October 31, 2011

Making Money: A Bonus of Measuring to Improve Performance

Measurement, first and foremost, should be a tool for continuous improvement in nonprofit organizations. But there is no denying that measurement can also attract money, so it’s worth exploring the potential performance measurement work has to draw in funders.

By: Matthew Forti

This blog post originally appeared on the Stanford Social Innovation Review website.

Measurement, first and foremost, should be a tool for continuous improvement. But there is no denying that measurement can also attract money; a nonprofit that can demonstrate results and improvement is more inviting to potential donors than one that can’t.

So it’s worth exploring the potential your measurement work has to draw in funders. How? First, choose funder types that value the results you can bring to bear, and then provide the decision makers at those funders with the data and information they need—in the format and at the frequency they need.

This perspective emerges from research Peter Kim and two other colleagues undertook that identified three defining characteristics of a funding model: the primary type of funding, the funding decision maker, and the funder motivation. In the recent SSIR article “ Finding Your Funding Model,” they share that the vast majority of today’s large nonprofits got big not by diversifying their funding sources but by raising most of their money from a single type of funder—such as corporations or government or high-net-worth individuals—that most valued the results the nonprofit was generating. Further, these nonprofits became exceedingly good at catering to the needs and motivations of the decision makers at those funders by focusing their efforts, instead of pursuing every possible lead. Understanding why and how these individuals make decisions, it turns out, is the single best way to unlock dollars.

How can you begin the process? The first step is determining which funder type is the most natural match for your mission. Consider the experience of a multi-service, youth-serving nonprofit we recently worked with. Its leaders reviewed historical financials, benchmarked peers, and analyzed anticipated trends in funding sources. It ultimately landed on school districts as the natural funder, given the academic outcomes the organization generated for youth, the availability of multi-year funding streams for these youth, and the support the organization musters for its work among teachers and principals in various districts.

Once you have a primary funding type in mind, the task becomes determining who actually makes the decisions at each funder. A common pitfall is assuming the decision maker is the person who writes the check or screams the loudest. That was initially the case for our youth-serving client, but upon deeper inspection, they were surprised to learn that in their largest district of service, a mid-level administrator at the central office held undue sway over how the budget team allocated funds to nonprofit providers.

With the decision makers in your sights, it’s important to home in on exactly what motivates them—don’t assume you know, even if you’ve spent considerable time with them in the past. At the youth agency, a more direct discussion with the primary decision maker revealed how the district saw the organization fitting within their forthcoming strategic plan. Most importantly, its leaders learned that the primary outcome they had been reporting to the district—high school graduation rate—was of far less significance than quantifying how much money the organization was saving the district each year by preventing youth from dropping out. A simple reframing of an outcome it already measured would go a long way to helping the decision maker internally advocate for the organization. And further, the decision maker shared the importance of having the organization’s students and parents share testimonials at the annual board meeting where the budget was debated—a tactic it had never used before.

Important questions to answer at this stage: Does the decision maker care more about the benefits you create for clients or benefits you create for the funder? If the former, what balance of rigorously collected, aggregate data and individual success stories is ideal? And how frequently, and through what medium, does the decision maker prefer to communicate? A key pitfall to avoid is focusing on measures that are relevant to funders but that distort the reality of what you are trying to achieve. The youth agency we worked with was comfortable reporting a new metric because it was consistent with the aims of its program, and the expected return of greater funding outweighed the cost to track and report it.

Every nonprofit leader dreams of having funders who say, “Don’t create anything special for us—we’ll be happy reviewing the indicators you already use to manage your organization.” Unless that scenario becomes the norm, the best nonprofits can do is to more intentionally find the “natural funders” that align with their outcomes, and to determine how best to communicate their outcomes in a way that inspires and influences the decision maker.

How have you used measurement to support your funding efforts?

Peter Kim is a manager in Bridgespan’s New York City office, where he focuses on growth strategies for nonprofits in the education, youth development, and environmental domains. He is co-author of the Stanford Social Innovation Review articles “Ten Nonprofit Funding Models” (Spring 2009) and “Finding Your Funding Model” (Fall 2011).

Creative Commons License logo
This work is licensed under a Creative Commons Attribution 4.0 International License. Permissions beyond the scope of this license are available in our Terms and Conditions.