In the art of tasseography, a diviner strains liquid from a tea cup to look for patterns in the leaves left behind. Although this process of reading tea leaves remains unchanged since gaining popularity in 17th century Europe, a similar approach to fortune-telling can help nonprofits understand and identify actions from the swirl of otherwise inconclusive data.
These patterns, or key performance indicators (KPIs), serve as a quantifiable measure of an organization’s health and success. A proper set of KPIs provides the data necessary to evaluate performance and deliver a powerful management tool, creating incentives for staff and ensuring the organization remains focused on achieving its goals. Using KPIs ensures decisions are based on facts, not feelings. And, while the idea may seem obvious, very few nonprofits have systematically linked their metrics to their mission.
Because KPIs provide concrete data points, they serve as a cornerstone for smart decisions. Historical data can help ensure a brighter future for your organization. The ability to test and subsequently measure which fundraising programs or membership growth initiatives are most successful allows for increased investment where returns are high.
KPIs also provide solid evidence to the board, executive director, and donors that the programs in place are effective. Many foundations demand to review results of their investments in nonprofit organizations and will finance only those able to provide detailed answers. Increasingly, these funders are not satisfied with answers that amount to little more than a laundry list of activities or accomplishments.
Getting started with KPIs can be simple and may amount to merely formally documenting many of the metrics already being measured more casually.
Here are four KPIs every organization should monitor on a regular basis:
1) Database Growth (Year-Over-Year)
When you’re focusing on improving your fundraising efforts and/or expanding your membership rolls, you should make sure you’re accurately measuring the growth in the number of people engaging with your organization. At a minimum, this figure should be reviewed annually, but it can be helpful to review every six months, quarterly, or even on a monthly basis.
2) Donor/Member Retention (Year-Over-Year)
A companion to growth, organizations should also monitor retention. As a generally acknowledged rule, a customer, donor, or member can cost five times more to acquire than to retain. And per Nonprofit Quarterly, a 10 percent improvement in attrition can yield up to a 200 percent increase in projected value. Because, with lower attrition, significantly more donors upgrade their giving, give in multiple ways, recommend others, and, ultimately, perhaps, pledge a planned gift to the organization.
Because gaining new relationships is always more costly than cultivating existing ones, tracking your retention rate becomes vital, not only with regards to managing growth, but also in controlling bottom line expenses.
3) Average Spend
With an understanding of database growth and retention metrics, average spend provides another compelling KPI for organizations of all sizes, and provides a path to predictable revenue. In addition to an overall average spend across an entire database, explore ways to understand behavior with specific groups: new donors, peer groups, employers, etc. for additional insight that can drive action. For example, an organization needs to drive 30 percent growth in revenue in the New Year. One approach would be to drive a 30 percent increase in average gift size, or spend, per donor/member. Alternately, you may choose to pursue specific donors or organizations, leveraging your relationships to drive fewer – more significant – gifts or investments.
4) Return on Investment
Frequently discussed in the commercial sector, return on investment (ROI) should also serve as a meaningful KPI for nonprofits. To calculate ROI, the benefit (or return) of an investment is divided by its cost. In addition to being a quantitative measure, by its very nature ROI includes many of the quality indicators referenced above. A program’s cost may be evaluated against the number of new donors/members attracted, its ability to improve retention or drive higher spend per constituent.
With the basics covered, many nonprofits are able to turn their attention to more advanced KPIs designed to help them more accurately understand their success in achieving their mission. Introduced by consulting firm McKinsey & Company in 2001, the Family of Measures approach aligns metrics based on how it aligns to an organization’s tactics, strategies, goals, vision and mission.
Many of the traditional KPIs outlined above serve as tactics to increase capacity but when reviewed in context of the bigger picture, these KPIs can be associated with:
- Activity measures: Progress toward the goals and program implementation that drive organizational behavior
- Impact Measures: Measure progress toward the mission and long-term objectives that drive organizational focus
While taking the long view is helpful, getting started with KPIs can be a straightforward process, but it helps to be prepared. Remember KPIs are not about the efforts of a particular individual or department, but the overall organization and community it serves. The very act of aligning mission, goals, and performance metrics can change an organization profoundly.