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What are the best financial and non-financial KPIs NFP accountants should track?
For all NFP accountants, their role goes beyond simply crunching numbers and running financial reports. It’s about making sure every dollar received is maximised to the highest benefit.
But among all the different ideas and tactics available to improve the financial performance of an NFP, how can we determine the best path to take?
Enter: KPIs.
Tracking the right KPIs is like having a torch and a map when you’re lost: it offers a solid foundation to see the best pathway and make better decisions for the organisation.
But it’s challenging to choose the KPIs you should be tracking – especially when there are so many different metrics available.
Let’s explore some financial and non-financial KPIs that NFP accountants should track.
Measure and improve performance with financial KPIs
You should choose to track and monitor KPIs that closely align with your organisation’s specific objectives and goals.
While there are some KPIs that are universally important to an NFP, failing to tailor them to fit your organisation’s strategic priorities can lead to poor decision-making, ineffective resourcing and difficulty finding mission success.
Some common financial KPIs include:
Annual revenue and donor acquisition
Annual revenue is something you likely need to be very familiar with as an NFP accountant, but it is a metric that answers a lot of questions.
Monitoring the annual revenue helps you understand the financial health of the organisation and support any NFP accounting tasks required, such as budgeting.
Additionally, tracking metrics like donor acquisition cost (DAC) can give you further insights into the efficacy of your efforts and help you get a better understanding of what’s working and what’s not.
Fundraising efficiency
A fundraising efficiency metric is basically going to support the question: How do your not-for-profit fundraising efforts turn one dollar into many?
Having metrics around ROI in relation to your fundraising efforts can also support you at the governance level when discussing costs and budgets with your board.
Net assets
Your net assets speak to the overall financial state of the organisation.
As with any company, having a positive net asset balance can present new opportunities, provide stability and confidence in external stakeholders and contribute towards the sustainability of the organisation.
You can also include this metric to support your financial PR strategies.
Grants and funding
The lifeblood of any not-for-profit, grants and funding are what allow an organisation to work towards their mission.
This crucial KPI can be challenging to track as your funding and grants will likely come from different sources and channels.
But you can successfully monitor them by aggregating all channels into one source of truth document, monitoring and tracking the flow of funds from there.
Uncover your NFP organisation's most valuable non-financial KPIs
But, as you well know, running an NFP organisation that creates change and impact isn’t singularly about the dollar amounts involved.
And while non-financial KPIs can be more challenging to identify, given they’re less tangible than financial metrics, they’re by no means less important.
Some key non-financial KPIs include:
Revenue diversity
You know revenue is an important financial KPI, but diversification of your revenue can be a non-financial KPI to keep your eye on.
Many NFP organisations neglect to look at the strategy behind revenue, seeing it instead as just a number.
However, by monitoring the diversity of revenue sources and the way they change over time, you’ll have a much broader view of how such changes impact the organisation.
Some metrics to monitor here might include the number of revenue streams, the average timeframe of each revenue source and each source as a percentage. This can help identify where revenue might be overly concentrated and give you an understanding of revenue patterns, for example, you might find revenue sources increase and decrease at certain times of the year.
Program effectiveness
You can also identify trends and changes in the programs and services you offer in terms of how responsive the public is.
Tracking program metrics, such as the number of beneficiaries served per initiative, the number of volunteers involved, levels of community involvement and/or changes in the number of other organisations providing similar services, gives you the opportunity to be strategic in your offering. It also allows you to be proactive and transition according to what your community needs.
Brand awareness
Other organisational areas like marketing can provide KPIs that offer further insights using data such as website traffic, newsletter sign-ups, partnership opportunities and media coverage, as well as conversions of website donations.
Having some understanding of brand awareness metrics also allows you to allocate resources and budgetary support to optimise any particular areas that are working well.
How can you track and monitor all KPIs?
Once you determine the ideal KPIs to track, identify the baseline for each one. This baseline will act as the proverbial line in the sand, making it easier to monitor forward progress as well as areas where you’re falling back.
Many NFPs won’t have the resources to employ data analysts to study the metrics and interpret results. But that doesn’t mean you should just gather data for the sake of having it.
There are tools and technology in the NFP accounting space that can collect, track and report on these metrics for you.
However, it’s not enough to simply track and collect the data behind each KPI. You must actively use these metrics. Otherwise, the entire exercise becomes moot.
Examine the metrics and use them to identify areas of opportunity, gaps that you need to address and areas of risk to avoid. Having this accurate data should empower you to make more precise, effective decisions because you’ve got supportive evidence that they are the best choices.
The right KPI can provide strategic support
Regardless of the specific metrics that provide the most value to your organisation, having a method of tracking, measuring and reporting on the right KPIs can help you justify decisions and improve strategy.
They offer motivation and tactical direction, showing you where to focus and what to avoid.
And, perhaps most important of all, they offer transparency – a crucial inclusion for every NFP organisation.
Keep in mind any chosen KPIs will change and evolve as your organisation does.
Once you begin tracking and measuring, you might even find there are some particular metrics that aren’t actually adding any value, which is absolutely fine. Simply file that collected data away for a rainy day, and either replace it with something more valuable or just focus on the remaining KPIs.
The ultimate goal of measuring KPIs is to continually learn what makes your organisation work and move towards that. It gives you the opportunity to achieve higher levels of efficiency and drive performance while keeping you on track with the organisation’s objectives and mission.
You can find further resources for other crucial areas of NFP accounting below:
