Sometimes nonprofits go under. Not at the rate that it happens to businesses in the for-profit world, but it does happen. And when it happens, people in need go unserved, worthy causes go unsupported, and missions go unrealized.
Why do nonprofits fail? It isn’t necessarily related to the power of their visions or the efforts of their teams. Research conducted by Concord Leadership shows that approximately half of all nonprofits lack a formal strategic plan.
In other words, for every organization meaningfully setting goals and tracking performance, there’s another simply hoping for the best.
If your organization falls into that latter category, there’s a better way to manage its resources, keep track of its outcomes, and ensure its longevity. On the other hand, if you already have a detailed strategic plan in place, you still need to continually optimize your operations and maximize your impact. How? The answer lies in key performance indicators (KPIs).
WHAT ARE KPIS?
Performance management starts with figuring out what to measure. Regardless of whether you call them KPIs, metrics, or measures, deciding what you want to track is one of the hardest parts of performance management. Any data point that indicates whether your organization is meeting its mission can be a KPI.
Common examples of KPIs nonprofits monitor include:
- number of individuals or families served
- number of volunteers or members
- number of items or services (e.g. beds, meals, classrooms, volunteer hours, etc.) provided in a given time period
- dollars raised in a given time period (e.g. per month, quarter, or year)
- total number of donors
- number of annual donors
- percentage of recurring donations
Visit our complete library of sample KPIs by industry for additional KPI measurement ideas.
KPIs are particularly important for monitoring an organization’s financial health. Data such as cash flow, donor retention rate, donor growth rate, program efficiency, and program ROI tell you not only how you’re doing now, but whether your organization is well-positioned for the future or in need of a strategic shift in direction.
WHICH FINANCIAL KPIS SHOULD NONPROFITS TRACK?
The list above contains some valuable nonprofit KPIs, but it isn’t exhaustive. Depending on your organization’s size, structure, history, location, leadership, and other factors, you may need to track only a few data points or many, many more than the examples enumerated here.
Whatever form they take, your KPIs should provide managers, senior management, and your board with the insight they need to successfully run the organization. That means you need to track the right KPIs and present the data in a format that resonates with all stakeholders. A KPI management tool like Spider Impact is especially helpful here, as it allows the entire organization to visualize strategic performance and track KPIs.
When choosing KPIs to track, identify metrics that align with your organization’s mission and strategic plan. Keep in mind that KPIs need to show both a) how your efforts (i.e. your programs or initiatives) meet your goals, and b) how deviations from these metrics impact your organization’s financial performance.
KPIs should, in order of importance, allow your organization to…
- remain financially viable
- enhance its ability to achieve goals necessary to the overall mission, and
- better benefit the community or members it serves.
With these objectives in mind, here are some recommended KPIs for nonprofit financial managers:
- budget variance—consolidated for the organization as a whole, and for each program and/or grant
- cash basis summaries (in trend graph form)—for cash balances in the bank, and cash balances by contract, grant, program, etc.
- accounts payable balances
- accounts receivable balances
HOW TO CAPTURE KPIS EFFECTIVELY
To accurately capture and analyze this data, your organization needs to institute the right practices and procedures. This process becomes simplified and streamlined when you purchase and work with the right KPI and metrics management software, such as Spider Impact. For example, our customer VersAbility has achieved great success managing KPIs and delivering interactive Board presentations with Spider Impact.
When you capture KPIs effectively, you can share with your board (and understand for yourself) how to best operate and perform according to what is and isn’t working in your organization. Then you can put initiatives in place to focus on what IS working, and continue on the path to success.