Nonprofit Management: Setting Key Metrics
Managers at nonprofits have a unique set of challenges related to furthering their business while also furthering their mission. Progress cannot always be measured by simple metrics like revenue-growth and grants-made because you’re not really in the business of making money and giving money away: you’re in business to better the world. That’s why it’s so crucial that nonprofit managers link their metrics to their mission. Too many nonprofit managers confuse institutional achievements with progress toward achieving it. It’s nearly impossible to achieve your mission without first setting micro level goals that imply success on a macro scale.
In 2001 John Sawhill and David Williamson penned an excellent resource titled “Measuring what matters in nonprofits.” The thesis of the piece is that every nonprofit should measure its progress in fulfilling its mission, its success in mobilizing its resources, and its staff’s effectiveness on the job.
Why you need clear performance metrics in the nonprofit world
From our own experience working with nonprofits, we have noticed that the added complexity of mission-driven business means there’s a huge need for clear metric tracking, data benchmarking, and cohesive management. Both metric tracking and a deep understanding of industry benchmarks empower nonprofit managers to be more aggressive about trying new strategies to further their mission.
The best metrics for a nonprofit show how any job within the organization contributes to the larger mission. Metrics also help establish a culture of accountability, something we’ve seen in all businesses - nonprofits and for-profits alike.
Taking a step back and looking at different roles in the nonprofit world, many funders now demand to see the results of their investments in charitable organizations and will finance only those that can give them detailed answers, further proving the need for more efficient metric tracking systems.
So, you need metrics for managing a nonprofit and you need those metrics to be linked to your mission. How do we go about setting the right metrics?
First, measure success in mobilizing resources
Like I mentioned before, these metrics are more likened to the operations of the nonprofit. Sawhill and Williamson refer to these as “Bucks and Acres” or money raised and grants deployed. They are important to track for obvious reasons, but don’t necessarily reflect how well you’re accomplishing your mission, just how well you’re growing your capability. To measure success in mobilizing resources we want to look at metrics like:
Total gifts per year - how have we grown since last year? Specifically looking at dollar amounts across our donor base.
Donor base growth - how many new donors do we have? It’s helpful to look at this relative to the dollar amount of total gifts. Are we attracting more high-dollar donors or a higher quantity of low-dollar donors? Either might be more aligned with your ultimate goals so it’s important to analyze.
AUM - and especially your AUM relative to market size. What percent of your market do you command?
Staff effectiveness on the job
With this type of metric, we are trying to dive further into efficacy. These metrics might measure things like "number of mouths fed" or "houses built." This helps us to drill further toward the mission from how we mobilize resources and begin to paint a broader picture. We would look at metrics in the vein of:
Number of people served by a program - this is a particularly important metric to know that funds are being put to work and it’s also helpful as a micro-level goal. If staff is effective, this should move the needle for your mission.
Number of completed projects - this metric can dive a bit deeper into efficacy and bring about strategic issues in project management. For example, if we hit great numbers on completed projects but aren’t seeing the results in our impact metrics, maybe we’re working on the wrong projects.
Progress toward fulfilling the mission
Sawhill and Williamson frame three options for defining progress toward the mission: narrowly defining the mission, investing in research, and/or developing micro-level goals. This metric set truly embodies what the nonprofit stands for and also happens to be the most difficult to track. With these performance indicators we are looking to measure how we are actually achieving our mission. In many cases, a nonprofit’s mission is so large (end hunger) that it seems impossible to track. Alternatively, metrics put into place to measure a more narrow mission might oversimplify the problem. The key is to find a balance in micro level goals and KPIs that should point to a larger impact.
For example, if your mission is to end hunger in a certain area, it’s not enough to just measure “mouths fed,” you must combine this data with data reflecting a substantial change - metrics that track education initiatives, public awareness, and economic deficiencies that might increase or decrease hungry people in the future. Couple this approach with micro level goals and you can understand your impact on a much larger scale. Another example: to measure the conservancy of a large estuary, you might measure water clarity, levels of dissolved oxygen, and size of wetlands to measure the larger goal. The key is to keep these metrics simple, derived from readily available information.
The importance of benchmarking data in nonprofits
Instituting a system of metrics like the one described in this post is good from a management perspective and a team perspective. Nonprofit management can use KPIs and benchmark data to appeal to the competitive spirit of their teams. Even benchmarking KPIs across one organization can be helpful - in many cases, two teams in different regions might get excited about competing over regional metrics.