A Brutal Look Into the Mirror: Today’s 4 Key Metrics for Nonprofit Viability

The mirror is a powerful image. The wicked queen of Snow White and the Seven Dwarves first learns of Snow White’s beauty by peering into a magic mirror. In Bram Stoker’s Dracula, Jonathan Harker’s fateful look into a mirror is his first sign that he is among something supernatural, and the famed mirror from The Picture of Dorian Grey is a constant reminder of the youth and beauty Dorian has lost.

In all these cases, the mirror is a confrontation with reality — a brutally honest look at what’s real. For most nonprofit organizations, this is exactly what’s missing. There is no full-length, streak-free mirror that gives the executives and their team members an authentic and unfiltered look at the organization’s viability. It’s no wonder, then, that only 50% of nonprofits are successful and 30% are failing after ten years of operation.

There is no confrontation with reality.

As a leader in the nonprofit scaling space — with a median annual impact/revenue growth rate of 25% — I’ve witnessed firsthand the growth and long-term success that can come from such an honest look at your organization’s viability. But how do you do it? It starts with four key metrics that align with a rigorous benchmarking model.

Before you find a partner to guide your organization through the process, take an honest inventory of these benchmark categories — take a look into the mirror — and start asking your board the right questions.

1. STAFF PAY 

What’s the most common mistake that nonprofit organizations make when developing a human resources strategy? They make martyrdom a necessary part of their survival.

No matter how noble your nonprofit’s mission, competitive pay and benefits are essential to creating high-performing teams. For starters, it’s the only way you’re going to attract the people you want working with you in the long term. In fact, one study shows that raising the compensation for a position by just one dollar produces up to a 30% increase in employee recruitment.

What’s more, competitive salary and benefits are the only tried and true means of keeping those high-value professionals around once they’ve accepted your offer. This is especially critical for nonprofits with tight budgets. Why? Because studies suggest that replacing an employee can lead to overall losses of up to 200% of the employee’s compensation.

This essential struggle is why the best benchmarking models for nonprofit viability use comparisons to similar for-profit organizations. If you make a true comparison between your compensation and those of your for-profit contemporaries, you might be surprised at the size of the gap.

Questions for the board

• Can we compete with private sector companies for the top talent in the industry?
• If  we currently can’t, what change is needed to make it possible?

2. SOCIAL RETURN ON INVESTMENT (SROI) 

Since nonprofit organizations don’t produce more money, they tend to shy away from concrete ideas about return on investment (ROI). Even their key performance indicators (KPIs) for revenue and marketing often lean into metrics with little real value, such as page view volume, newsletter click-throughs, or most popular social content. Unfortunately, letting that level of ambiguity fester inside your organization makes it impossible to achieve for-profit levels of efficiency.

You need a tangible goal, but what does that mean for your organization? Outside of specific fundraising ratios, nonprofit organizations have to get a bit more creative and precise when evaluating their social return on investment (SROI). What do you change? What does that change mean for your communities? Putting this into quantifiable or measurable terms is extremely difficult — but extremely essential.

SROI isn’t about castles made of sand. Instead, it’s about robust measurements of both the financial and non-financial benefits the organization delivers to its communities. As far back as 2015, One Acre Fund was using a measurable SROI to allocate their resources. And it didn’t take long for those decisions to yield serious results. The reason is simple. Even if you’re in the business of “doing good,” you need to paint a very precise picture of what that looks like — then hang it on the wall.

Questions for the board 

• Can you spell out every dimension of your SROI?
• Whom or what you change.
• The economic and non-economic benefits of these changes.
• Independent, third-party evidence of these changes.
• The resulting change on the larger problem.
• Other influences on the problem.

3. BUSINESS PLAN FOCUS 

Mission creep is a real threat to nonprofit viability. It’s not uncommon for a small nonprofit organization to direct its passion and resources toward a problem that is far too vast to be affected by the scale of its solutions. This is because many nonprofits lack the focus of a highly detailed business plan, choosing instead to rely on the vagaries of a strategic plan and wishlist.

To compete with the private sector, your organization needs a full-throttle business plan, and it needs what Jim Collins and Jerry Porras call a “big, hairy, audacious goal (BHAG).” This business plan needs verifiable targets at every milestone, and this BHAG needs to be measurable and business-oriented. Simply put, it needs FOCUS.

In their widely recognized piece for “The Stanford Social Innovation Review,” Heather McLeod Grant and Leslie R. Crutchfield cite “making markets work” as one of the chief hallmarks of a high-performing nonprofit. This means accepting the brutal realities of your industry, then building a highly detailed, highly focused business plan with all that in mind.

Questions for the board 

• Is your program model a focused investment of your time, energy, and resources?
• Is the problem you are addressing through your investment clearly defined?
• Are you chasing new programs and initiatives without adequately investing in others?

4. REVENUE STRATEGY 

Seasonal revenue dips. Failing donor retention. Cash flow management. It’s not surprising that many nonprofits get stuck in “survival mode.” But what does that actually mean?

It means you’re frantic for revenue and searching for strategies that generate immediate returns, such as relationship-based appeals to known individuals or short-term fundraising. Unfortunately, this frantic, short-term perspective also makes you blind to any opportunities that generate money in the long term. In this case, the survival instinct that feels like it’s keeping your organization afloat is actually crippling the company’s overall viability.

What’s needed is a detailed revenue strategy, and one that can compete with the private sector needs to be both comprehensive and exact. It should include precise figures for everything from individual donations and online fundraising to grants and capital campaigns. Additionally, it should always consider novel revenue strategies within the industry that may yield greater ROI.

A robust revenue strategy starts with a brutal look into the mirror, then ends with honest questions and answers about what will sustain and grow your organization.

Questions for the board 

• Are you stuck chasing small amounts of money with no end in sight?
• Is your fundraising targeted or uninformed?
• Are you willing to look beyond typical survival strategies to learn higher-ROI strategies?

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