Defining Success Metrics for Non-Profits

Many people running Non-profit organisations ask this very fundamental question:

“We are a non-profit. It’s different from organisations that track and grow revenue and profit. We are not in the business of making money. It’s hard to define key metrics in our case.”

Making money may seem to be a big difference, a chasm really. But there is NO difference at all when it comes to measuring performance. Here’s why.

Money is so unnecessary

Let’s start by simplifying the situation - let’s take money out of the equation. Money is JUST a unit of measurement (Monetary Economics 101), to bring everything to a common standard of unit. It makes comparison easier. Your shop sold 5 refrigerators and my shop sold 10 bottles of ketchup, may not make an easy comparison. But when you say your shop sold refrigerators worth 1,50,000 rupees and my shop sold ketchup worth 2000 rupees, that’s brings both the businesses on an even scale. You must also appreciate here that

Money comes only at the last step.

All real aspects of business are in different units like tonnes of inventory, units sold etc. For the purpose of growing your product/services/company, focusing on the number of units of the real product or service being sold will serve you well. Inventory and sales are eventually converted into money at the last step using appropriate prices for the inventory and product. In fact these prices, which are used to convert real quantities into monetary value, are also important business metric to track. So there,

Money actually acts as a mask, a veil when your objective is measuring and tracking the growth of the company.

Money is basic

For-profit organisations’ data is quite diverse. Companies, businesses look at so many metrics that are not monetary. It serves them well to look at the business as it works, and having a granular picture that reflects the reality of the business as it happens like customers growth, retention, satisfaction etc. There are money based metrics too but they don’t stand alone. For example take Customer acquisition cost, CAC. CAC tells you how much you spend on acquiring the customer. But this number alone doesn’t help you much. You will be inclined to ask, how much does she spend with us in one order, and over time. So eventually you are looking at CAC to First Order Value or CAC to Lifetime Value ratio. That is, even monetary metrics are converted into ratios and growth percentages to make them usable.

What's the mission?

I think the fundamental aspect of an enterprise (for-profit or non-profit), which takes this discussion beyond analytics, is the purpose of the organisation. No, not making profit. Go one step beyond to see what an enterprise is doing. The Coca-Cola Company’s ‘purpose and passion have always been refreshment’. American Express is 'a globally integrated payments company with a purpose to enrich people’s lives and businesses with their offerings'. Uber’s mission is ‘ to make movement happen at the tap of a button’. The mission statement becomes the centre of the universe for analytics, just like any other business process. That is,

Analytics is sanguine about your mission statement. And so it becomes a tool that reflects the reality that you are living, against the purpose you have set out to achieve.

So you need to ask yourself, not whether you are making money or burning money or not charging money at all, but your purpose and how well are you fulfilling it?

You are not operating in a bubble!

And finally, all organisations work with certain degree of accountability. Non-profits may seem to have lower standards for it, most of the expectation is around voluntary disclosures. Nevertheless, it is there. Non profits are also bound by accountability - accountability to their mission and more importantly accountability to the people who are associated with it in various capacity.

Forget money and profit, for all practical purposes, accountability becomes your holy grail.

The more accountability you assume for your organisation, more sophistication you command in your performance tracking. It's directly linked.

Therefore, as a non-profit, you need two aspects to build the framework for measuring and tracking your organisation’s performance: 1. Purpose, and 2. Accountability towards various stakeholders.

Building a performance measurement framework

Now let’s build a generic framework for a Non-Profit.

- First question, what’s your purpose?

Let’s take a hypothetical example of a purpose, say providing food to poverty stricken families.

- Second question, who are you answerable/accountable to?

To poor families of course, their community, to your donors, your partners, your volunteers, your staff, and the government.

Using these two questions as two axis, and now you can easily identify the key metrics by asking:

Are we fulfilling our mission or purpose?

• How many people did we serve?

• What was the extent of our service?

• How satisfied were the target group?

• How lasting was the impact?

• Has the community been positively impacted?

• Is there any positive ripple effect?

How efficient / accountable are we towards various stakeholders while working for the mission?

• Are we growing the number of served people year-on-year?

• Are we getting enough funds to run our activities?

• What is our funds utilisation rate through the year?

• Are our funds growing with the growth in impacted group?

• How many volunteers are joining us through the year?

• How many full time staff are we using for the programs?

• Is our staff requirement changing over time?

• Is our volunteer requirement changing over time?

• Is our staff competent to handle the mission?

• If our staff and our volunteers happy with the efforts?

• Are the donors happy with the effort?

• Are we uitilising the funds for the best ROI?

• Are our donors increasing over time?

• Where are our donors coming from?

• Are our donors contributing repetitively?

• Are we complying to government regulations?

All these questions can be converted into simple metrics to track the performance of the non-profit. (Actually, these will work just as well for any other type of organisation, even for-profits). I hope I have made a strong case for why money is not at all important for measuring performance. Even a non-profit can be highly sophisticated in its approach towards performance tracking; money does not change that.

Final Resort

But if you still feel that having a monetary element brings a psychological effect on efficiency, then let me suggest this. Why don’t you find out an appropriate market value for the service that you are providing. Use that market price to convert all your service rendered into a deemed sales revenue figure. With this hypothetical revenue and very real costs of running the program, you would arrive at a profit equation for your organisation and start working with that framework.

Conclusion

In conclusion, money is not necessary for measuring the performance of your organisation, even if it is a non-profit organisation. Money serves a. Limited purpose and even for-profit companies use a diversity of metrics to understand and grow their business. Instead of focusing on the monetary aspect, a non-profit could benefit from focusing on just two axis, how well are they fulfilling their mission and how efficiently are they doing it? This can give a reasonably sophisticated framework for performance tracking. And as a last resort, to counter the psychological bias of having a monetary value, you could also use deemed value of the service and track just like any other for-profit. In either case, you would end up with a similar set of metrics that you would need to define success and efficiency for your organisation.