Why and How Benchmarking Makes Sense for Your Nonprofit
If you were to observe the average nonprofit organization, “benchmarking” may not be high on the list of priorities for the average employee. Some may confess that they’d never heard of the term. Others may cringe at the thought of (yet another) corporate practice taking root in their sacred space. Some objections include:
- Profit-oriented performance management tools do not apply to mission-driven work.
- Statistics may not provide reliable evidence of a program’s impact on the population served.
- Each nonprofit is unique and cannot be compared meaningfully with a statistical sample of other nonprofits.
- People work at nonprofits because they are passionate about the mission. They don’t want to be treated like factory workers.
- There isn’t time to think about benchmarking when there is so much other work to be done.
Yet benchmarking already happens to the organization whether they want to admit it or not.
Benchmarking leads to funding.
Government agencies, foundations, and other donors use performance benchmarks to gauge program effectiveness when making determinations on which nonprofits to fund. They’ll make comparisons across all the organizations that submit proposals. And they’ll talk among themselves to share findings and best practices. They’ll also take a hard look at each organization’s financial health to see if it has the means to carry out its proposed plans.
Great programs housed in fiscally weak nonprofits may not get funding. Post-award, regulators and other grantmakers continue the practice of comparative analysis to ensure their grants are used appropriately and to gain intelligence for future rounds of grantmaking.
Even if your organization never faced the rigors of competing for grant money, benchmarking can be a highly valuable element of your planning process. At its core, it’s about defining relevant measurements, evaluating results against a peer group, identifying opportunities for improvement, and implementing action plans to address them.
In the best of all worlds, it’s a process that creates a learning environment in which the team develops an awareness of their strengths/weaknesses, acquires knowledge and insights, learns new skills, and becomes more creative in serving their mission. Strategic and operational improvements should yield more people served for the same (or fewer) resources.
How to start a benchmarking project:
While some may want to jump in the deep end of the benchmarking pool – i.e., tackling a major strategic initiative – it may be best to start with a critical process around which you can easily galvanize stakeholders.
Form a team with process owners and people affected by the process. As you examine the current state and define a vision for the future state, think of the questions you’d like answered and the data you’d like to examine to help you navigate the path from the present to the future. Then identify organizations that might excel in this process and ask them for their help.
A few key interviews may be all that you need to collect and analyze information and develop your plan going forward. With a success under your belt – and a favorable review by participants – you’ll be in a position to tackle more strategic processes and program metrics, define the relevant peer group, and take measurements over time.
How to use industry benchmarking data:
A few enterprising organizations publish industry reports with performance benchmarks from participating nonprofits. These guideposts can provide a sense for an organization’s relative strength in fundraising (e.g., dollars raised, raised, average gift amount, response rate, retention rate), online presence (web, social media), volunteer management, etc.
However, this data is only as good as the quality of information provided by its participants and their relative strength. If you want to count yourself among the “best of the best,” you’ll want to zero in on their metrics and best practices. A meaningful conversation may be more valuable than a printed report.
Setting performance targets, measuring progress, and comparing your metrics with others is just the start of any continuous improvement project. You need to have a solid understanding of what the numbers mean and how they relate to your organization.
Root cause analysis could reveal team issues, critical resource shortages, process issues that give rise to communications breakdowns, training issues, or perhaps matters outside your control. If you don’t chase the right cause and invest in the proper course of action, you’ll continue to get the same results and possibly lose valuable staff along the way.
Finally, performance metrics and benchmarking data tell you where you are and where you’ve been. They’re a great resource for capturing a moment in time and analyzing its relationship to other “snapshots” in history. But they don’t capture where you’re going or what’s possible.
It takes a deep understanding of best practices to truly assess the degree to which you’ve achieved (or can achieve) your potential. And it takes an ear to the ground to make sure that you’re prepared for new developments.
Meet the Author
Andy Maffia, CPA
Aldrich CPAs + Advisors
Andy Maffia has more than 15 years of experience in public sector accounting, with a focus on auditing nonprofit organizations, organizations subject to a single audit under the Uniform Guidance, agreed-upon procedures and consulting work, as well as assurance audits for closely-held companies. He currently sits on the board of directors and serves on the... Read more Andy Maffia, CPA
- Nonprofit organizations
- Public sector
- Government entities
- Certified Public Accountant