What Are Nonprofit Ratios and Why They Matter

Michael specializes in providing tax, financial statement and advisory services to multi-generational family owned businesses across Oregon. Revenue by source breaks down income to reveal where the highest sources of revenue come from. This can help the nonprofit allocate promotional resources to the source that provides the most value to the organization. Although financial statements play an important role, they may not be the best way to communicate performance to your nonprofit’s stakeholders. Ratios assist in translating information from your financial statements and can be presented as easy-to-process snapshots. An engagement rate of between 1% and 2% is satisfactory for most organizations.

Beneficiary Satisfaction Rate

Average donation size tracks the typical amount of money donated per contribution. Each not-for-profit experiences novel conditions and the quest for a given system may improve one ratio while compounding another. Learn more about selecting and implementing nonprofit KPIs by scheduling a call with us today. In general, you should try to keep this ratio above 75% to maintain a healthy balance for your organization and in the eyes of the public.

Services

Member communication is more than just a newsletter for associations today — it’s the heartbeat of a robust engagement strategy. © 2023 GBQ Partners LLC All Rights ReservedGBQ is a tax, consulting and accounting firm operating out of Columbus, Cincinnati, Toledo and Indianapolis. Ratios also help stakeholders keep an eye on overall financial condition, identify worrisome and promising trends, and make informed decisions. Take a deep dive into challenging business topics with these free educational resources. High volunteer retention indicates a positive volunteer experience and can save resources on recruitment and training.

Your organization’s revenue growth rate can either be a positive or negative percentage. If you have a positive growth rate, you know your organization was able to attract more funding than before. Nonprofits exist to make a difference, but how do you measure that difference?

Industry Benchmarks are Key

The Administrative Expense Ratio (AER) measures the percentage of total expenses directly related to administrative activities. Lower percentages may indicate that the organization’s administrative costs are either under control or too low. Conversely, higher percentages may reveal that the nonprofit is not managing resources efficiently. This is an important metric for donors to measure program costs vs operational expenses. The program expense ratio provides what magnitude of organization expense is incurred on services vs services as management or general expenses.

Expense-Related Metrics

• There are hundreds of financial KPIs, ratios, and financial metrics you can track.
• This is calculated by dividing total revenue by average accounts receivable.
• This guide will explore some of the most common nonprofit KPIs–including how to calculate them–to help you pick the right KPIs for your nonprofit.
• EnSYNC helps you capture and unlock the power of that information with software solutions customized for nonprofit organizations.
• For instance, if your nonprofit aims to reduce homelessness, an outcome measure could be the number of individuals housed.

Measuring this metric over time indicates how well the organization is positioned over the long term with respect to its liabilities. We’ll cover some of the most common metrics used by nonprofits, and share how to calculate KPIs in each category. Therefore, these organizations require aggressive marketing strategies to attract donations. The leverage ratio measures how heavily leveraged an organization is, meaning its reliance on debt. Lower scores are better, with top-rated charities generally having ratios of less than 30%.

• It measures how much an organization is spending on its primary mission rather than administrative costs.
• The fundraising efficiency ratio helps determine the sustainability and value of specific fundraising efforts.
• While your program efficiency ratio is one of them, it is only a partial measure of your functional expenses.
• However, ratios aren’t the last word and sometimes ratios alone can’t reflect the full picture of an NPO’s efficiency.
• Straight out of high school, Nicole knew she wanted to be an accountant and she was interested and worked with the nonprofit niche originally.
• The Expense-to-Revenue Ratio (ERR) measures the relationship between money flowing in and out of the organization.

We recommend that an organization maintain a current ratio of at least 1, indicating that it can cover its short-term obligations with its most liquid assets. Leaders can use this information to determine if the organization is ready to program efficiency ratio expand resources, such as hiring more staff or expanding program services. Do you have questions about the financial health of your nonprofit organization? Use the calculators in this guide to see where your nonprofit stands for these popular ratios. The program expense ratio shall be further segregated into committed and non-committed expenses.

All non-profit organizations articulate a goal to be executed by the organization’s programming process. The level of cash given to programs comparative with working costs (finance, regulatory costs, raising money costs, and so on.) is a key marker of how well the organization is satisfying its main goal. A particular key performance marker that can help a nonprofit in breaking down its execution can be characterized as the program expense ratio.

When evaluating liquidity, it is crucial to consider the cash conversion cycle. Low or negative liquidity may indicate the organization does not have sufficient assets to cover its upcoming financial obligations. It is typically recommended to maintain an operating reserve to cover at least 25% of the annual operating budget. A lower ratio indicates a more efficient fundraising operation, meaning more of the donations go directly towards the cause rather than administrative costs. The Efficiency Ratio is a powerful analytical tool that cuts through the noise of top-line revenue and bottom-line profit to reveal how effectively a company manages its core operations. While particularly prominent in the banking sector, its underlying principle of gauging operational efficiency is valuable across all industries.

Read on to learn 14 important nonprofit metrics, how to calculate them, and why they are vital to your organization. The goal of many nonprofit organizations is to improve the quality of life by providing help or resources to a specific group. Certain nonprofit-specific key performance indicators (KPIs) can help nonprofits focus on their goals.

Social Media Engagement Rate

Nonprofit ratios give you an idea of ​​how prepared the organization is to deal with unexpected financial contingencies. It’s like knowing whether you have enough savings to weather an unforeseen crisis. No one wants to donate to an organization that might close its doors tomorrow. As a general rule, a lower Efficiency Ratio is preferable, as it indicates that a company is managing its costs effectively relative to its revenue generation.

The operating reliance ratio is computed by taking the organization’s unrestricted program revenues and dividing it by the total expenses of the organization. The Program Efficiency Ratio (PER) measures the percentage of total expenses directly related to program activities. Higher percentages indicate that the organization is focusing on its mission, while lower percentages reveal that the overhead costs may be excessively high. A misguided idea has developed over the years that overhead is a bad thing for a nonprofit.