Running a successful organization is an exercise in balance between short-term needs and a long-term vision.  We all get caught up in the “tyranny of the immediacy”- when operational necessities and challenges demand our attention at the expense of strategic thinking. Luckily, there are a number of ways to keep your “eye on the why” while still attending to daily responsibilities — and one of the most effective of these strategies is impact metrics.

In the for-profit space, tracking metrics is primarily about business health, and developing an understanding of month-to-month profitability and growth trajectories. However, for non-profit organizations, metrics take on a whole different meaning. It isn’t only about organizational growth; it’s about impact on constituents and the world around you. It’s about focusing on why you do what you do. Metrics are the best way to prove your theory of change — to your stakeholders and to yourself.

Here are three key questions for nonprofits consider when they think about designing impact metrics:

Do you have established metrics tied to a clearly articulated “meta-change?”

Non-profits are well versed in the importance of mission statements. What is equally important, and sometimes less articulated, is the importance of a vision. While the mission is what your organization does on a daily or yearly basis, the vision is a description of the world or community your organization is working to realize. A good way to write a vision statement is to complete the following sentence “Our vision is a world where…”

A good example is The Nature Conservancy. Their mission is “to conserve the lands and waters on which life depends”. But the reason they do this is their vision: to create “a world where diversity of life is thriving and people act to conserve nature for its own sake.”

This is a key element of your organizational purpose, and when we talk about “keeping your eye on they why” it requires a comprehensive understanding of your vision: not just what you do but why you do it.  When your mission and vision are combined with organizational values (not just values you want to uphold in your organization, but also values you believe must exist in the world in order to achieve you vision), you have everything you need to start developing metrics.

What do you need to move the needle on in order to achieve your vision? If you are successful at your mission how could this success be measured? Once these metrics are determined you will need to set up a tracking system. How will you capture each piece of data? How will you store it? What format will you report it in? Building out metrics takes planning, and answering these questions is a key first step.

Are you using your metrics to inform your programming?

Due to time constraints, many nonprofits only get around to measuring programmatic impact when required by grant reporting. But don’t wait until grant requirements kick in to get started — metrics should apply across programs and be a core component of organizational analysis.

In addition, it is important that the metrics are used for more than just demonstrating success in a quarterly report. Regular measurements and analysis can be used to evaluate and adapt programming. Ideally, a new nonprofit would develop metrics first and then programming aimed to impact these metrics. This feedback loop encourages data-driven decision making within your nonprofit and ensures programming is impact-oriented and mission-aligned.

Are you using metrics to effectively demonstrate impact to funders?

In the absence of clear impact metrics, conversations with funders may focus on “overhead” — the proportion of organizational costs not directly tied to program expenses. But for those of us who work in the space it has become clear that not only is overhead a fuzzy category, but that it has created the wrong frame for thinking about nonprofit finances.

Funding graphs like the one below are part of the problem. Funders have unrealistic expectations about how much it costs to run a nonprofit and want to shrink the “non-programmatic” expenses. In turn, nonprofits feel pressured to misrepresent costs and skimp on infrastructure, reinforcing funders’ skewed beliefs. This is what the Stanford Social Innovation Review calls the “Non-Profit Starvation Cycle.”  While overhead is a destructive concept, the reason it gained so much traction is that it is difficult for funders to discern which organizations are making significant impact and compare them against one another.

 Chart of Non-profit Overhead Reframing Overhead

So, what can nonprofits do to build this trust without falling victim to the nonprofit starvation cycle? One approach, taken by charity:water is to embrace the separation between programmatic and non-programmatic expenses. Founded in 2006, charity:water’s mission is to bring clean safe drinking water to people in developing nations. What they have done, perhaps better than any other nonprofit in recent memory, is communicate impact to funders.

In an effective use of geo-tagging, donors receive the GPS coordinates of water projects as they are constructed. That’s not all — when it comes to allocating funding, charity:water has two separate bank accounts: one specifically for programs and another for operations. The operations account funded by private donors, foundations and sponsors, allowing charity:water to tell individual donors that “100% of donations go directly to program funding.” To date they have raised more than $200 million from over 300,000 individuals.

However, not all organizations can build a network of wealthy donors who want to exclusively fund operational expenses. The other option for nonprofits is to reframe operational expenses not as an unfortunate necessity, but rather as core components to each program. The graph above, from the Nonprofits Assistance Fund reframes overhead expenses as core mission support. As they write “each program requires core mission support, and to restrict funding to only the outside circle is the same as underfunding that program.”

Regardless of the path your nonprofit pursues to acquire funding for operations, it all comes back to impact metrics. If you can prove that your nonprofit is achieving your mission and making an impact, then the conversation with funders can focus on those numbers rather than devolving into a discussion about overhead.

Conclusion

I’ll be honest: developing impact metrics isn’t easy. If it were, they would be significantly more prevalent in the nonprofit space. Setting up a system of metrics measurement, tracking and reporting will take significant up-front planning, and regular attention from you or your staff. The world is complicated and trying to distill your impact into numbers is a challenge. But if done correctly, these metrics will provide your organization with an invaluable understanding of constituent and community impact.

Whatever stage your nonprofit is at, using metrics to inform your programming will set you up for long term success and ensure that you adapt to meet evolving needs. It is easy to deprioritize, especially when caught up in the tyranny of the immediacy. But if done correctly, metrics will make your job easier, not harder. And most importantly, they will allow you, and your entire organization, to keep your eye on the why.

About the author: Kevin Wilkins is the founder and Managing Director of trepwise, and impact consulting firm that focuses on providing critical services for organizations, both for profit and nonprofit, using entrepreneurial thinking and approaches.  A graduate of Dartmouth College and Harvard Business School, Wilkins has an extensive business background and has served as Entrepreneur-in-Residence and COO for Idea Village as well as helping to develop Propeller’s entrepreneur curriculum.  He and his team have worked with over 400 organizations in New Orleans.

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