October 24, 2012

Communicating Impact: If You’ve Got It, Flaunt It!

Nonprofits can use tried-and-true mechanisms from the private sector to better communicate their impact to donors.

By: Matthew Forti

We’ve long known that “impact” isn’t the primary motivator for how individuals choose which nonprofits they support. In fact, research by Hope Consulting has found that only about one third of all donations are researched, and when they are, performance information is considered less than half the time. But this same research found that donors care deeply about information on impact, are not satisfied with what exists today, and don’t have strong preconceived notions of what impact information they need or what format is most appropriate.

So what options exist for nonprofits that have impact and want to flaunt it?

Most nonprofits use traditional channels (newsletters, websites, annual reports, and the like) to share impact information in the form of dashboards, constituent stories, and more recently, infographics. But few nonprofits take advantage of the tried-and-true formats that publicly traded for-profit organizations have used for decades to raise capital from the public. The following provide some powerful examples of nonprofits bucking the trend.

Performance reports. SEC filings—such as quarterly 10-Q and annual 10-K reports—mandate a “management discussion and analysis of operational results.” Yet few nonprofit annual reports contain much serious discussion about performance beyond basic measures such as the number of individuals served.

Some innovative nonprofits are resorting to annual impact reports—distinct from their traditional annual reports—to provide greater clarity on how they’re performing and what they’re learning. Roca, a Boston-based organization that helps disengaged and disenfranchised young people move out of violence and poverty, recently released its “Performance Benchmark and Outcomes Report”, chronicling how the organization has used measurement to improve its performance. (It has used measurement, for example, to figure out which youth most benefit from its model and what duration of services is most appropriate given the outcomes to which they hold themselves accountable). KIPP’s annual “Report Card” also gives donors a very real sense of its impact via a different but equally powerful format that is organized around the six essential questions KIPP uses to gauge its progress. Written in plain language, such impact reports give donors a very real sense of how their dollars are making a difference.

Earnings calls. According to the National Investor Relations Institute, more than 90 percent of the largest publicly traded companies in the US conduct earnings calls, where stockholders and analysts have a chance to ask tough questions to the CEO and leadership team about the company’s performance. Few nonprofits give existing and prospective donors this chance.

One Acre Fund holds 45-minute, semi-annual analyst calls, in which the executive director shares a short performance update and takes questions from donors. Donor feedback suggests that these calls differentiate One Acre Fund from peer organizations in areas like accountability, transparency, and results-focus. (Full disclosure: I am on One Acre Fund’s board).

Analyst coverage. Love them or hate them, stock analysts play a critical role in interpreting performance information to render a perspective on whether and why a stock is a good investment. The analyst community for nonprofits is just getting off the ground, with organizations such as Root Cause and GiveWell conducting social impact research to identify the most effective, efficient, and sustainable organizations in a given field. Nonprofits will increasingly need to consider whether and how they work with such analysts as a means to communicate their impact.

Prospectuses and roadshows. For-profits raise follow-on capital by developing and shopping extensive “pitch” documents to potential investors. VisionSpring, YearUp, and Root Capital are more established nonprofits that have used this technique to communicate their impact, and efficiently raise growth capital from individual and institutional donors. These prospectuses also have the side benefit of aligning donors around a common set of performance measures the nonprofit will report over time.

As more nonprofits use these tried-and-true mechanisms from the private sector, and share their successes and learnings in a more authentic way, more donors will begin to realize that performance trumps overhead ratios in nonprofit effectiveness and that impact can trump emotion in their charitable giving.

Which of these channels is your organization using? Which have been most effective for you?

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