Key Performance Indicators that Matter For Your Nonprofit
Two key things you want your nonprofit to do are to control costs and devote more resources to the delivery of programs and services. Understanding how much you spend on programs compared to how much goes toward administration and fundraising is key to this. It will also be helpful to determine how much you will need to get by in case of a lean time.
4 key numbers
These key ratios can help your organization measure and monitor efficiency:
Percentage spent on program activities
This ratio offers insights into how much of your total budget is used to provide direct services. To calculate this measure, divide your total program service expenses by total expenses. Many watchdog groups are satisfied with 65%.
Percentage spent on fundraising and administration
To calculate this number, divide total fundraising and administrative expenses by contributions. The standard benchmark for fundraising and administrative expenses is 35%.
This measure represents your nonprofit’s ability to pay its bills. It’s worth monitoring because it provides a snapshot of financial conditions at any given time. To calculate, divide current assets by current liabilities. Generally, this ratio shouldn’t be less than 1:1.
Is your organization able to sustain programs and services during temporary revenue and expense fluctuations? The key is having sufficient expendable net assets and related cash or short-term securities.
To calculate the reserve ratio, divide expendable net assets (unrestricted and donor restricted net assets less net investment in property and equipment and less any nonexpendable components) by one day’s expenses (total annual expenses divided by 365). For most nonprofits, this number should be between three and six months. Base your target on the nature of your operations, your program commitments and the predictability of funding sources.
Orient toward outcomes
Looking at the right numbers is only the start. To ensure you’re achieving your mission cost-effectively, make sure everyone in your organization is “outcome” focused. This means that you focus on results that relate directly to your mission. Contact us for help calculating financial ratios and using them to evaluate outcomes.
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