Nonprofits often transition through various stages on their journeys to developing high-performing measurement cultures. For early-stage social sector organizations, the focus tends to be on defining and counting outputs, such as the number of individuals served. As the organization progresses, the focus shifts toward measuring outcomes—how lives and circumstances have changed for the individuals served. But to close the loop by communicating the organization’s total social impact, a nonprofit needs to determine its social return on investment (SROI).
Calculating an organization’s SROI takes social, economic, and environmental factors into consideration and reflects the effectiveness of an organization’s ability to translate resources into real value for the community. For funders, investors, donors and other community stakeholders, SROI communicates precisely what their financial contributions provide. But before we dive into how to approach this calculation, here are some preliminary steps your organization should take:
1. Do your research. Academic research will help confirm your organization’s hypothesis for how you will create the positive change needed to achieve your mission. Third-party studies also provide additional credibility to your funding requests, and guide the design, development and optimization of your programs over time.
2. Use the right outcome measures. Whether your organization is focused on reducing recidivism, increasing homeownership, or improving students’ academic performance, having the right outcome measures in place will help you communicate your organization’s unique value proposition, and serve as the measuring stick against which you’ll track your success.
3. Establish baselines. Establishing baselines is what makes measuring the degree of change your programs produce possible. Baseline data can be multi-layered and interdependent. For example, baselines for each participant, at the program level, or the broader community level, all provide different and important perspectives that will help provide evidence of your success, when compared to your outcomes or results.
Once you’ve completed the steps above, your organization can begin the work needed to calculate your social return on investment. To do this, you will need to determine your program or organization’s overall success rate and associated program costs.
Determining Your Success Rate
When helping our clients determine their success rate, we use a series of questions to guide the discovery process. Answering the following four questions helps tie the activities or outputs to the organization’s desired mission outcomes:
- How will/do you define success?
- How many people do you serve?
- How many people are successful?
- What is your success rate?
Defining Your Program’s Costs Per Success
For social sector organizations, there are very real financial and human capital costs associated with the delivery of your programs and services. From managing facilities and payroll to many other assorted operating expenses, it is critical that nonprofits know whether or not the cost and effort of delivering a program is producing real value, in sustainable and meaningful ways. A powerful way to look at an organization’s success is through the cost per success. An organization’s cost per success is a measure of effectiveness and efficiency. It communicates the cost of getting a single client to achieve a desired outcome. The first step in measuring cost per success is to define the desired measure of success. While programs may have multiple measures of success, the best success measure is the one that is most global to the program and/or most directly linked to the broader mission (e.g., improving life outcomes).
The following formula is used to calculate the cost per success for a program:
Defining the Societal Costs/Benefits
The good news is that in today’s connected environment, there are ample research studies publicly available that can help you determine things like the cost to society if your program is not successful or didn’t exist. For example, an individual’s earning potential based on various levels of education, or the cost of high recidivism rates on a community, can all be ascertained through existing research studies.
- What is the cost to society for those not successful?
- How do you define this? What evidence and/or research are you using?
Calculating Your Social Return on Investment
If you’ve completed all of the above steps, your final task is to calculate your SROI. This formula is simply: