Room for more funding is a measure of an organization's capacity to absorb additional donations.
One way to look at organizations or focus areas is to extrapolate from average past effectiveness. A weakness of this approach is that it does not account for diminishing returns. If the amount of funding is increased, and extra funding has diminishing returns, estimates based on past average effectiveness will overstate future effectiveness.
GiveWell uses the concept of “room for more funding” to address this problem. If an organization shows steeply diminishing returns, it is said to have “no room for more funding”; conversely, if it appears that the organization is not yet seeing diminishing returns, the organization has “room for more funding.” It is a matter of definition how steeply returns must be diminishing before an organization lacks room for more funding.
A related concept is that of a “funding gap,” which is the difference between the amount of money an organization currently has and the amount of money it would need to raise in order for it to no longer have room for more funding. Max Dalton (2017) gives a fuller analysis of what we might mean by a funding gap.
However, it has been argued that "funding gap" models are generally less accurate or clear than models that show impact as a function of funding (see Max Dalton and Owen Cotton-Barratt (2017)).
Karnofsky, Holden. 2011. Some simple ways to check “room for more funding”.
Discussion of how GiveWell assesses room for more funding.
Dalton, Max. 2017. Defining Returns Functions and Funding Gaps.
Tries to clarify what "room for more funding" and "funding gaps" mean
Dalton, Max and Cotton-Barratt, Owen. 2017. Selecting the appropriate model for diminishing returns
Argues that returns generally diminish smoothly, and so that it is generally clearer to use "returns functions" than to talk of funding gaps