A common mistake that nonprofit leaders make is formulating key performance indicators (KPIs) based on past performance rather than future goals — the equivalent of piloting a rudderless ship. The organization will go somewhere, but it’s impossible to say where.
Leaders should tie KPIs to the goals outlined in their organization’s strategic plan. This will allow you to measure whether objectives are on track for being met, exceeding expectations or missing the mark, Chris Vaughan, chief strategy officer with Sequence Consulting in Hinsdale, Illinois, told NonProfit PRO.
“Most strategic KPIs are the ones that help you predict the future,” he said. “When developing KPIs, start with where you want to go and back into the data you need.”
Ask these questions to determine if a KPI warrants a place on your organization’s dashboard.
Is the KPI tied to goals outlined in the strategic plan?
In designing KPIs, Vaughan suggests starting with your nonprofit’s strategic plan and asking key performance questions, such as: Is the organization growing in the markets that matter most? Are resources being allocated in the best way? And is it paying off? The objective should be to determine outcomes, not activities.
Is the KPI based on growth metrics?
Growth metrics act as the nonprofit’s navigation system, answering questions CEOs have about the future of an organization: Are we building value? Is our strategy working? Are we hitting key milestones on the way to our destination?
Too many leaders focus primarily on health metrics — those that determine if the organization is running properly right now, Vaughan said. While it’s important to monitor health metrics, pay more attention to growth metrics. These determine whether the organization is gaining momentum and headed in the direction it needs to go.
Does the KPI measure segment-level growth?
Track KPIs by segment, such as first-time donors or sustainers. Segmentation helps leaders see where the nonprofit is growing, where it’s losing ground and whether growth matches strategy, all while offering the opportunity to do better.
Does the KPI include corporate metrics, such as market share and lifetime value?
Market share and lifetime value are two KPIs from the for-profit sector that translate well to nonprofits.
“Market share shows [organizations] where they are underpenetrated, where the greatest growth opportunities are, and whether they are gaining ground or simply benefiting from growth in the broader market,” Vaughan said.
In addition, considering the lifetime value of donors gives leaders a better, longer-range view of ROI, and helps them make smarter investment decisions.
Does the KPI show the board something new that prompts conversation?
When presenting KPI data to the board, leaders should discuss progress made on strategic initiatives, Vaughan said. Are target market segments participating in events or other programs? Are we changing donor behavior? Is the strategic plan working? Those are KPIs the board pays attention to. Don’t present the board with operational metrics, like the fact that donations are up, he cautioned. They’ve heard that already.
All things considered, KPIs focused on proactive, rather than reactive, goals and objectives, warrant a place on your organization’s dashboard.
