While nonprofit leaders often think of financial performance as their most important metric, the truth is that it’s only one of many nonprofit KPIs. For a nonprofit organization to succeed, they need to have a good handle on the performance of key financial indicators (KPIs) like revenue and cost-per-donor acquisition.
By tracking these nonprofit KPIs with the help of a nonprofit CFO, you’ll be able to make informed decisions about where your nonprofit organization is spending its money and how it can improve operations while maintaining or increasing its impact.
Nonprofit KPIs can only be met if they are tracked accordingly. Therefore, each nonprofit organization needs to keep a close eye on various key performance indicators, such as how many donors they are attracting, what is the donation growth, the average gift size, and many more.
To make your life a bit easier, we have put together a list of the essential nonprofit KPIs your organization should track:
The number of donors is perhaps the most basic of the nonprofit metrics. The more donors you have, the better! But there are several ways to look at this number from different angles. Many nonprofits track new and repeat donors separately. However, it’s also useful to see how many donors you have overall, as well as how many new and repeat donors you’re getting each month.
Additionally, metrics like donor retention rate can help you understand which groups are sticking around and which ones might be dropping off due to factors that won’t continue indefinitely (like an exciting campaign). This can help you predict future results based on current trends—and make sure your efforts aren’t going down the drain with one-time contributors who aren’t likely to donate again.
Donor retention rate is another important key performance indicator for your nonprofit. It is the percentage of repeat donors in a given year. It’s a critical indicator of donor loyalty and can be calculated for many types of donors (one-time, recurring, etc.).
For example, let’s say we had 100 new donors last year and 20% gave again this year. Our retention rate would be 20%. If you know your retention rates and your donor churn, you’ll be able to make strategic decisions about how much money you’re spending on acquiring new donors versus retaining existing ones.
The number of new donors is the best indicator of the health of your organization. The more new donors you have, the better your marketing and fundraising efforts are working. If you see a decrease in the number of donors, it means it’s time to reevaluate how you’re promoting yourself as an organization (and what tactics aren’t working). These nonprofit metrics can have a huge impact on the short-term activity of your organization.
Measure revenue by source to track the sources of your financial support. This nonprofit financial metric helps you understand how much money comes in from various sources and the proportion of total revenue each brings to the table.
Revenue by source is typically broken down into several categories: donations, government funding, grants and investment income. For example, if a nonprofit received $10,000 in donations last year but only $5,000 from government funding and no grants or investment income, its revenues would be split 50/50 between donations and government funds (since they represent 50% of its total revenues).
Cost-per-donor acquisition is the cost of acquiring a new donor divided by the number of donors acquired. This metric is one of the most important KPIs for nonprofit organizations because it measures how efficient your fundraising efforts are. The lower this number, the better!
For example, if it costs your organization $10 to acquire a new donor and over time you have 10 new donors, then your cost per donor would be $1. If it were $100 instead, then your cost per donor would be $10—a much bigger difference in efficiency (and likely not sustainable).
One of the most important KPIs for nonprofits to track is cost per dollar raised. This measures fundraising efficiency, as it shows how many dollars were raised for every dollar spent on fundraising efforts.
To calculate this metric, divide the total fundraising costs by the amount of money you raised: (Total fundraising costs / Amount of money secured) = Cost per dollar raised
7. Fundraising Efficiency Ratio
The fundraising efficiency ratio is a metric that measures the effectiveness of a nonprofit’s fundraising efforts. It tells you how much money it takes to raise one dollar in revenue. The higher the number, the more efficient your organization is at raising funds.
To calculate your organization’s fundraising efficiency ratio:
- Take total cash expenses and divide them by total donations raised during your fiscal year (from all sources). For example, if you received $500,000 in donations during 2018, but paid out $600,000 for all expenses related to fundraising activities (including salaries for staff who work on donor relations), then your fundraising efficiency ratio would be .83 ($600k / $500k = 83%).
In the nonprofit world, donor lifetime value (DLV) is one of the most important nonprofit KPIs. It represents the average revenue you generate from a donor over the course of their lifetime. It is calculated by multiplying total revenue by the number of donors and then dividing by one minus your average retention rate.
- The higher your DLV, the more efficient your fundraising campaigns are.
The reasoning behind this equation seems pretty simple when you calculate donor lifetime value. If a donor gives $100 and then donates again two years later with another $100 donation, that’s $200 in total revenue for that particular donor over three years ($100 + $100 = $200). If you divide that number by two—because we only have half of the donations—and then subtract one from it because we only have half as many donors (as those who give less than once), we get 33% DLV ($50 / $50 = 1 – 0 = 1; 1 – 0 = 1).
An important metric to track is average donation size. It tells you how much your donors are giving, on average, and can help you understand your target audience better. If a donor is giving more than $100 per year or month, they’re likely going to be a major contributor in the future.
If this number has decreased over time, it may indicate that your organization needs to adjust its marketing strategy and try attracting new kinds of donors who are more willing or able to give larger sums of money.
When it comes to nonprofit metrics, organizations need financial key performance indicators (KPIs) to measure their success. KPIs are a good way to measure the effectiveness of your program and make decisions about how to improve it. They also help you see if you are meeting your mission.
There are some different types of financial metrics for nonprofits, including:
- Revenue-based KPIs
- Expenditure-based KPIs
- Asset-based KPIs
Hopefully, this article has helped you get a better understanding of the key performance indicators nonprofits use to measure their success. Nonprofits use these metrics to make sure that they’re on track for their goals and staying on top of everything that needs to be done in order for the organization to function well. They also help raise awareness among potential donors about what it takes to run an effective nonprofit organization while maintaining high ethical standards.
If you are looking for help when it comes to setting and monitoring your nonprofit KPIs, let Zivo step in. If you need a Canada-based expert to glance at your performance metrics before you decide to move forward with a CFO or on your own, book a free consultation with us!