The nonprofit world is in for an increased amount of scrutiny in years to come; both from donors—looking for nonprofits who can prove donations provide the maximum amount of value to the communities served—and regulators—looking to implement new standards that will change the face of nonprofit and not-for-profit reporting.
This, in addition to the increased competition for talent and increased amount of nonprofits competing for donations, creates an uphill battle for nonprofits looking to continue improving, maximizing the amount of assistance provided to those in need.
To appease all of the external factors listed above—donors, regulators, and potential employees—a nonprofit organization must be able to not only define, but also communicate success, according to BDO.
But what factors will create a distinction between your organization and so many others?
The ability to communicate nonprofit efficiency is a constant challenge. Of course, there is the overhead ratio, a standard measure of efficiency that measures the ratio of the money spent directly on the organization’s cause to the money it raised from donations.
This is a must have, but one-dimensional and often referred to as the “overhead myth.” If an organization cuts costs, the ratio is improved. However, if by cutting costs, the organization fails to invest in the infrastructure necessary to support its efforts, its ability to accomplish its goals will be negatively impacted.
The best path to success is to highlight a full variety of outcome metrics. Outcome metrics include all measures that reflect organizational performance and 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)
- Sustainability (e.g., operating reliance)
- Other important metrics pertinent to operational success and communication.
If you report solely financial-based metrics, your potential funders won’t know whether you are successful in your mission and in meeting your stated goals. For a full guide on the importance of and first steps to reporting a full array of outcome metrics, download “Outcome Metrics: Measuring What Matters in the Nonprofit World.”
One way of overcoming the limitations of quantitative efficiency measures is to provide qualitative information about the success of the nonprofit. Most nonprofit organizations understand the importance of telling stories about how their work has benefited specific individuals or communities.
Stories are tangible, and they tend to be more compelling and memorable than simple recitations of an organization’s financial statistics.
Simply put, you need to be able to capture the heart of the donor. This could be through content marketing and social media, events, advocacy, and more.
Knowing this is important, one of the hardest things to accomplish is planning, measuring, and executing the storytelling efforts; reaching potential, current, and former donors. This is highlighted in a whitepaper shared by our friends at Orange Leap, titled “At Every Stage of the Donor Life Cycle: How Orange Leap Helps You to Capture the Heart of Your Donor.” For even more information, view the whitepaper Social for a Cause: Social Media Strategies for Nonprofits.
Generally, economic impact studies quantify the effect that an economic event has had—or will have—within a regional economy. In the case of nonprofits, to quantify the economic impact of an organization in terms of dollars, one examines the economic effect of spending that can be linked to the nonprofit.
This, of course is a much wider vision of the impact that a nonprofit makes on the community, both directly and indirectly.
Consider a food bank. Directly, the food bank feeds those in need in the community. But considering this, food banks have a much broader impact on education and employment (hunger and food insecurity hinders education and in turn hinders long-term employment), which in turn supports the regional economy by increasing the amount of spending in the region. An economic impact study can quantify this.
As data becomes more readily available at a lower cost to nonprofits, being able to measure the impact on the entire community and region will be simplified. For the full article, we welcome you to head over to BDO to view “Successfully Communicating Success: Three Approaches for Nonprofits.”
Scrutiny and competition continues to increase, and nonprofit financial professionals already see time and budgets stretched thin. Manual processes, working across departments and more can be a drag on your time.
Brittenford Systems specializes in helping nonprofits save time and money, gaining more visibility into finances while promoting both transparency and improved reporting. Learn more by reading through the following resources: