As donors and funders increase pressure on nonprofits to provide transparency and connect measures to outcomes, it can be hard to know where to start. If it's time for your organization to think about adopting fundraising metrics for nonprofits, it's important to identify supporting metrics that align with your strategic mission. When you focus on what and how to measure, you inform other aspects of your strategic planning, strengthening your stewardship and performance, and increasing your mission or ministry's impact.
Seek a Balanced Approach
The key is to balance financial- and performance-based outcome measures. Outcome metrics include all measures that reflect your organization's performance expressed as impact. These can include:
- Performance (e.g., program efficiency),
- Outcomes (e.g., meals served),
- Capacity (e.g., membership growth),
- Financial (e.g., budget to actual), or
- Sustainability (e.g., operating reliance).
If you report only your financial-based metrics, your potential funders won’t know whether you have been successful in your mission and in meeting your goals. Consider: Your programs and activities can grow and be hugely successful, but without organizational capacity and sustainability, the programs—and their impact—will come to an end.
Define key indicators across the spectrum to ensure that you are getting—and giving—a complete picture to key stakeholders, staff, and constituents. Your website is a great way to communicate that focus, and to ensure that both internal and external constituents have access to the information.
Set Up a Plan
It can be challenging to start. With your mission and a balanced approach firmly in mind—and with your leadership engaged—define the top three indicators that best reflect your progress and impact, and how you will measure and monitor them. Some of the metrics that many nonprofit organizations have found helpful include:
- Program efficiency—This metric may be the most important for many charity evaluators, board members, and donors because it shows how funds are used: For overhead, or for making progress. The basic formula…
Program efficiency = Total program services expenses ÷ total expenses
…clearly indicates program and mission priority.
- Revenue per member—Many membership-based organizations rely heavily on membership dues and program fees. How much revenue are you generating from your membership? This metric tracks not only the changes in membership, but also the revenue trend per member.
Revenue per member = Member revenue ÷ member count
- Fundraising efficiency—How much do you spend to raise a dollar? This metric shows how efficiently your organization raises funds.
Fundraising efficiency = Unrestricted fundraising expenses ÷ total unrestricted contributions raised
Modern fund-accounting software can help you use outcomes to measure nonprofit success. You can easily track and tag your expenses and revenue to automatically calculate and report on this key metric. For example, if your annual gala raises $1,500,000, and costs $350,000, your fundraising efficiency is $0.23. It cost you $.23 to raise $1.
Dashboards provide real-time visibility into data, enabling you to monitor and proactively manage outcomes. Program managers may look at metrics related to programs, locations, and budgets; grant managers may monitor grant renewals, new awards, and funding pipelines.
Next, identify supporting metrics that help ensure peak performance. Ensure each metric aligns with your strategic mission. Make those measures integral to your annual strategic plan. When you focus on what and how to measure, you inform other aspects of your strategic planning, strengthen your stewardship and performance, and increase your mission impact.
The increasing demand for transparency and accountability from donors is compelling today’s nonprofits to seek ways to both produce and demonstrate successful outcomes. A recent survey showed that more than 25% of nonprofits struggle with heightened expectations and increasing scrutiny from several sources—including ever more savvy funders looking for financial management techniques and controls employed commonly by for-profit businesses. This white paper describes how nonprofits like yours can effectively leverage outcome metrics to boost success. Read it now.