What Is Nonprofit ROI?

nonprofit ROIWhat is nonprofit ROI? There is donor pressure on nonprofit organizations to adopt business practices, like calculating ROI.

This pressure makes sense. If you are going to ask a donor for money, and you are confident that you are spending that money for important results, you should be able to articulate strategies and measure results that prove it.

But as a nonprofit leader, don’t get trapped. While the need to be disciplined in forecasting results is the same, nonprofit ROI is very different than for profit ROI.

Here is my definition of nonprofit ROI: mission and margin.

I co-led a team that won a $5m contract with USAID to support sustainable tropical forest economies in the Maya Biosphere Reserve in northern Guatemala. Our work focused on rural communities that often determine whether a forest stands or falls.

Now, the US government is very keen on metrics when it gives you money. They'd invested in a service – sustainable tropical forest management – and they wanted nonprofit ROI.

Nonprofit leaders deal in idealism; we address ‘market externalities.’ Guatemala was emerging from 20 years of brutal civil war. To foster anything sustainable, we had to set our sights on the evolution of values that occurs across a generation. Yet, daily the barking dogs of federal accountability nipped at us.

So we forced ourselves to become very clear on what nonprofit ROI meant. We didn’t call it this in 1991, but essentially this is how our thinking went. We defined margin as everything concrete we could measure. We bought $1m of Guatemalan debt instruments that yielded 17% interest, and paid all of our local salaries for years. We tracked the changes in household income due to a major tourism initiative. We built a scientific research station in a location of widespread illegal animal trafficking, which all but curtailed it. We measured board-feet of mahogany harvested by community logging operations.

And we defined mission as the intangibles that they are – moments of insight in community leader meetings, demands by womens’ groups that husbands stop drinking, a father teaching his son to carve images of Mayan gods to sell to tourists.

In short, we stuck to our guns about what could, and could not, be measured. This allowed an extremely demanding donor to control risk, and gave us the creative room to take on a social cause of overwhelming dimensions.

One more essential piece. To organize our ideas across the team, and to create buyin from stakeholders, we used strategy templates (courtesy of USAID). This enabled us to get crystal-clear about our monitoring and evaluation (M&E) – our nonprofit ROI – and to evaluate ourselves on a quarterly basis.


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