Compelling ROI stories are rooted in your financials, Guest Blog by Erica McGeachy Crenshaw
Erica McGeachy Crenshaw, CEO, Execute Now!
Access to information and technology has not only compressed our timelines at work, it has cast a laser focus on nonprofits’ obligation to demonstrate a return on investment (ROI) for funders. The social sector is quickly becoming familiar with ROI thanks primarily to foundations that are experiencing a higher volume of requests combined with tighter giving budgets. An interest in programs and services is now taking a backseat to a keen awareness of terms like “impact,” “measurability,” and “metrics.”
Holly Thompson, contributing editor for The Grantsmanship Center in Los Angeles says, “Foundations want results and in making funding decisions, they’re assessing the potential return on investment (ROI) their grant dollars will produce.” Thompson further explains nonprofits must produce clear, easy-to-digest snapshots of impact to capture the funder’s attention.
Outputs versus outcomes
The Nonprofit Times article, “Outputs Versus Outcomes,” explains the distinction between these two words:
The article also clarifies, “Output details what your organization does, whereas an outcome defines changes that have taken place because of your organization’s work. Maybe people who participated in your organization’s programs learned to read, stopped smoking and started running, graduated from high school, or got a job. A solid description of outcomes tells the funder what change occurred, and how much change occurred over what period of time.”
It takes two competencies to equal ROI
Outcomes are not the only part of the equation. Strong financial management is a crucial component linked to organizations’ ability to tell the whole ROI story. Without a solid understanding of how a charity’s bottom line is tied to each of its programs and services, determining true impact or return is a futile exercise. By setting up cost centers for each of your programs, you can better comprehend how each program is carrying its own weight.
When engaged in decision making, nonprofit leaders typically look at financial sustainability and programmatic sustainability in isolation from one another. Because a blended approach is seldom used by boards and leaders, important decisions are made out of context, leaving the organization at greater risk for future problems/collapse. Jeanne Bell, Jan Masaoka and Steve Zimmerman stress this point in their book, Nonprofit Sustainability: Strategic Decisions for Financial Viability. The authors argue nonprofits must measure profitability as it relates to impact, and their strategies must blend both financial and programmatic considerations.
At Execute Now!, we often help our clients forecast different scenarios for various programs so they can evaluate their potential and better communicate with funders. This transparency helps our clients demonstrate a more comprehensive picture for the funder and instill confidence in the donor-recipient relationship. I couldn’t agree more with this article’s argument that tracking outcomes can be difficult. Yet without this critical competency, nonprofit leaders are telling donors only half their story. Furthermore, the nonprofit’s appeals will no doubt finish second place to the savvier grant seekers who are demonstrating the full equation behind ROI.
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