In a world rife with problems such as poverty, malnutrition, and housing crises, non-profit organizations (NPOs) provide essential aid and hope to millions. While these non-profits work selflessly and tirelessly to ease the burden of our less fortunate brethren, they themselves sometimes struggle to make ends meet. This is because profit-making is not their primary aim. They raise funds, secure government grants, and accept individual donations to acquire the financial resources needed to keep their charity work going. They find ways to improve and sustain their financial growth, increasing outreach and helping more people. And to ensure their efforts and bring them closer to the goal, they monitor and track KPIs.
How to Determine KPIs for Your Non-Profit?
KPIs, or Key Performance Indicators, are measuring tools used to assess a business’s actual progress against its pre-determined goals or benchmarks. Every business is unique, and the KPIs it tracks also differ depending on its goals. Non-profits also depend on their revenue streams and thus need to track the factors affecting revenue and expenses to create KPIs accordingly. You can base your KPIs on what matters to you most at that moment; you could have program-specific KPIs or budget-based KPIs. They need to be reviewed and adjusted to align with your changing priorities or missions.
Program Efficiency KPIs
A non-profit addresses specific social causes or problems through targeted programs. Program Efficiency denotes how much of the NPO’s expenses are directly used for the program itself and how effective the program was in achieving its intended goal. A high Program Efficiency Ratio (above 75) is a positive indicator of how many resources the NPO used to achieve its goal. A low ratio means the NPO has spent more on overheads or other expenses than on the program itself. This KPI is particularly of interest to donors and stakeholders who want to know if their funds are being used efficiently for social causes.
NPOs should track the program’s effectiveness in achieving the desired objective. They can track the qualitative progress of their mission with non-financial KPIs, such as:
Program and Service Delivery
This can be used to understand how well a program has been conducted, how many people have been served in each program, how many staff had to be hired to achieve the goal, how many hours each volunteer put in, and how happy or satisfied the beneficiaries of each program were with your services and support.
Outreach and Advocacy
This measures how effective the program’s outreach has been, how many people were encouraged to volunteer and support the cause, and how effective the awareness campaigns were in garnering support.
Marketing and Communications
These KPIs can help assess how well your marketing strategies are working by tracking your website visit count, social media presence and engagement, and positive responses to communication.
Fundraising Efficiency
Another major challenge for non-profits is raising restricted and unrestricted funds. While restricted funds can be used only for the purposes specified by the donor, unrestricted funds can be used for administrative and other operational purposes. Both types of funds are equally important for an NPO to function optimally and to expand its outreach. To understand how effective their fundraising efforts have been, a non-profit can check two main KPIs –
Reliance Ratio
Many NPOs are fortunate to receive regular funding from certain patrons or corporations, while also relying on government grants and other individual donations. To determine how dependent the non-profit is on a specific kind of funding, you can calculate its Reliance Ratio by dividing the amount of a particular funding by that of the NPO’s total income. By understanding this dependence, you can diversify the organization’s investments and boost efforts to find new donors.
Cost per Dollar Raised
Organizing fundraising events or campaigns also takes money. But is the money you are spending on organizing such events bringing in more money? Or is it merely a negative return on investment and a futile expense? To determine this, simply divide funds raised by total campaign expenses.
Donation Conversion Rate
This KPI can help analyze how many website visitors become donors or contributors. A low number indicates that your website is not convincing enough, or that the donation process or payment options are difficult to understand and need simplification to increase donation volumes. Donation conversion rate = (Amount of donations / Number of website visitors) X 100.
Donor Retention Rate
Some donors regularly donate to a particular non-profit. Such donors are extremely important to the NPO, as they provide a steady, guaranteed flow of funds. By periodically tracking your Donor Retention Rate, you can determine whether the number of loyal patrons and donors is increasing, decreasing, or stagnating. Depending on the result, you can seek feedback and look at ways to increase retention rate. Donor Retention Rate = [(Number of Donors at End of Period – Number of New Donors) / Number of Donors at Start of Period] x 100
Administrative Efficiency
Apart from charity programs, non-profits have their administrative and operational expenses. However, limited unrestricted funding makes it difficult to balance costs and funds. Certain KPIs can help you gauge your administrative efficiency and channelize your funds accordingly:
Liquidity Ratio
Just like a for-profit business, a non-profit also needs a cash reserve in case funding dries up or there is an economic downturn, or even to meet short-term obligations. A 3 to 6 months’ worth of cash reserves can be a lifesaver when faced with a funding crunch or unexpected expenses, such as repairs. Liquidity Ratio measures cash on hand by your average monthly expenses to measure the financial capacity of the NPO.
Overhead Rate
Overhead Rate checks how much your NPO is spending on utility bills, administrative necessities, and other operational expenses in relation to your total expenses. A high Overhead Rate indicates excessive spending on fixed expenses and inefficient management of funds meant for social causes. If this is the case in your non-profit too, you can devise ways to minimize such expenses through sustainable energy options, revised volunteer fees, reduced marketing costs and more.
Tracking all these KPIs on a monthly or quarterly basis is a great way to assess whether your non-profit is making optimal use of the funds it raises. Using the numbers provided by these KPIs as a base, you can then tweak your budgets, fundraising, and programs accordingly. As an NPO, you are answerable to your stakeholders and donors. Such quantitative and qualitative KPIs can help you better present your case to them and motivate others to contribute.
Contact Glenn Graydon Wright LLP in Oakville to Help You with KPIs for NPOs
A professional accountant with experience in handling NPOs will discuss your performance parameters and design a system to generate adequate reports. At Glenn Graydon Wright LLP, our accountants and bookkeepers can provide services such as KPI analysis and tracking. To learn more about how Glenn Graydon Wright LLP can provide you with the best accounting and bookkeeping expertise, contact us at 905-845-6633 or connect with us online to schedule an initial consultation.