Traditionally used by businesses, benchmarking is a process of evaluating the strengths of a similar organization or department to your nonprofit and comparing your work to theirs. When nonprofits seek to secure grant funding, these benchmarks are often used as a tool to evaluate the efficiency of the organization.
What Is a Benchmark?
A benchmark is a measurement that shows your past and current performance as compared to that of similar, successful nonprofits - typically in terms of finances. This measurement allows you to evaluate your organization's strengths and weaknesses as a means to improve your future fundraising and programming efforts.
Steps in Benchmarking
Whether you are creating benchmarks for the first time or updating current ones, there are a series of steps that make the process run smoothly. Try the following process.
Form a Team
Nonprofit organizations are notorious for being understaffed with tight budgets, so you'll need to create a team of focused individuals who can work together in benchmarking your financials. Auditor Andy Maffia suggests this team should include both those who make financial decisions and those affected by them to garner the most cohesive perspective.
Define Your Future Vision and Questions
Accounting professionals from SKR+CO say defining what your organization really needs to measure is the first step in the benchmark process. Focus on your future goals and missions and the means needed to improve those programs. Choose a few benchmarks to start with, particularly areas you plan to focus on in the near future.
Considerations include the following:
- Program efficiency
- Fundraising efficiency
- Expendable equity or reserves
- Program revenues
- Average contributions
Write the Benchmarks
Good benchmarks are the marker of solid and sustainable funding. In other words, grant makers want to give to organizations that know where they're going and how they are getting there.
Take for example, an organization whose mission is to "improve the lives of inner city children by promoting literacy." The benchmarks need to state:
- Specifically what the organization is going to do to promote literacy
- How the organization plans to evaluate whether it is succeeding
- Specific and measurable objectives that not only include a timeline for when the benchmark will be achieved but also a method for evaluation
- How the objective fits with the mission statement of the organization
A poor benchmark might state "The Inner City Literacy Project (ICLP) will improve literacy by working with local schools." This statement is vague and doesn't give specific information about when and how literacy will be improved. A better benchmark in this scenario would say "ICLP will work to improve literacy by ensuring every classroom in this district has a classroom library of at least 100 books within two years by holding book drives and book fairs two times per year. Fundraising events will provide the capital to provide at least three teacher workshops and provide mentors to all new elementary school teachers within the district over the next five years."
Collect Data and Compare
Start by collecting the appropriate data from your own agency's past and present financial reports for each chosen benchmark. If you're part of a large organization, identify the departments or teams with the highest revenues or most fundraising efficiency and compare your departments numbers with theirs.
Organizations can also compare their metrics to those from organizations with similar missions and revenues. For this you need to collect similar data from other organizations like yours. The Bridgespan Group suggests website visits, interviews, and annual reports are great ways to find information from similar nonprofits. You can often find tax forms and annual reports on charity watchdog websites. You can simply look at the data to compare it or invest in computer software programs that give a more scientific comparison.
It's important to note not only what you want to accomplish but how you're going to know whether you've accomplished your goal. Most organizations will evaluate both internally, among their own staff, and externally on occasion. There are a variety of ways in which you can evaluate an organization's benchmarks. Bringing in a financial advisor, CPA firm, or other independent professional can give you fresh, objective opinions and offer a more authoritative assessment. The benefit of doing a regular evaluation within the organization is that members are in a unique position to evaluate why something is or is not working.
Learn From Others
Due to lack of resources and funding, many nonprofits find themselves in the position of relying on what's been done already rather than dedicating time to research ways to improve. Benchmarking gives organizations the chance to look at similar nonprofits in an effort to find successful alternative approaches.