Key Performance Indicators (KPIs) for Nonprofits
As a manager of a nonprofit, you are challenged with a diverse set of responsibilities that are critical to the success of your organization. Key Performance Indicators (KPIs) can be useful tools in your management toolbox. KPIs are quantifiable measures of how well you and the organization are performing critical activities.
Effective KPIs reflect the organization’s goals. They can be used to measure processes and activities that are important to serving your clients/members, manage your program effectiveness and organizational health as well as determine overall team morale. Monitoring KPIs on a monthly or quarterly basis can ensure that budget planning, staffing, financial planning, growth strategies, fundraising efforts, and organizational direction can be shifted, as needed, to meet the organization’s objectives.
KPIs can be broken into two distinct categories: Balance Sheet Indicators and Income Statement Indicators.
Balance Sheet Indicators
Current Ratio = Current Assets/Current Liabilities
Quick Ratio = ( Cash + Accounts Receivable)/Current Liabilities
The Current Ratio/Quick Ratio can be used to show an organization’s ability to pay current obligations. These ratios are useful indicators of cash flow in the near future.
Debt Ratio = Debt/Unrestricted Net Assets
The Debt Ratio indicates what proportion of debt an organization has relative to its assets. This measure shows how leveraged the organization is along with the potential risks the company faces in terms of its debt-load.
Solvency Ratio = (Net Profit + Depreciation)/Liabilities
The Solvency Ratio indicates how capable the organization is of meeting its financial obligations.
Income Statement Indicators
Savings Ratio = (Total Revenue – Total Expenses)/Total Expenses
The Savings Ratio reveals the rate of the nonprofit’s savings by measuring the relationship between total annual savings and total expenses. Although the Savings Ratio is an important component of longevity, high ratios may indicate excessive savings. This ratio should also be considered in combination with the liquidity indicators. If the nonprofit has low liquid funds, a higher Savings Ratio may be desirable.
Grants & Contributions Ratio = (Grants + Contributions)/Total Revenue
The Contributions and Grants ratio indicates the extent of the organization’s dependence on voluntary support by calculating the percentage of total revenue made up by contributions and grants. This ratio can also be used to calculate other sources of concentrations of revenues.
Operating Reliance Ratio = Unrestricted Program Revenues/Total Expenses
This ratio enables managers to gauge whether or not the nonprofit could pay all expenses from program revenues alone. A good outcome for this measure is one, and in some cases more than one, but most nonprofits must also rely on temporarily or permanently restricted revenues.
Program Efficiency = Program Services Expenses/Total Expenses
This information is significant to donors, board members, and managers because it quantifies how much the nonprofit is spending on its primary mission rather than administrative costs. How many cents of every dollar spent are dedicated to the nonprofit’s goals or programs? Ideally, this ratio would be equal to one, but such success is unrealistic for most business models.
Fundraising Efficiency Ratio = Unrestricted Contributions/Unrestricted Fundraising Expenses
An important takeaway from this ratio is how many dollars the nonprofit can collect for every one dollar of fundraising expense—how efficient is the organization at raising money. The higher the ratio, the more efficient the fundraising efforts. You can also calculate this ratio for specific special events.
Each of the KPIs above gives you quantifiable measures to help align the spending and budgeting with the organization’s mission. This financial information can be presented to grantors, lenders, contributors, other management and the public to show how the finances are being used to meet critical success factors of the nonprofit.
Graphs can be an excellent way to present this information. Some graph examples include; a pie chart analysis of year over year changes of asset allocation or revenue sources and a bar graph showing year over year comparison of current asset changes or expenses by functional category.
Is your organization utilizing Key Performance Indicators? Here are two simple questions to get you started:
What are the critical activities of our organization?
What KPIs do we (or could we) measure to help us keep on top of these?