6 Apr, 2020
It’s estimated that Americans donated more than $427.71 billion to US charities in 2018, according to The Annual Report on Philanthropy for 2019.
Consequently, many accountancy firms specialise in supporting nonprofit organisations, non governmental organisations (NGOs), charities, foundations and trusts. We asked long-time Fathom customers and nonprofit accounting specialists Jitasa Group, what nonprofit organisations can do to make sure they’re making the most of these donor opportunities.
Key performance indicators (KPIs) drive progress. In order to reach a goal, your organisation needs to have that specific goal in mind from the start. Small businesses choose their KPIs based on what will help grow the company and generate more profit.
However, nonprofit organisations operate somewhat differently. Instead of trying to sell more products or services for profit, nonprofits work to increase fundraising revenue in order to complete additional projects that help advance their mission.
This is why their KPIs are slightly different than those of for-profit organisations. Some of the KPIs every nonprofit should track include:
- Fundraising ROI
- Donor Retention Rate
- Donor Growth
- Average Donation Size
- Number of Mid-Tier and Major Donors
- Matching Gift Revenue
Each of these goals has the mark of a good KPI. They are specific, relevant, actionable, and measurable. Your nonprofit can use these measurements to see how these nonprofit KPIs are doing in terms of your overall fundraising campaigns.
Ready to learn more about each of these KPIs? Let’s dive in.
1. Fundraising ROI
Most people consider an organisation’s return on investment (ROI) to be a measurement used by for-profit organisations rather than nonprofits. They tend to equate this measurement with the gross profit margin, which, according to this article, is one of the most important metrics to track at a creative agency or similar for-profit.
The difference between these two metrics is that the ROI is the percentage return on what you spent, while the margin is the percentage of a product’s price that is profit. However, nonprofits (as the name implies) don’t make a profit, but they do spend money. That’s why ROI can’t be narrowed down to just for-profits. Anyone who spends money should keep an eye on this metric.
So why is the return on investment important for nonprofits?
Fundraising isn’t free. When it comes to bringing in new donations, your nonprofit may be looking at expenses such as:
- Purchasing an online donation tool
- Donation processing fees
- Costs associated with hosting an event
- Marketing outreach
- Staff member time spent focusing on the fundraising campaign
To calculate your nonprofit’s fundraising ROI, you’ll need to subtract the amount you spent from the amount you raised, divide by the amount you spent, and multiply by 100.
This calculation allows you to compare fundraising strategies and ensure these strategies are improving over time. As your ROI improves, you can rest assured your fundraising strategies are becoming more and more efficient.
However, to calculate metrics such as this, you need to have effective nonprofit bookkeeping and accounting systems set up or outsourced. This is the only way you can measure the accurate costs of technology, staff member time, marketing materials, and more in order to calculate an effective measurement. We recommend outsourcing these services to make sure your organisation can focus more on implementing the KPI for ROI, rather than calculating it.
2. Donor Retention Rate
One of the best ways your nonprofit can improve your ROI and raise more money is by developing relationships with supporters. However, “relationships built” isn’t a great key performance indicator. It’s not measurable or specific.
The better KPI is “donor retention.” After all, what’s one of the primary reasons those relationships are so valuable? It leads to future donations for your nonprofit. Plus, this measurement is both specific and measurable.
Donor retention is measured by the number of donors who continue to give to your nonprofit after their first contribution. According to Qgiv’s donor retention guide, the average donor retention rate is between 40% and 45%.
So why is donor retention rate so important for nonprofits?
There are a few key reasons:
- It costs less to convince an existing donor to give again than to acquire a new donor
- Donors who give more frequently can be cultivated to become mid-tier and major donors
- Increasing donor retention rate is the fastest and most efficient way to maximise fundraising efforts
While a healthy donor retention rate is dependent on the organisation itself, it’s a general standard that the higher it is, the better it is. And if your nonprofit has various chapters, compare donor retention rate between the chapters to make sure they all seem consistent.
3. Donor Growth
When you’re keeping an eye on your acquisition rate to make sure your organisation’s number of donors is growing, you should make sure to subtract those who lapse from your calculation.
This will give your organisation a good idea of the growth of your donor base.
Why is the donor growth rate important for nonprofits?
