ROI can apply to individual technology choices as well as to your organization’s overall investment in technology. When an organization is using technology effectively, the results are greater than or equal to the resources invested—that’s what it means to have a positive ROI. In this blog post, I’ll share some basics on why ROI is useful and how it works and end with a few tips for using ROI in grant writing.
Why Funders Care About ROI
Grantmakers, donors, and nonprofits all care about social good. Funders in particular want to make sure their financial resources are put to the best use. For some, this means not just patching a hole but shoring up an organization’s foundation, leaving the beneficiary in a stronger position. In technology terms, that might mean the difference between replacing outdated computers and automating a process—the computer replacement is routine and necessary, but the automation potentially frees up additional resources and leads to more consistent results.
Most grantmakers receive many more grant applications than they can fund. ROI is one way they can sort and prioritize those applications. For you as a grantseeker, a strong potential ROI is one way to make your application stand out.
Mark Shavlik of the Shavlik Family Foundation explains it from a funder’s perspective: “ROI is like an elevator pitch, a short overview that immediately communicates the game-changing value and why people need to care about it.”
Other Ways ROI Analysis Can Help You
Grant applications are not the only time ROI is useful. When you’re making a purchase decision, thinking about ROI can help you consider whether the product or service is worth your money. When looking at past investment choices, ROI analysis can help you evaluate those decisions and make more accurate projections of costs and benefits next time. Challenge yourself to look beyond specific purchases and projects and consider your organization’s overall return on its investment in technology.
Your executive director, along with your IT director or advisor, should be looking at how resources are allocated toward hardware, software, and services as well as across programs, fundraising, marketing, and administration. Are expenditures made in proportion to the way technology benefits each of those functional areas? Are you wasting resources on technology that isn’t doing much for you?
Is your technology budget simply keeping the lights on, or is it fueling your mission?
How to Calculate ROI
To do ROI analysis on a practical level, you don’t have to be an accountant, and you don’t have to be perfect. You just need to do some simple calculations. For now, let’s not worry about net present value, internal rate of return, cash flow, or payback period. Let’s keep it simple instead.
Here’s the basic formula:
ROI = net gain/cost
And here’s a good example:
I spend $50 and make $75. My net gain is $25.
ROI = 25/50 = .5 or 50%
In order to do this, you need to assign numbers to the costs and benefits. Many of your numbers will be guesses and approximations. Just make note of your assumptions as you go along and consider running some alternate scenarios. For example, if your estimate of staff time saved is over or under by 20 percent, how does that affect the equation?
Also, choose a timeline. For items with an ongoing cost, such as a software subscription or equipment maintenance, I typically use a three-to-five-year timeline.
Disposal/recycling of old technology
Disruption and frustration
New or increased revenue
A Few Tips for Using ROI in Grant Writing
When presenting your analysis, avoid getting bogged down in too much detail. Share a handful of data points to make your case and tell a story that provides context and interest.
Prove you have done your homework and checked your assumptions about the real costs and benefits.
Express ROI in terms of what matters most to the grantmaker, reflecting their funding priorities. Is it possible to quantify the mission benefit?
If you can’t show a strong plausible ROI, consider withdrawing the application until you can find a better solution.
Remember that ROI is not the law, nor is it the only criteria for funders to make their decisions. Sometimes you won’t be able to show positive ROI with numbers, yet there is still a strong business case for your investment. Do your homework and you will be able to make a deliberate, well-informed case for support.
Don’t take my word for it. Take it directly from a funder:
“The more work put in up-front, the more successful the tech project,” Mark Shavlik said. “Creating a clear and strong ROI is a lot of work and time because it forces deep thinking on both the business and the technology, bringing it all together.”
Here’s a step you can take right now to better understand the ROI of your desired tech projects. Register for our webinar, Tech Projects on a Limited Budget: Understanding ROI to Help You Prioritize and Win Funding, on May 9 at 2 p.m. Eastern. We’ll outline the potential costs and ROI of a typical project and show you how you can incorporate ROI into your proposals, which will help you stand out to potential funders.
This article is cross-posted from the GrantSpace Blog.
As Tech Impact’s director of education and outreach, Karen Graham leads the Idealware team of researchers, presenters, and writers who create technology information resources designed to help nonprofit leaders put their vision into action. Her past experience includes leading the technology consulting services and nonprofit technology learning and networking programs at MAP for Nonprofits, helping to build the nonprofit CRM/database solution provider thedatabank from a startup to a thriving software company, and various roles in arts and human services organizations.