Public and social (2 of 2)

Government, public sector and non-profits

About 9 minutes to read in full, or 1 minute for the short version belowFacts checked 30 September 2026

In one minute

Governments, public agencies and charities that use taxes, borrowing and donations to provide services such as schools, hospitals, roads and benefits.

The big idea: Governments and non-profits do not aim for profit, so this brief measures value differently: the question is how much outcome (children who can read, shorter waits, fewer road deaths) each unit of money buys. Where a business brief shows profit, this one shows funding per unit against cost per unit, and then cost per outcome, because a public body that balances its budget can still give poor value.

One unit, in numbers: One pupil in a public primary or secondary school for one year: USD 12,400 comes in, and all of it is spent on the unit's own costs.What is left is the unit's contribution, before the costs of the whole company. See the worked example
Typical margin: Not a profit business: public bodies aim to spend their budget, so value is judged by outcomes per unit of money; private suppliers to government earn ordinary contractor marginsRoughly how much of every 100 of sales (or income) is left as profit after the running costs. More on margin
Capital intensity: MediumA fair amount of money is tied up, in things like stores, stock or equipment. More on capital intensity
The number to watch: Government spending as a share of GDPHow big the state is compared with the whole economy.

Ask this first in a case

What is the objective, and which outcome measure will show success?

Words used above (2)

Outcome:: What changed for people, such as the share of children who can read.
Cost per outcome:: Money spent divided by results achieved.

The industry's other words are explained in Words to know (12).

On this page (17 sections)

How money is made

This sector is funded, not paid by customers: governments raise money through taxes, social contributions, fees, natural resource revenue and borrowing.
Value is measured as outcomes, not profit: a good result is more outcome per unit of money (cost per outcome), within the budget and without leaving groups behind.
Resource-rich countries, such as those in the Gulf, rely more on oil and gas revenue and on returns from state companies and sovereign wealth funds than on taxes.
Non-profits are funded by donations, grants from governments and foundations, fees for services, and income from endowments (invested savings).
Private companies earn from the public sector through contracts, and through PPPs paid by users (tolls) or by government availability payments.

Worked example: one unit

Unit economics means the money in and out for one unit of the business. Start from the revenue, take away the unit's own costs, and what is left is its contribution. More on unit economics

The unit: One pupil in a public primary or secondary school for one year, OECD average in 2022 (USD at purchasing power parity, rounded; the split of costs is illustrative). Illustrative, rounded figures.
Line	Amount	ShareShare of revenue
Public funding per pupil per year	USD 12,400	100%
Minus Teachers' and other staff pay	USD 8,900	72%
Minus Other running costs: materials, meals, upkeep, transport	USD 2,500	20%
Minus Capital spending: buildings and equipment	USD 1,000	8.1%
What is left (contribution)	USD 0	0%

Check: USD 12,400 minus USD 12,400 of costs leaves USD 0.

So what: The "contribution" is zero on purpose: a public school is funded to spend its budget, not to make a profit, so the test is what the money buys. If 80 percent of pupils reach the reading standard, the cost is USD 15,500 per pupil who reaches it; the lever is outcomes per unit of money, and since staff are about 78 percent of running costs, how teacher time is used matters most.

Key measures(9)

Key measures (also called KPIs, key performance indicators) are the numbers people in this industry track. Ask for the first one or two early in a case.

Government spending as a share of GDP
How big the state is compared with the whole economy.
Typical: About 42.6 percent on average across OECD countries (2023); much lower in many emerging economies[1]
Tax-to-GDP ratio
Taxes collected as a share of the economy: how much the government raises from people and firms.
Typical: About 34.1 percent on average across OECD countries in 2024, from 18.3 percent in Mexico to 45.2 percent in Denmark[4]
Cost per outcome
Money spent divided by the results achieved (for example cost per extra job found), which lets you compare programmes fairly.
Unit cost
Total cost divided by units served: cost per pupil, per patient, per application.
Typical: Governments in OECD countries spend on average about USD 12,400 per school pupil a year (2022), from under USD 4,000 in Mexico and Türkiye to over USD 21,000 in Korea, Luxembourg and Switzerland[5]
Outcome measures
What changed for people, such as literacy rate, waiting time or road deaths per 100,000 people; outputs (lessons given, roads built) are easier to count but matter less.
Additionality
The part of a result that would not have happened without the programme; always ask what would have happened anyway. Glossary: Additionality
Backlog and waiting time
The queue of cases or patients waiting, which grows whenever demand is above capacity.
Trust in government
The share of people who trust their national government, a measure of how the public judges services.
Typical: About 39 percent with high or moderately high trust on average across 30 OECD countries (surveyed late 2023)[7]
Programme expense ratio (non-profits)
Programme spending divided by total spending; useful, but very low overhead is not always good because data, training and systems help programmes work.

