Value Bank, developed by Social Traders, offers a broader value calculator that uses cost-benefit analysis to translate social outcomes into dollar terms, and is available at asvb.com.au. Both tools can help social enterprises make a stronger case to funders, government, and investors for the true cost of the work they do.