Financial KPIs and metrics for nonprofit organizations
As your nonprofit organization’s finance leader, you are continually trying to balance and report against a double bottom line of financials and mission. If you are struggling to make sense of all the data and match your financials to your specific mission outcomes, you are not alone. Providing evidence of social and financial performance regularly is not an easy task for any nonprofit.
Nonprofit KPIs vs. Information Overload
With so much big data available, information overload has become a very real problem for organizations in all industries. But how can you cut through the clutter and identify what really matters?
To help you identify the KPIs that matter, and discover the metrics that work, we have compiled a list of the 10 critical financial KPIs to focus on to help you assess your nonprofit’s mission and fundraising financial success and efficiency:
5 Key Mission KPIs to look for:
1. Visibility Ration
Your financial ratio analysis can help you assess your nonprofit’s overall financial condition, flagging any patterns that may present a risk. In this case, your visibility ratio compares net assets against long-term debt. This can help you measure your overall financial strength and identify the availability of cash and other assets to meet your nonprofit financial obligations.
2. Operating Reserve
Are your financial resources sufficient and flexible enough to support your mission? This financial ratio helps you answer the question by comparing your expendable net assets to total expenses. Always aim to have an operating reserve to cover at least three months of annual expenses, so you can fund programs when unexpected events happen.
3. Program Efficiency
From a financial perspective, you can measure program efficiency by comparing your program expenses against total expenses. This helps you identify how efficient your organization is in fulfilling its mission. This indicator tells your donors how much you’re spending on the mission they are supporting rather than day-to-day administrative costs.
4. Revenue Reliability
Here, you can see your nonprofit’s track record of bringing in recurring financial resources year after year. Nonprofits don’t always receive funding from the same sources or even in the same amount every year. However, with the right tools, you can predict a level of income based on historical data and performance.
5. Full Cost Coverage
This measurement will help you assess if your nonprofit is sustainable long term. Ensure you set revenue targets to cover direct and indirect operating expenses and the full cost of running your organization. Surpluses can provide the additional dollars needed to address savings and hidden costs.
5 Key Fundraising KPI’s to look for:
6. Annual Donor Growth
It’s the metric that all nonprofits are already tracking, but that doesn’t make it any less important. More donors mean more activity, it’s not the only solution (as we’ll see below), but it is a key one and simple to measure. Comparing year on year donors will quickly tell you if your number of donors is going up or down and what you need to do to meet fundraising targets.
7. Average Donation Growth
Tracking annual donation growth is often an undervalued and underused metric in the Not-for-profit sector. Many nonprofits tend to focus on attracting new donors, missing the opportunity to grow the ones they already have. In much the same way as commercial enterprises, growing existing relationships is cheaper and more efficient than building new ones and should become a priority.
8. Donor Retention/Attrition Rates
How many donors remain year on year. Compare the number of donors you have year on year. Are they going up or down? What’s the average donor relationship length? A healthy retention rate is your goal here, and you need to understand anything standing in the way of that.
9. Fundraising ROI
How much is your average donation, and what are you spending to get that? This may sound obvious, but often nonprofits are so focused on funding and missions that the relationship between the two gets overlooked. No matter the nonprofit, an imbalance in fundraising ROI is unsustainable and must be corrected quickly. So tracking this metric is always a priority.
10. Donor Conversion Rate
Looking at all your marketing and fundraising activities, what percentage of your audience is actually donating? Where is the drop-off? What activities are working? How can you spread the message further? Can your messaging be better? By understanding the conversion rate and considering questions like these, you can find opportunities for making your fundraising more effective.
The big picture: What do all these KPIs tell you?
These KPIs help you assess your nonprofit’s financial health, but are you able to track this data in real-time? How much manual work is involved in collecting this data? We see lots of finance departments spending too much time collecting data than analyzing it. Or getting overwhelmed by the sheer volume of information confronting them without any clear idea of how to make use of it.
As a finance leader, it’s your responsibility to make sure you give your people the tools to automate manual data entry and collection so they can focus on providing valuable insights into your nonprofit’s future, in terms of finance and social impact. So they need to be able to find these insights quickly and easily and bring them to life.
How can Unit4 help you find the KPIs and insights that matter?
Our solutions for nonprofit organizations focus on People Experience to help free your teams to do more of what matters: making a positive impact in the world. We free up your people’s precious time to maximize the impact you can deliver. Helping you understand data, satisfy the rising demands of regulators and tech-savvy donors all from one system. While removing the constraints of Conventional, labor-intensive legacy systems and disjointed manual processes that no longer meet these needs.
Find the KPIs and bigger picture key to your mission success With Unit4’s People Experience suite. And free your people to be more productive every day.
You can find out more about Unit4’s people-centric nonprofit ERP solution here.