A high program efficiency ratio demonstrates that a significant portion of funds is being directed towards the nonprofit’s mission rather than overhead costs. Programmatic KPIs measure the performance of your nonprofit’s programs for your community. These metrics help you get a better idea of the effectiveness and efficiency of your programs and services. Financial sustainability is one of the most common challenges facing nonprofit organizations.

All nonprofits articulate a mission to be executed by the organization’s programming. A specific key performance indicator that can assist a nonprofit in analyzing its performance can be defined as the program efficiency ratio. Regardless of the organization’s size, a nonprofit has to be able to demonstrate programmatic impact.

How to calculate current ratio:

Since there are hundreds of KPIs to choose from, narrow down and prioritize your list based on their relevance to your organization’s goals and objectives. Donors, board members, and other stakeholders typically have different focus areas within the organization. Therefore, include KPIs in your financial reporting that are best aligned with their interests and organizational responsibilities.

Volunteer Retention Rate

She soon found that her passion was actually doing tax and advisory work, especially when she saw how her husband’s business could be positively impacted by this. She especially enjoyed working in the Healthcare industry and began honing her expertise to serving medical practices and clinics across the Pacific Northwest. Nicole is now recognized as one of the top Healthcare CPAs in Oregon and is a frequent speaker at healthcare educational conferences and events. The savings ratio should be considered in combination with the liquid funds indicator. If the nonprofit has low liquid funds, a higher savings ratio may be desirable. The Cost-Per-Donor Acquisition (CPDA) measures how much it costs to acquire a new donor.

Program Efficiency Ratio (Program Expense Ratio)

While revenue growth and net profit capture headlines, true strength often lies in how efficiently a company converts its operations into profits. This is where the Efficiency Ratio comes into play – a powerful, yet sometimes overlooked, metric that acts as a gauge of a company’s operational effectiveness. This measures the average expense incurred to provide services or support to each individual beneficiary. It’s a great metric for organizations to determine the efficiency and impact of their spending.

• The calculations do not infer that the company assumes any fiduciary duties.
• People want to know that their donations are making a real difference and not ending up in a black hole of administrative expenses.
• This information is significant to donors, board members, and managers because it quantifies how much the not-for-profit organization is spending on its primary mission rather than administrative costs.
• These are unrestricted funds that have been reserved by an organization’s…

Breaking Down the Components: Non-Interest Expense & Revenue

This ratio is primarily useful for organizations that have earned revenue through memberships, fees or tuition. For instance, if you are a museum, you will want to calculate the percentage of your revenue that comes from ticket sales, space rental, classes and any other earned income. This ratio measures how effectively the NPOs could pay all expenses from program revenues alone, by dividing unrestricted program revenue by total expenses. However, restricted revenues are sometimes relied on by many NPOs which affects the outcome of this calculation.

Your nonprofit needs to save money on a regular basis to build your reserve fund in the case of emergencies (just like individuals). Therefore, it’s best and indicates better financial health if your savings indicator ratio is greater than one. Measures how long your reserves will cover your nonprofit’s operating expenses. But the management cannot solely rely on this operating reliance ratio due to inherent nature of restricted revenues from such restricted assets. Program expenses are closely related to achieving the objective and mission of organization.

Another important efficiency metric is the receivables turnover ratio, which assesses how quickly a nonprofit collects outstanding receivables. This is calculated by dividing total revenue by average accounts receivable. A higher ratio suggests efficient collection processes, improving cash flow. Regular analysis of efficiency ratios helps nonprofits identify operational inefficiencies and enhance overall performance. The program expense ratio measures the percentage of expenses a nonprofit organization spends on its core mission. Charity Navigator updated its rating system in 2023 and now generally gives full credit to those organizations whose ratio of program expenses is 70% or more of their total expenses.

• Each organization, regardless of its main goal, ought to occasionally estimate how well it satisfies that mission and how successfully assets are being used all the while.
• Measuring impact isn’t just about tracking numbers; it’s about understanding how those numbers relate to your mission.
• If you measure data on a quarterly basis, ensure that any comparisons you make to prior years is also done on a quarterly basis.
• The cash flow KPI calculates how much your organization is spending vs. receiving at a given time.
• Higher than 65% is widely considered to be good, and 85% and above is usually excellent.

It suggests strong operational control and potentially a competitive advantage. Base your target on the nature of your operations, your program commitments and the predictability of funding sources. That means the nonprofit has $2 in assets for every $1 in liabilities, indicating strong financial health. The volunteer engagement rate is a great indicator of volunteer participation in your organization.

Financial health is essential for nonprofits to fulfill their missions and sustain operations. The savings indicator ratio measures your nonprofit’s ability to add to its net assets. This nonprofit financial ratio allows nonprofits to see whether they’re generally putting their financial overages in their reserve fund, or if they have a tendency to spend it. If a nonprofit entity has a lower operating reliance ratio, it could indicate that the organization is either not able to meet its expenses or that it is relying on restricted funds in order to do so. If an entity relies on restricted funds, it is an indication of a poorly managed program.

This key performance indicator can be defined as the operating reliance ratio. By program efficiency ratio definition, the ratio is calculated by dividing an organization’s program service expenses, which is money spent directly to further the NPO’s mission, by its total expenses. It measures how much an organization is spending on its primary mission rather than administrative costs. Efficiency ratios evaluate how well a nonprofit utilizes its resources to generate revenue and fulfill its mission. The asset turnover ratio, calculated by dividing total revenue by average total assets, measures the efficiency of asset use in generating revenue.