These expenses include things like payroll, rent, utilities, contractors, fundraising costs, and more. However, many donor prospects and watchdog organizations compare overhead and programming expenses as a shorthand for a nonprofit’s health, effectiveness, and perceived credibility. Charity Navigator updated its rating system in 2023 and now generally gives full credit to program efficiency ratio those organizations whose ratio of program expenses is 70% or more of their total expenses. The mission statement of a nonprofit organization is a great place to start when it comes to determining how efficient the organization is at fulfilling its mission and short-term financial obligations. To calculate efficiency, divide the total expenses by the total numbers served.

1. This can help the nonprofit allocate promotional resources to the source that provides the most value to the organization.
2. For this metric, we check if the organization reports on its Form 990 that it retains those minutes.
3. An organization with a ratio of 1.0 would have one dollar of assets to pay for every dollar of current liabilities.

The personnel expense ratio simply measures the personnel costs of producing revenue. This ratio tells a nonprofit how much value it’s getting from each fundraising activity, relative to the cost of those activities. If the ratio is greater than 1.0, then for each $1 spent, the nonprofit receives at least $1 in contributions. Understanding these three KPIs is a starting point to selecting benchmarks more specific to your sector and organization. However, ratios aren’t the last word and sometimes ratios alone can’t reflect the full picture of an NPO’s efficiency. Multiple tools and financial analyses should be used complementarily to provide a more in-depth look into an NPO’s financial health.

These KPIs can help measure the effectiveness of their educational programs and ensure that students obtain a quality education. The percentage of fundraising expenses that go directly to fundraising activities 4. A percentage figure of donors who continue to donate to your non-profit over a period of time. As society continues to struggle with this new reality, so do non-profits – at a time when they are needed more than ever, donor numbers are down, volunteers are harder to recruit and retain, and competition grows. Our analysts check to see if the charity lists its board members on its website. Publishing this information enables donors and other stakeholders to view the makeup of the charity’s governing body.

By tracking this KPI, non-profits can identify areas where they need to improve their fundraising management efforts. For example, if the Fundraising Efficiency Ratio is low, it could indicate that the organization is spending too much on overhead expenses or that its fundraising activities are not being implemented efficiently. Tracking the Volunteer Retention Rate is an essential KPI for non-profits to measure their retention performance.

The percentage of total expenses that go towards administrative and fundraising expenses. The Unrestricted Net Assets (UNA) ratio measures the percentage of unrestricted net assets. This metric reveals the degree of flexibility the organization has regarding resource usage. The efficiency ratio is typically used to analyze how well a company uses its assets and liabilities internally. An efficiency ratio can calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of equity, and the general use of inventory and machinery.

Edited by CPAs for CPAs, it aims to provide accounting and other financial professionals with the information and analysis they need to succeed in today’s business environment. The higher your result, the more efficient your fundraising campaigns are considered to be. The accounts receivable turnover ratio is used to show trends in the aging of an organization’s accounts receivable. © 2023 GBQ Partners LLC All Rights ReservedGBQ is a tax, consulting and accounting firm operating out of Columbus, Cincinnati, Toledo and Indianapolis. © 2023 GBQ Partners LLC All Rights Reserved
GBQ is a tax, consulting and accounting firm operating out of Columbus, Cincinnati, Toledo and Indianapolis.

For more information regarding KPIs for your nonprofit organization, contact one of our specialists in Ohio and Indiana. The more efficiently a company is managed and operates, the more likely it is to generate maximum profitability for its owners and shareholders over the long term. The percentage of volunteers who report being satisfied with their experience volunteering https://simple-accounting.org/ for your organization. Non-profits face unique challenges that require a different approach than for-profit businesses, as Non-profits must focus on their mission and impact on society rather than revenue. Applies to donor-funded charities with more than $2 million in annual revenue. Applies to all donor-funded charities with more than $50 million in annual revenue.

Savings Indicator Ratio

Because your organization is tax-exempt, the data needed to make this calculation is publicly disclosed. According to Charity Navigator, 7 out of 10 charities have a program efficiency ratio of at least 75%. In general, this means they are spending at least $0.75 of every $1 on program expenses.

An official record of events during a board meeting ensures that a contemporaneous document exists for future reference. Charities are not required to make their board meeting minutes available to the public. For this metric, we check if the organization reports on its Form 990 that it retains those minutes. Industry professionals strongly recommend an independent governing body to allow for full deliberation and diversity of thinking on governance and other organizational matters. Depending on the organization’s size and whether it is funded primarily by donations, some additional metrics are applicable. Explore the list below to learn more about each metric and its applicability.

Fundraising Efficiency Ratio

A direct link from a charity’s website to its Form 990 on an external site is sufficient. As with the audited financial statement, donors need easy access to this financial report to help determine if the organization is managing its financial resources well. For donor-funded nonprofits with more than $50 million in annual revenue, we check the charity’s website directly. For all other organizations, we check the charity’s tax form to see if it discloses that the 990 is available on the charity’s website.

Who are these non-profit KPIs aimed at?

Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI’s full course catalog and accredited Certification Programs. Access and download collection of free Templates to help power your productivity and performance. Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets. Environmental groups working to protect the planet and its resources can benefit from KPIs such as reducing carbon footprint, waste reduction, and energy consumption reduction.

Volunteers are the backbone of non-profit organizations; retaining them is crucial for the organization’s success. By tracking the Volunteer Retention Rate, non-profits can identify areas where they should improve their volunteer management efforts. For example, if the Volunteer Retention Rate is low, it could indicate that volunteers are not given enough opportunities to contribute or are not being recognized for their efforts. Financially effective charities should be efficient fundraisers, spending less to raise more. We calculate an organization’s fundraising efficiency by determining how much it spends to generate $1 in charitable contributions.

This is a great, cost-effective, and simple way to visualize KPIs that can be viewed by anyone in the organization at any point in time. The Fundraising Expense Ratio (FER) measures how fundraising expenses compare to overall costs. Higher values indicate that more money is being spent to raise funds to support the organization’s mission. Exhibit 3 presents the current year financial ratios of the selected YMCA and average values for a sample of 10 peer YMCAs. Ratios were calculated for the peer institutions using information from their Form 990s.

What Does an Efficiency Ratio Tell You?

This means the company’s operations became more efficient, increasing its assets by $80 million for the quarter. The requirement that all tax-exempt organizations complete and make available their Form 990s provides access to a wealth of financial information about peer organizations at minimal cost. For example, colleges and universities commonly develop benchmarks for both peer and aspirant institutions.

If the number is greater than 1.0, it means the organization is not efficiently managing its resources. A nonprofit’s financial health depends on the ability to monitor and assess its financial performance. By tracking three key indicators, you can receive a real-time understanding of how your organization is doing and implement plans to improve it. In essence, financial analysts consider efficiency ratios to be an important measure of the current and short-term performance of an organization.

For larger organizations, we also expect them to have an audit oversight committee that is responsible for choosing the independent accountant and responsible for overseeing the needed financial documentation. Donors, board members, and other stakeholders typically have different focus areas within the organization. Therefore, include KPIs in your financial reporting that are best aligned with their interests and organizational responsibilities. This website is using a security service to protect itself from online attacks. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data.