Designed for finance managers, CFOs, and accountants, this session will examine what key performance indicators nonprofits should look at to gauge their operational efficiency, stewardship of resources, and performance compared to peer organizations. The session will also include a discussion of the tools and data that are available to enhance this process and to improve accountability to donors and other stakeholders.

1. t Identifying and Measuring KPI’s Liz Marenakos

2. What are KPI’s? Key Performance Indicators, or KPI’s, are quantifiable measures of an organization’s performance, activities, or success. Used to measure progress towards goals Translate an organization’s mission into clear, measurable outcomes

3. Why are they important to nonprofits? Transparency to internal and external audiences Accountability to Donors/Funders Proof of Delivery on Mission

4. Financial KPI’s – The basics While KPI’s can be organization or even campaign specific, basic financial KPI’s are relevant to most nonprofits. Some examples: Average Donor Contribution Cost per dollar raised Program Efficiency Liquidity Fundraising Efficiency Operating Reliance Employee Productivity

5. 3 Important Ratios Three key ratios that are of interest to nonprofit stakeholders Program efficiency ratio – How much of every expense dollar goes to programs? Operating reliance ratio – How much of your total expenses are covered by program services revenue? Fundraising efficiency ratio – What multiple is your contribution revenue of your fundraising expenses?

6. Program Efficiency Program Efficiency = Program Service Expense / Total Expenses Measures the percentage of every expense dollar that goes to programs Important metric to donors, board members and management The best outcome would be a ratio of 1 – where 100% of all spending is on programs

8. A measure of your organization’s ability to cover total expenses from program services alone

9. Very important if program services revenue are deemed most consistent and predictable

11. A measure of how much contribution revenue a nonprofit can generate from fundraising activities / expenses

13. Annual Report to Members & Donors

14. Employee Performance Management

16. Sample ratios:

17. Current Ratio = Current Assets / Current Liabilities

18. Quick Ratio = (Cash + Total Receivables) / Total Current Liabilities

19. Days Cash Reserve = (Unrestricted Cash / (Total Expenses – Depreciation and Amortization)) * 365

20. The higher the ratio numbers, the stronger the organization

21. The true benefit of strong liquidity is the ability to invest in the “growth factors” that drive future program improvements and expansion

22. Cash Reserve is a rough measure of the amount of cash on hand to cover future expenses

24. Gross Program Margin = Gross Yield / Total Unrestricted Revenue

25. Indicates the percentage of revenue that is left over after paying program expenses.

26. Indicates how many cents of gross program profit can be generated by future revenue

27. Indicates what percentage of revenue the organization can use for other expenses, e.g. administration and fundraising

28. Operating Margin = Operating Yield / total Unrestricted Revenue

29. Measures how many surplus cents the organization generates for every dollar in revenue.

31. Employee Productivity = Unrestricted Revenue / Total Payroll

32. Measures the dollars of revenue generated per dollar spent on payroll.

33. Note: This must be measured over time and used as a period to period comparison.

35. So if all your ratios are comparing favorably from one period to the next, are you satisfied?

36. How do you compare to your peers?

38. Habitat for Humanity NTEE Code L20 – Housing Development, Construction and Management Revenue Band: $1MM-$10MM Revenue Composition Example Organization

39. Program Efficiency What expenses are allocated to programs? - Resale store expense? Ratio Score

40. Operating Reliance Depends a bit on what you include as program expense

41. Fundraising Efficiency Depends on what is included in your contribution revenue number as well as your fundraising expense number

42. Our sample org is on par with its peers for program efficiency, below its peers for operating reliance and above its peers for fundraising efficiency What questions might you ask about this particular organization based on its 3 key ratios? My thoughts: What percentage of their contributions are gifts in kind? Do they have a ReStore operation? Where are those $? Contributions or Programs? How are donations of building materials treated? Are mortgage payments considered program services revenues? Considerations and Questions

43. Ratios are best used as conversation starters There are specific aspects to your business model that may make a particular ratio look “good” or “bad” – but the reality is the opposite Be clear what numbers you have included in the numerator and denominator and why Ratios need comparisons to make them relevant – a solitary number is not useful Period to period comparisons Peer comparisons Financial Ratios can give you a quick picture of your organization’s overall strength In Summary