Not-for-profits often struggle when it comes to quantifying their performance results. Historically, nonprofit organizations measured the success of the organization on the ability to complete their mission and not on financial metrics. Recently however, entities are using benchmarking both internally and against peers to get a clearer picture of their economic success. Through benchmarking, organizations can find ways to cut costs or increase revenue, which will allow them to continue to complete their mission and prosper as a not-for-profit.
Benchmarking involves monitoring trends within the organization or similar nonprofit entities. Sources such as Guidestar, Charity Navigator, and NACUBO will allow management to compare their statistics with other not-for-profits. Benchmarking is typically used as a way to determine where money could be saved, costs could be cut or revenue improved.
Some keys to benchmarking include:
1. Determining what information is most important to management
2. Focusing on areas with the greatest opportunity for improvement
3. Developing attainable performance targets
4. Identifying and implementing best practices
Benchmarking is very specific to each organization. Management should determine what metrics are most appropriate for their organization. Some ratios that can help a nonprofit assess revenue and expenses are the fundraising efficiency ratio, program ratio, functional expense ratio, reliance ratio and self-sufficiency ratio.
Not-for-profit entities cannot be measured by the same financial metrics as for profit entities due to their missions. However, through internal and external benchmarking, they can find ways to improve their spending or increase revenues, which will aid them in their mission.
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