As a charitable donor, how do you know the impact of your charitable giving?
As donors, we receive solicitations daily to give to this charity or that cause. Many times such solicitations, while worthy, are of no interest. But what about those that are emotionally appealing to us - that connect to something that is really important to us? How do we know our financial generosity is really making an impact?
In this blog, we will look at three questions that every donor should ask their charity. These three questions will provide three major benefits. First, the donor becomes much more aware of how effective the charity is and how serious they are taking their mission. Second, it puts the charity on notice that you, as a donor, are informed and knowledgeable. Lastly, it is great stewardship, smart financial giving and encourages sound charitable, financial and mission efficiency. After all, if the charity is going to receive donations from generous donors, and they are in competition for donations (which they are), they must become more competitive. Here are the three questions:
Question #1: What is your Social Return on Investment (“SROI”)?
For real, tangible goods we can easily see or experience the “return” we get for the purchase or investment. For a financial investment, we think of the term “return on investment” or ROI. For charitable donations, the donor’s personal return is personal, since it is typically emotional satisfaction or a feeling. And this is okay, as long as they realize and understand it. While typically not verbalized, it is the expectation of the donor that the money the charity receives is having a social impact— it is doing good in some way, even if the impact is hard to measure. The results of carrying out the nonprofit’s mission, its social impact, is its “social return on investment” (SROI).
As an example, a nonprofit that provides after-school tutoring for disadvantaged children should be able to quantify the results of their service: i.e. to identify metrics of results of the mission. It may be number of children tutored per week, number of hours tutoring or some other metric that should be available upon donor request. Failure to have any metrics of their SROI (or not knowing what their SROI is) also tells you, the donor, that stronger internal accountability is needed.
Question #2: What is your Financial Program Percentage?
A nonprofit’s Financial Program Percentage is defined as the percentage of total funding that is going directly to the programs of the nonprofit as defined in the mission statement. The percentage that is NOT going to programs is overhead expense such as keeping the lights on, salaries, administrative and fundraising costs. Each nonprofit, as a steward and trustee of the funds entrusted to them, should include this metric in consideration of their mission impact. Most nonprofit aggregators of information on nonprofits (such as Guidestar.org) provide program percentage metrics to help asses the nonprofit’s performance. Please note that this metric should be used in conjunction with other assessment tools such as Charity Navigator’s Financial Efficiency Performance Metrics.
Question #3: How do you assure your nonprofit’s financial efficiency?
By addressing the first two questions on social return on investment and program expenses, you have notified the nonprofit that you, as a financial donor, are serious and knowledgeable about making a social impact. Continuous improvement to the process of ensuring sound stewardship should be a priority for every nonprofit. An effective monitoring process assures that the nonprofit’s focus remains on meeting its mission. Relevant questions to ask are: How often do you review your SROI and Financial Efficiency metrics? Can you provide some feedback on how you implemented your process for calculating SROI? How long has it been part of your metrics?
As a final thought, our gifts of financial generosity to charity are typically given from our heart. With that said, it is important that we are giving wisely, as good stewards of our own financial resources. As generous donors, we owe it to ourselves, the nonprofit, and most important, the nonprofit’s recipient beneficiaries to ensure we are making the most of our generosity.