First questions to ask

When a case lands in this industry, these questions get you to the numbers that matter.

What is the objective, and which outcome measure will show success?
What is the budget, and what do the law and the budget cycle allow?
Who are the users, and who gains or loses from each option?
What does one unit cost today (per pupil, per case, per patient), and what does one outcome cost?
Where is the capacity limit or bottleneck in delivery?

Value chain: where the margin sits

The value chain is the steps a product or service passes through, from the first supplier to the customer. Each step below shows how much of the value it keeps. More on value chains

Step 1: Raise the money: taxes, social contributions, fees, resource revenue and borrowing
Margin varies
Finance ministries and tax authorities; in the Gulf, state oil companies and sovereign funds
No margin in the business sense. Taxes averaged about 34 percent of GDP across OECD countries in 2024.
Step 2: Decide the budget
Margin varies
The finance ministry proposes; parliament, a cabinet or the head of state approves
The budget cycle (plan, prepare, approve, spend, audit) sets what is possible in any case.
Step 3: Pay transfers to people: pensions and benefits
Margin varies
Social security and benefits agencies
Social protection is the largest area of spending in OECD countries, about 13 percent of GDP.
Step 4: Deliver services directly
Margin varies
Public schools, hospitals, police, courts and local councils
Mostly staff costs; the unit is a pupil, a patient, a case or an application.
Step 5: Buy goods, works and services from private suppliers
Thin margin
Construction firms, IT companies, consultancies, PPP (public-private partnership) partners
Public procurement was about 12.7 percent of GDP across the OECD in 2023; engineering and construction suppliers earn operating margins of about 6 percent.
Step 6: Programmes by non-profits and NGOs
Margin varies
Charities and foundations such as BRAC, Médecins Sans Frontières and Wellcome, funded by grants and donations
Judged on cost per beneficiary and results, not profit.
Step 7: Measure outcomes and audit
Margin varies
Supreme audit institutions (the UK National Audit Office, India's Comptroller and Auditor General), evaluation units, parliament
Their reports on value for money are a free source of case ideas.

Profit pool: who keeps the money

Where in the value chain the profit ends up, which is often not where most of the sales are. More on profit pools

There is no profit pool in the usual sense; instead ask where the money goes and where outcomes are won or lost. Pensions, benefits and health take about half of OECD government spending, so real savings rarely come from small budget lines. The private money is in procurement and PPPs, where suppliers earn thin to medium margins and value for money depends on how risk is shared.

Cost structure(4)

The main costs, each as a share of revenue (the money from sales).

Social protection: pensions and sickness, disability and unemployment benefits: About 13 percent of GDP, roughly 30 percent of all government spending (OECD average, 2023)[2]
Health: About 8 percent of GDP, roughly 20 percent of all government spending (OECD average, 2023)[2]
Education: About 4.9 percent of GDP, roughly 11 to 12 percent of all government spending (OECD average, 2023)[2]
Everything else: defence, public order, transport and other economic affairs, debt interest, administration: About 16 percent of GDP, roughly 37 percent of all government spending (the rest of the OECD average of 42.6 percent of GDP)[1]

Benchmarks(6)

Typical figures for the industry, to check a client's numbers against.

General government spending, OECD average: About 42.6 percent of GDP (2023)[1]
Public procurement, OECD average: About 12.7 percent of GDP (2023); about 14.8 percent in OECD countries in the EU[3]
Government spending per school pupil, OECD average: About USD 12,400 a year for primary to post-secondary non-tertiary education[5]
Staff pay as a share of school running costs, OECD average: About 78 percent in primary and lower secondary; over 90 percent of school spending is running cost rather than capital[6]
Global public debt: Projected above 100 percent of GDP by 2029, the highest since 1948[8]
NATO defence target: 5 percent of GDP by 2035: 3.5 percent core defence plus 1.5 percent wider security[9]

Typical cases(7)

Case prompts you might hear in this industry.

