For non-profit associations, financial metrics plays a vital role in ensuring financial accountability, guiding strategic decision-making, promoting sustainability, and evaluating performance. They provide the foundation for effective financial management and enable associations to fulfill their mission and serve their stakeholders effectively.
The following four financial metrics are important for assessing the financial health and performance of nonprofit associations. All metrics should be applied on a regular basis to determine trends, positive or negative, giving the board and its staff valuable insights into the financial success of the association and its programming.
1. Association Return on Investment (ROI)
Measuring ROI on an annual basis is essential for several reasons:
- Demonstrates financial accountability by evaluating the effectiveness and efficiency of investments (i.e., member benefits).
- Informs strategic decision-making by assessing the return on different initiatives and programs.
- Identifies areas for resource optimization, cost reduction, and improved financial performance.
- Evaluates the success and impact of initiatives, helping to gauge performance and make necessary adjustments.
- Helps ensure the long-term sustainability of the association.
Measuring Association ROI:
To measure association ROI, divide the net profit (total revenue – total expenses) by total expenses and then multiply by 100 to get the ROI percentage. For example, if an association’s total net profit is $50,000 and its total expense is $500,000, its ROI is 10% ($50,000/$500,000 X 100).
2. Individual Programming ROI
Evaluating programming ROI is crucial for the following reasons:
- Assesses the financial efficiency of programming.
- Measures the impact and effectiveness of programming.
- Provides insights for determining future resource allocation.
- Encourages continuous improvement.
Measuring Individual Program ROI:
The same process used to measure association ROI can be done to measure a specific association program or activity ROI. For example, to measure an association’s annual conference ROI, divide the conference’s net profit (total conference revenue minus total conference expense) by total conference expenses and then multiply by 100. For example, if an association’s conference net revenue is $75,000 and its total expense is $250,000, its conference ROI is 30% ($75,000/$250,000 X 100).
3. Average Revenue Per Member
- Measuring average revenue per member is crucial for nonprofit associations due to the following reasons:
- Assesses the financial sustainability of the association by evaluating the average financial contribution per member.
- Serves as an indicator of membership engagement and commitment.
- Helps in making informed decisions about resource allocation and prioritizing revenue-generating initiatives.
- Reflects the value and satisfaction members derive from their association.
Measuring Average Revenue Per Member:
To measure revenue per member, divide the total dues revenue by the total number of members and total program revenue by the total number of members. For example, if an association has 1,000 members and its total dues revenue is $250,000 and its total program revenue is $200,000, its net revenue per member is $450 ($250,000 + $200,000/1,000).
4. Average Expense Per Member
Measuring average expense per member is important for nonprofit associations because it:
- Assesses the financial efficiency of the association by evaluating the average cost per member.
- Guides budgeting and resource allocation decisions, optimizing the use of funds.
- Identifies opportunities for cost control, reduction, and long-term financial sustainability.
- Facilitates benchmarking and comparison with other associations.
Measuring Average Expense Per Member:
To measure expense per member, calculate the total expenses less ongoing business expenses not directly attributed to servicing members (insurance, rent, administrative activities) and divide that by the total number of members. For example, if an association’s total member expense is $350,000 and it has 1,000 members, its average expense per member is $350 ($350,000/1,000).
Regularly monitoring these four key financial metrics enables nonprofit associations to gain insights into their financial health, make informed decisions, and improve their ability to fulfill their mission and serve stakeholders effectively.
