While teaching a university course on nonprofit leadership, we were addressing the importance of return on investment (ROI) for nonprofits. That is, how funders who make large investments in a nonprofit expect measurements that indicate their assistance is having an impact. One student, who was a nonprofit executive director, pushed back, saying that even her major donors were “just fine with stories, pictures, and anecdotal evidence” of their program’s effectiveness. Therefore, there was no need for metrics or ROI. When I asked how large a “major gift” was, she answered, “$1,000.”
Not to diminish the value of smaller gifts, but in the general scheme of philanthropy, $1,000 does not quite measure up as a major gift. This experience does, however, shine a light on the fact that many smaller donors are fine with a “feel good” return on their donations.
It’s a different story for most philanthropic organizations, however. Over a century ago Standard Oil founder and leading philanthropist John D. Rockefeller said, "Giving should be entered into in just the same way as investing. Giving is investing. If anything has changed since then, it’s the sophistication with which donors expect metrics to be used and reported on in order to justify their investments in nonprofits.
Which isn’t to say that developing nonprofit metrics is easy. Results in the social sector are often challenging to quantify and require deep thought on how to measure them effectively. Jim Collins, in his monograph Good to Great and the Social Sectors, discusses how the Cleveland Orchestra, already a great orchestra, determined they wanted to excel even further as defined by artistic excellence. How do you quantify artistic excellence? After considerable thought they determined that small wins would be more standing ovations, and longer-term goals might include greater demand for tickets and more invitations to prestigious international music festivals. They found metrics that would allow them to measure their development.
If there’s a mindset to find ways to measure, it typically gets done. Granted, in some cases the quantification may be imperfect or require implementation of data-gathering systems, but this effort pays off with potential investors. An additional advantage of a sincere effort to measure success is the strengthening of true partnerships between funders and providers.
Even in light of the challenges around measuring and reporting quantifiable results, more mature nonprofits are pursuing this course and not reverting to anecdotal “evidence.” Anecdotes and stories have their very important place in describing the impact of nonprofits and their programs. We are natural storytellers and learn by listening to stories. But stories describe just a small portion of a program’s effectiveness and should be used to augment, not replace, a robust system of metrics to transparently report on the very important return on investment from our most important supporters.
Bill Hoffman is CEO of Bill Hoffman & Associates, LLC, a Tampa-based consulting firm with national-level independent sector expertise in educational engagement strategies, on profit leadership transitions, and organizational and board development. Bill has senior-level nonprofit management experience in education, having been the president of one of the nation’s top K-12 education foundations; functioned as interim CEO for prominent national and state education and philanthropic associations; and led national, regional and state boards of directors. He is also an adjunct professor at National University, teaching Non-profit Leadership and Board Development.