KPIs reflect the organization’s goals. They can be used to measure processes and activities that are important to serving your clients/members, manage your program effectiveness and organizational health as well as determine operational efficiency. Periodic Monitoring of KPIs can ensure that budget planning, staffing, financial planning, growth strategies, fundraising efforts, and organizational direction can be shifted, as needed, to meet the organization’s objectives.
Each of the KPIs below gives you quantifiable measures to help align spending and budgeting with the organization’s goals and objectives. This financial information can be presented to key stakeholders to show how the finances are being utilized to meet critical success factors of the nonprofit.
The Savings Ratio reveals the rate of the nonprofit’s savings by measuring the relationship between total annual savings and total expenses. Although the Savings Ratio is an important component of longevity, high ratios may indicate excessive savings. This ratio should also be considered in combination with the liquidity indicators. If the nonprofit has low liquid funds, a higher Savings Ratio may be desirable.
How to calculate Savings Ratio:
Savings Ratio = (Total Revenue – Total Expenses)/Total Expenses.
Grants and Contribution Ratio
The Contributions and Grants ratio indicates the extent of the organization’s dependence on voluntary support by calculating the percentage of total revenue made up by contributions and grants. This ratio can also be used to calculate other sources of concentrations of revenues.
Grants & Contributions Ratio = (Grants + Contributions)/Total Revenue.
This provides significant information to donors, board members, and managers because it quantifies how much the nonprofit is spending on its primary mission rather than administrative costs. How many cents of every dollar spent are dedicated to the nonprofit’s goals or programs?
Program Efficiency = Program Services Expenses/Total Expenses.
Fundraising Proficiency Ratio
An important takeaway from this ratio is how many dollars the nonprofit can collect for every one dollar of fundraising expense — how efficient is the organization at raising money? The higher the ratio, the more efficient the fundraising efforts. You can also calculate this ratio for specific special events.
Fundraising Efficiency Ratio = Unrestricted Contributions/Unrestricted Fundraising Expenses
How do you Evaluate NPOs Operational Efficiency
People can be interviewed in person or by telephone. It is recommended that the interview questions be provided in advance so that the interviewee can organize and prepare his or her thoughts. That said, some circumstances warrant spontaneous reactions.
- Focus Groups
Focus groups are a powerful means to evaluate services or test new ideas. Basically, focus groups are interviews, but of 6-10 people at the same time in the same group.
Surveys are usually written questions that people respond to in writing. Increasingly, organizations are using online surveys that are very “time effective” for respondents. My experience suggests that surveys that take no more than five minutes to complete are very well received, with higher than average response rates. In our work, we aim to achieve a minimum 25% response rate, which is above generally accepted valid rates (the numbers for which depend on a number of research factors).
Audits involving measuring against criteria. The criteria could measure a number of factors, including:
- Addressing strategic priorities
- Goals and objectives
- Value (perceived and real)
- Stakeholder understanding
- Utilization of resources (human, physical and financial)
- Effectiveness of process
- Evaluation validity and reliability
Benchmarking is the process of comparing your organization to others considered to be the very best. This requires deciding who sets the standard and what that standard is. The criteria outlined in “Audits” above could apply. You would need to rate both your organization and the one(s) you are benchmarking against. Another approach to benchmarking is finding “best practices” and then rating your performance against them
What are Examples of KPIs in Fundraising
- COST PER DOLLAR RAISED (CPDR)
Cost per dollar raised is one of the most commonly used fundraising success metrics. CPDR answers a simple question: Did we raise money, lose money, or break even? CPDR is useful to know for individual fundraising events so you can understand how individual campaigns worked, but can also give you an indication of your overall fundraising success.
How to calculate cost per dollar raised:
- FUNDRAISING RETURN ON INVESTMENT (ROI)
Fundraising return on investment is also a popular nonprofit fundraising metric. Like CPDR, it tells you the success or failure of a given fundraising pursuit.
How to calculate fundraising return on investment:
FUNDRAISING RETURN ON INVESTMENT (ROI) = REVENUE/EXPENSES
- CONVERSION RATE
Conversion rate shows a nonprofit how successful a given campaign was at getting people to complete an action, like donating or attending an event. Conversion rate is one of the most cut-and-dry methods of evaluating the success of a given request for action. Measuring conversion rates can help your organization better understand your supporters’ giving preferences as well as the relative success of each of your outreach methods.
- GIFTS SECURED
Gifts secured is a measure of how many gifts your organization received over a given time period. If you track gifts secured over time, it’s common to say you are tracking “donation growth.”
You can also separate this metric by type of gift with categories like: Major gifts, Planned gifts, Mid-level gifts, Small gifts, Annual fund donations, Monthly donations
- PLEDGE FULFILLMENT PERCENTAGE
Pledges are funds promised to be paid to your nonprofit over a specific period of time. Track pledge fulfillment percentage to see how many of your donors are following through with their promised funds.
You’ll want to know if your pledges are following through or not because the implications for your accounting team are significant. Funds pledged are accounted for as cash in your annual budget; if the cash never appears, you may be going over budget. If donors are consistently backing out of pledge promises, you may need to reevaluate your pledge-acquiring strategies.
How to calculate pledge fulfillment percentage:
PLEDGE FULFILLMENT PERCENTAGE = NUMBER OF PLEDGES FULFILLED/TOTAL NUMBER OF PLEDGES *100%
Now that you have a grasp of major KPIs for NPOs, learn more on how our Audit for NPOs team can help you.