How Should Nonprofits Promote Their Value?

When evaluating a nonprofit organization’s financial and operational effectiveness, what should we consider? It is the age-old nonprofit conundrum: How do we show our nonprofit value on paper? 

• Number served? Well, that doesn’t really tell the whole story, does it? Just because people were served doesn’t mean that the service was needed, useful or had a lasting effect.
  • A solid Case for Support (or Case Statement) is a very useful tool for a nonprofit to have in order to illustrate: the issue/need, the financial impact that issue has on the community, how the nonprofit is addressing the issue, why they are valid to do so and what it costs to make the service-delivery possible.
  • We do need numbers served in order to budget and forecast, but it shouldn’t be the deciding factor on effectiveness. 
• Satisfaction surveys? Maybe. It really depends on who and what you are surveying and how you ask the questions. 
  • Many organizations that deliver intangible services that are difficult to quantify, such as the effects of mentoring, use some type of survey to gauge how well clients feel the organization served them. However, if an organization serves 100 people and only four fill out a satisfaction survey, the survey results are then nigh on to worthless.
• Impact/Outcome metrics? Now we’re getting somewhere. If 50 people went through a sober living program and 42 were still clean after 12 months and had secured employment, that is a number that means something. If some of those people were previously homeless, then having those people sober, employed and living in safe housing is a savings to the community in services that do not have to be expended on those individuals. Now you have the ability to show both the compassionate value of helping someone improve their life, as well as the financial value of reducing use of community policing and social services.
• Percent of revenue that management and fundraising represent? No. Just no. “Overhead percentage” has been used for years as the golden ruler by which nonprofit effectiveness is measured. But it is a deeply flawed value model. No two nonprofits are the same. No two nonprofit vertical industries (e.g.  health care, disaster response, performing arts) are the same. And there is not a single budget formula that all nonprofits use to break out “overhead” items — especially when it comes to percentage of salaried positions used in the calculation. 
  • We must stop rating nonprofit effectiveness on overhead percentages. Instead, we must illustrate that donor dollars support all of a nonprofit agency’s costs combined, the output of which is the ability to deliver quality services. (See Illustration A.)

No One-Size-Fits All Formula

None of this means it is impossible to determine whether a nonprofit organization is being fiscally responsible and delivering programs effectively. It simply means that there is no one-size-fits-all measures of success.

As an outrageous example, let’s look at it this way. Nonprofit Cool Runnings shows an overhead percentage of less than 10%. One might be inclined to think they are amazingly frugal (it must be noted that operating at an extreme level of frugality is NOT a sign of a financially healthy organization). But upon closer inspection, a vehicle that was listed under program costs is, in fact, a Ferrari that the executive director drives. See the problem?

In terms of fiscal responsibility, it is more about what the organization is spending money on, not necessarily how much. A nonprofit spends money to send staff to leadership and communications skills training, which is seen by some as a “luxury,” not a necessity. But the result over time is less turnover and the lowered financial costs and toll on morale that high turnover causes. Now is the expense considered a luxury or a smart and strategic business move?

Focus on the Storytelling

The examples above illustrate some of the many ways nonprofits try to prove to donors/investors that the organization is worthy of donations. And it IS important to be able to show that an organization’s finances are employed strategically and monitored closely.

But what donors really want to know is how will their money improve someone’s life? Will their funds keep a pre-teen girl alive, because of the after-school suicide-prevention program made possible by donors’ gifts? Or maybe a busload of students from a low-income section of Los Angeles County can visit the Museum of Tolerance as part of the anti-bullying peer-mediation program that is available for them to attend because of donors’ generosity.

These are the things that matter. Nonprofits must be adept at telling their story in ways that show the good that happens, because they were the conduit that connected donors with a meaningful mission.

Sure, nonprofit organizations need to be able to transparently prove they didn’t buy Ferraris with donor dollars. Having accepted that as a given, let’s keep our attention focused on the mission, not the ill-defined moving target of overhead percentages.