A 100% donor retention rate is impossible to reach and maintain. This is because there is a natural attrition rate for nonprofits. Some people are bound to pass away, run into financial difficulty, or cease donating for reasons outside of your nonprofit’s control. That’s why it’s important to make sure your nonprofit has that attrition covered with the acquisition of new donors.
When you examine the number of new donors in your donor database, you can get an idea of how effective your acquisition strategy is and how you can continue improving it in the future.
While this isn’t the only indicator of a growing organisation, it’s an important one because it shows that your organisation is reaching new audiences and engaging more of the community.
4. Average Donation Size or Average Gift Size
As we touched on earlier, as your organisation retains more donors, these donors tend to donate more and more to the nonprofit. Therefore, you should keep an eye on the average donation size contributed to your organisation.
Let’s put it this way: if your nonprofit has 10 donors each donating $5, then you’ll receive $50. However, if each were to donate just one more dollar, that total amount jumps to $60. When your average donation makes a similar, even minor, increase, you’ll see the same type of jump in total donations.
Why is tracking the average donation size important for nonprofits?
It’s important to track the average donation size to your nonprofit because when you track that amount, an increasing average should equate to stronger relationships and more revenue. You may also choose to break this metric down a little further into:
- Average low-level donation. You can use this number to set well-informed suggested giving amounts on your online donation page. This will guide donors to give a little more, increasing revenue.
- Average mid-tier donation. Mid-level donors are too frequently overlooked by nonprofits. They may need a little more attention from your stewardship team if this average is a little low.
- Average major gift. Your largest donations are a cornerstone of your organisation. If that average drops, it’s important to identify the reasoning and begin cultivating other donors to become major donors.
Make sure to configure your performance dashboard to reflect the averages that mean the most to your nonprofit. Then, you can decide on the next steps to strengthen the appropriate strategy.
5. Number of Mid-Tier/Major Donors
Nonprofits rarely have a large number of major donors. It’s usually a small group of people who view themselves as partners with the organisation (and rightfully so!). Mid-tier donors are generally a larger group of donors who care deeply about the cause and want desperately to be an organisational partner.
Why is it important for nonprofits to track the number of mid-tier and major donors?
Nonprofits increase their revenue astronomically when they increase the number of major donors in their donor database. Therefore, cultivating major donors is incredibly important for revenue and growth.
In this respect, your nonprofit can consider your mid-tier donors to be future major donors. You should watch the numbers to make sure that your mid-tier donors aren’t falling to the wayside; you want them to have the potential to become major donors.
When it comes to recording financials from your mid-tier and major gifts, it’s vital to utilise a competent and efficient bookkeeper and accountant. After all, recording a $50,000 donation is very different than a $500,000 donation. Check out Jitasa’s Bookkeeper vs. Accountant article to make sure your team is up-to-scratch.
6. Matching Gift Revenue
Corporate philanthropy is a major source of untapped financial potential for nonprofits. Companies will often have a portion of their budget set aside to give as a match for their employee’s gifts to eligible organisations, as a volunteer grant, or as a sponsorship.
In fact, according to this page, an estimated $4 to $7 billion in matching gift revenue goes unclaimed every year.
So why is matching gift revenue an important KPI for nonprofits?
With 65% of Fortune 500 companies offering matching gift revenue, nonprofits who don’t work to obtain these matches from eligible donors are losing out on valuable revenue.
Maximising fundraising means taking advantage of matching gifts. Comprehensive software dedicated to matching gifts makes it possible to:
- Track donors who may be eligible for a matched gift
- Estimate the amount of potential matching gift revenue available to your nonprofit
- Reach out to supporters and let them know about the potential to give more
Matching gifts are becoming increasingly important in order to make sure companies are advertised as socially responsible corporations. Tracking your nonprofit’s revenue ensures you’re taking full advantage of the financial opportunity provided.
No matter which KPIs you value the most at your organisation, you need an effective way to track your progress over time and your finances at the moment. Focus on your strategic approach by outsourcing to an accountant who will work with your organisation to advance your KPIs. Then, track the progress of those KPIs in your dedicated software solution and watch your nonprofit organisation grow!
See how easy it is and start tracking your KPIs with Fathom.
Fathom offers a free 14 day trial, no credit card is required.
Written by Jon Osterburg
Jon Osterburg has spent the last nine years helping more than 100 nonprofits around the world with their finances as a leader at Jitasa.