During tough economic times, your nonprofit organization should always be looking for ways to improve and differentiate itself from other groups. One helpful tool is benchmarking.
Benchmarking is defined by the International Benchmarking Clearinghouse as the systematic, continuous process of measuring and comparing an organization’s business processes against leaders in any industry to gain insights that will help the organization take action to improve its performance.
Why should nonprofit groups use benchmarking?
There are many reasons your nonprofit should consider benchmarking. The most important one is that benchmarking is likely to improve performance by identifying strengths and weaknesses.
There may be some segments of your organization that are not per for mi ng very well.
In looking at your results against a benchmark, especially over time in a graph, it may become evident that you should be focusing more on those areas that are performing well, or perhaps refocusing more energy on improving the areas that aren’t performing as well.
Other reasons to use benchmarking include gaining a competitive advantage over other organizations, setting higher standards for your organization, increasing donations and becoming more creative by thinking outside the box when establishing best practices.
What are the most important benchmarks to use?
What benchmarks should you use? It depends on the organization. Most for-profit companies will use ratios such as the current ratio, number of days cash on hand, quick ratio, inventory turnover, debt ratio, accounts receivable aging, accounts payable aging, gross profit and return on sales.
For nonprofit organizations, some of these ratios can be used, but other important ones include program services percentage, fundraising efficiency, primary revenue growth, program expense growth, working capital ratio, donor retention, average donation per donor and diversification of funding.
Some nonfinancial program benchmarks include number of people served, client satisfaction rate and number of new clients.
Some management benchmarks include employee turnover, employee satisfaction, board attendance rates, board meeting satisfaction and number of volunteers.
How do you get started?
The easiest way to get started is to collect both financial and nonfinancial data from internal records. By collecting this information, you can determine your baseline – or your current levels of results for a specific measure. This can be measured over a set period of time, maybe five years, or the most recent fiscal year.