What Are KPIs & Why Do They Matter?
Telling a story is part of a finance leader’s job. Numbers are not for everyone, so being able to communicate the financial position of an organization effectively is a skill nonprofit finance professionals must have. Key performance indicators (KPIs) are metrics to help measure an organization’s performance and progress toward its goals. They easily can show non-finance professionals insight into what is going on within an organization.
In recent years, KPIs quickly have become vital tools that provide insights into a company’s financial health and offer a great way to measure success, optimize operations, and drive strategic decisions to help companies make the most of their efforts. Understanding and choosing which KPIs to track can help organizations stay on course and increase their community impact where they are serving. Here are our top picks for KPIs that nonprofits should consider.
Program Impact Metrics
What to Track: Number of people served, donor or client satisfaction, improvement in conditions, program efficiency, e.g., total costs spent on program activities.
Why They Matter: These metrics assess the effectiveness of your programs. Looking at the direct impact on a target population helps you to understand whether your initiatives are achieving their intended outcomes and guides future program development. The program efficiency ratio can help your organization understand the costs of running a program aside from administration and fundraising.
Donor Retention Rate
What to Track: Percentage of donors who give year after year.
Why It Matters: Retaining a donor is more cost-effective than acquiring a new one. A high retention rate means strong relationships and high donor satisfaction, which can lead to a more stable income for the organization.
Fundraising Efficiency
What to Track: Cost per dollar raised, fundraising return on investment (ROI), and donor acquisition costs.
Why It Matters: A fundraising expense ratio shows the efficiency of fundraising efforts. The donation growth rate measures how your revenue from donations increases yearly. Monitoring how efficiently you raise funds shows that resources are used effectively. High fundraising efficiency means that more of each dollar raised goes directly to your program rather than administration or fundraising expenses. Tracking these metrics can help provide valuable insight into how effective fundraising efforts are in acquiring new donors and growing revenue.
Administrative Costs
What to Track: Percentage of funds allocated towards administration and overhead costs.
Why It Matters: Keeping administrative costs under control means the majority of your funds are directed toward your mission. This tracking also helps with gaining donors’ trust, which may, in turn, lead to a more consistent donor base.
These are just some of the KPIs nonprofit leaders can use to tell a story without spending hours going through a balance sheet and income statement. Consistently using these KPIs may allow an organization to track metrics across various years and really tell a cohesive story.
For more information on how we can help your organization choose KPIs to unlock your financial storytelling, please reach out to a professional at Forvis Mazars.