Beyond the Balance Sheet: KPIs to Measure Your Non-Profit’s Success

Key Performance Indicators (KPIs) are crucial for non-profits to measure their effectiveness, financial health, and progress towards their mission. These KPIs provide data-driven insights that help with decision-making, resource allocation, and accountability to stakeholders.

1. Donor / Member Retention Rate:

• What it measures: The percentage of donors who continue to donate over time.

• Why it’s important: It is more cost-effective to retain existing donors and members than to constantly acquire new ones. A high retention rate indicates strong donor relationships and satisfaction, leading to stable long-term funding.

• Target: Organization specific – higher is better. Associations would expect to be 90%+ while charity donor retention is less consistent.

2. Program Efficiency Ratio:

• What it measures: The percentage of total expenses that are allocated to program activities (as opposed to administrative or fundraising costs).

• Why it’s important: This is highly significant to donors and board members because it quantifies how much of the non-profit’s funds directly support its mission and beneficiaries.

• Target: 80%+ – this is often factored into charity ratings, like Charity Navigator.

3. Days of Cash on Hand / Operating Reserve:

• What it measures: The number of days an organization can continue to pay its operating expenses with existing cash balances.

• Why it’s important: This is a crucial financial stability metric, indicating the organization’s ability to navigate unforeseen challenges and ensure the continuity of its mission.

• Target: At least 6 – 9 months – the more, the better.

4. Fundraising ROI (Return on Investment) / Cost Per Dollar Raised:

• What it measures: How much money is raised compared to the money spent on fundraising efforts.

• Why it’s important: Understanding the efficiency of fundraising campaigns is critical to ensure resources are used effectively and more funds go directly to the mission.

• Target: Less than 1:10 i.e. $1 of fundraising expenses raises at least $10.

5. Donation Growth Rate (and Donor Growth Rate):

• What it measures: The increase or decrease in donation amounts and the number of donors over a specific period.

• Why it’s important: This indicates the overall financial health and public engagement with the cause. Positive growth signifies success in attracting support.

• Target: Positive

6. Beneficiary Reach / Number of People Served:

• What it measures: The number of individuals or communities directly impacted by the programs and services.

• Why it’s important: This KPI directly assesses the effectiveness and reach of mission-driven activities, demonstrating the organization’s social impact.

• Target: Organization specific

7. Volunteer Retention Rate/ Satisfaction:

• What it measures: The percentage of volunteers who continue to volunteer for an organization over time, and their satisfaction with the experience.

• Why it’s important: Volunteers are often a critical resource for non-profits. High retention and satisfaction indicate effective volunteer management and a strong, dedicated workforce.

• Target: Organization specific

8. Unrestricted Revenue Percentage:

• What it measures: The portion of total revenue that is unrestricted, meaning it can be used for any purpose.

• Why it’s important: Having a good percentage of unrestricted funds provides financial flexibility to cover operational costs, invest in new projects, and adapt to unexpected circumstances.

• Target: Organization specific

9. Liabilities to Assets Ratio

• What it Measures: The Asset-to-Liabilities Ratio, often referred to in the non-profit sector as the solvency ratio, measures the extent to which an organization’s assets cover its liabilities. It shows how much of what the organization owns (its assets) is financed through debt (its liabilities). A higher ratio indicates a greater cushion of assets over debts, signifying a stronger financial position. The calculation is straightforward:

                     Asset-to-Liabilities Ratio = Total Liabilities/Total Assets

• Why it’s Important: This ratio shows financial stability for several reasons:

1. 1. Long-Term Solvency: It directly addresses the organization’s ability to meet its long-term financial commitments.
   2. Financial Flexibility: A strong asset base provides the financial flexibility needed to navigate economic uncertainties, manage unexpected cash flow shortages, and seize strategic opportunities for growth or program expansion.
   3. Access to Credit: When a non-profit seeks financing for capital projects or to manage cash flow, lenders will review this ratio. A higher asset-to-liabilities ratio indicates lower risk to creditors, making it easier and cheaper to secure loans.

• Target: A ratio of 2:1 or higher is considered a healthy target. This means the organization has twice as many assets as it has liabilities. A ratio below 1:1 is a significant red flag, as it indicates that the organization’s liabilities exceed its assets.

Bay Business Group understands the importance of tracking KPIS for the finance and accounting departments of a non-profit. Monitoring these KPIS allows non-profits to make data-informed decisions. We provide our clients with dashboards to show this information in real time and advise them on strategic planning to best support their mission.