A ministry wants better school results within the same budget.
Should the government build this metro line or hospital, and should it use a PPP?
How can a tax authority collect more without raising tax rates?
How do we cut a backlog of visa or benefit applications?
A sovereign wealth fund asks whether to invest in a new industry at home.
A charity's donations fell 20 percent. What should it do?
Which of two youth jobs programmes gives more jobs for the money?

Common traps(5)

Mistakes candidates make in this industry, and what to do instead.

Assuming profit is the goal. Agree the objective and the outcome measure first.
Counting outputs instead of outcomes. Books handed out is an output; children who can read is the outcome.
Comparing cost per person served instead of cost per outcome. A cheap programme that rarely works can cost more per result.
Ignoring equity and public acceptance. Say neutrally which groups gain or lose and how citizens and staff may react.
Giving personal political views, or treating a plan's targets as if they were results. Restate the stated target, then analyse options with evidence.

What changed, 2024 to 2026(6)

Recent changes a case could turn on.

Defence spending is rising: at The Hague summit in June 2025, NATO allies committed to spend 5 percent of GDP on defence and security by 2035, which competes with every other budget line.[9]
Aid is falling: the US closed USAID as an independent agency on 1 July 2025, and the UK plans to cut aid to 0.3 percent of national income by 2027/28, so many NGOs and health programmes have had to cut, merge or refocus.[10]
Public debt is high: the IMF projects global public debt above 100 percent of GDP by 2029, so higher interest bills leave less room for services and value for money becomes a bigger theme.[8]
Digital public infrastructure is scaling: India's UPI handled a record 24.51 billion transactions in August 2026, and other countries are building similar digital ID and payment systems, which makes moving services online (channel shift) a common case.[12]
State investors keep growing: Temasek reported a net portfolio value of SGD 518 billion at 31 March 2026, and funds such as PIF invest at home to build new industries, which creates investment cases with jobs as well as returns in the objective.[13]
The UK stopped using the Private Finance Initiative for new projects in 2018, while India's hybrid annuity model has the government pay 40 percent of highway costs during construction; how to share risk in PPPs remains a live design question.[14]

Players by region(6)

Well-known companies in each region. You do not need to learn them by heart; they help you picture the market.

Global: World Bank and IMF (lending and advice)
Asian, African and Inter-American Development Banks; Islamic Development Bank
WHO and other UN agencies
OECD (data and good practice)
Europe: Finance ministries and delivery units
UK National Audit Office
European Commission (EU funds and rules)
Norway's Government Pension Fund Global
Middle East: Saudi Vision 2030 programmes and the Public Investment Fund (PIF)
Abu Dhabi Investment Authority (ADIA) and Mubadala
Qatar Investment Authority
India: NITI Aayog (policy think tank of the government)
Comptroller and Auditor General
UIDAI (Aadhaar digital ID) and NPCI (UPI payments)
National Investment and Infrastructure Fund
Southeast Asia: GovTech Singapore (digital government)
Temasek and GIC (Singapore state investors)
Khazanah Nasional (Malaysia)
United States: Federal agencies and the Government Accountability Office (audit)
State and city governments
Large foundations and non-profits

Words to know(12)

Linked words have a fuller entry in the glossary.

General government: All levels of government together: central, state or regional, local, plus social security funds.
Logic model (glossary entry): The chain from inputs to activities, outputs, outcomes and impact.
Output: What a programme did, such as lessons delivered.
Outcome: What changed for people, such as the share of children who can read.
Cost per outcome: Money spent divided by results achieved.
Additionality (glossary entry): The part of a result that would not have happened without the programme.
Procurement: How the government buys goods, works and services, usually through open tenders.
PPP (public-private partnership) (glossary entry): A long contract where a private firm builds, often finances and runs a public asset and takes some of the risk.
Availability payment (glossary entry): A government payment to a PPP partner for keeping an asset available and up to standard.
Sovereign wealth fund (glossary entry): An investment fund owned by a state.
Supreme audit institution: The national body that audits public accounts and value for money.
Purchasing power parity (PPP) dollars (glossary entry): Money converted so it buys the same amount in each country, used to compare spending fairly.

Business model patterns

The ways of making money this industry follows. Spot the pattern in a new industry and you already know the first questions to ask.

Sources(16)

Facts checked on 30 September 2026. Worked examples are illustrative, shaped by these sources rather than one company's figures.

Go deeper and practise

Go deeper

The full lessons behind this brief, with sources and worked cases.

Practise it

Same pattern elsewhere

Industries that make money in a similar way. What you learned here carries over.