Successfully Communicating Nonprofit Success – Part One: Efficiency & Effectiveness

The Great Recession profoundly impacted the nonprofit sector. During an era in which both government funding and overall charitable giving declined, many organizations were forced to decrease their services in order to survive. At the same time, others did not fare the economy’s dire straits, and were forced to shut their doors for good.

Nonetheless, the industry, as a whole, fared better than the for-profit sector. Between 2007 and 2010, nonprofit employment increased 4 percent, and wages increased 6.5 percent, while both employment and wages in the for-profit sector decreased by about 8 percent, according to the 2012 Nonprofit Almanac from the Urban Institute. While nonprofit employment and wages did increase, this growth did not come from new nonprofits. Between 2008 and 2012, the number of organizations with revenues over $50,000 declined 1 percent, and charitable giving to organizations also fell, according to the same study. As it turned out, much of the growth was realized by borrowing or spending reserves.

Now, the U.S. economy continues to slowly improve, and appears to be on track for moderate growth in 2015. Nonprofits are on more solid footing as they look to build upon their recent success, and the industry overall may continue to outpace the for-profit sector’s growth. The 2015 Nonprofit Employment Practices Survey by Nonprofit HR found that 49 percent of organizations increased their staff in 2014 and 50 percent plan to create new positions in 2015. For comparison, CareerBuilder’s 2015 jobs forecast found that only 36 percent of for-profit businesses plan on increasing positions this year.

Even though the improving economic environment may provide a solid foundation for nonprofits’ growth, a positive economic climate is not enough to secure success for individual organizations. Their success—to a large extent—depends upon the goodwill and trust of their supporters, both of which are built and affirmed through the organization consistently doing impactful work, and then communicating the results to key stakeholders. Success demands this effective communication, and yet, although most organizations understand this need, many struggle to provide the types of messages that actually generate this goodwill and trust.

In today’s landscape, nonprofits of all shapes and sizes are competing with their messages in a crowded space for a limited pool of supporters, donors and funding. The challenge boils down to determining which type of information to communicate to supporters. Donors and funding organizations increasingly demand to know whether a particular nonprofit is the best recipient of their time and money, which means nonprofits must clearly, consistently and convincingly demonstrate that they are achieving their stated goals.

The challenge, therefore, becomes more complex. Nonprofits must first define success, and then determine which information can capture that success. With an aligned, mission-focused vision of what success does signify, there are three distinct dimensions along which organizations can characterize it: efficiency, effectiveness and impact.

Efficiency:

Generally, efficiency is a measure of the inputs required to generate outputs. It has become common knowledge that maximizing output per unit of input is a good goal in most situations, and our society measures and reports the efficiency of a wide range of processes. For example, we describe the efficiency of automobiles by reporting how many miles they can travel on a gallon of fuel, and we attach labels to appliances indicating the estimated energy cost over a year so that consumers are informed in their purchasing decisions.

Nonprofits also face pressures to be efficient, although measuring their efficiency in a meaningful way is a constant challenge. Whereas the profit motive paradigm drives a for-profit organization to be efficient and provides a clear measure of their efficiency, this does not transfer to the nonprofit realm, in which organizations’ goals are diverse and often multi-dimensional.

This inconsistency and complexity means that many measures of efficiency for nonprofits reflect narrow definitions, and provide only limited information about the nonprofit’s success in maintaining a certain level of efficiency. For example, most nonprofits calculate efficiency—at least to a certain extent—based on overhead ratios. One of these common and simple quantitative measures is the ratio of the money spent directly on the organization’s cause to the money it raised from donations. High percentages indicate that donors’ money is being used efficiently, because relatively fewer funds are being spent on overhead.

These measures can be helpful, but they are one-dimensional. They tell nothing about the broader benefits created by the nonprofit, and instead focus solely on the relative amount of money that it spends. Not surprisingly, many in the industry believe that relying on these measures harms nonprofits, hence the movement against the so-called “overhead myth.” Realistically, to reduce overhead expenses and improve the ratio, a nonprofit can cut costs without regard to the benefits generated from the expenditures. But if the organization fails to invest in the infrastructure necessary to support its efforts, its ability to accomplish its goals will be negatively impacted.

Some organizations have addressed the shortcomings of efficiency ratios by presenting more complex measures of efficiency, which typically reflect quantitative information about how effective the organization is at achieving its goals against more specific expense allocations. For example, along with overhead costs, they may report the number of activities documented and measured, or the increase in the number of members served in a given time period. The closer the measures align with the organization’s goals, the more meaningful they prove to be. For instance, if a nonprofit provides low interest loans to businesses, then information about the number of loans and their repayment rates may be critical telltales of their success.

Unfortunately, even these more complex measures have their limitations, and may not adequately describe an organization’s real success. Oftentimes, they suffer from the same problem as simple overhead ratios: they fall short in providing a full quantitative and qualitative explanation of the benefits a nonprofit has created in pursuit of its mission. In the example of the low interest loans organization, it would again be difficult—even for very complex measures—to accurately portray the benefits gained by those who received the loans or the benefits generated in the community by the low interest loan program.

Effectiveness:

One way of overcoming the limitations of quantitative efficiency measures is to provide qualitative information about the success of the nonprofit. Most nonprofit organizations understand the importance of telling stories about how their work has benefited specific individuals or communities. But many are still figuring out how to do so effectively.

The key advantage of storytelling is that it is able to elicit emotion and inspire action through affirming nonprofits’ impacts with easily understood evidence. Stories are tangible, and they tend to be more compelling and memorable than simple recitations of an organization’s financial statistics. Nonprofits’ audiences crave proof points around outcomes, but proof is only part of the pie. Supporters, donors and funders also require motivation—an emotional link—to continue contributing to an organization’s mission.

Stories provide that emotional link, and they are therefore a powerful tool—not only for communicating success, but also for building upon it. It is therefore not surprising that more nonprofits have been doubling down on their content marketing, or the creation and sharing of relevant and valuable information that attracts, educates and inspires audiences, participants and supporters.

Content marketing communicates successes, but it can also bolster advocacy through increasing awareness and educating stakeholders. To do so, the stories it tells should focus on the people or causes that an organization’s mission supports, the success and outcomes achieved through its programs and/or the people that work and volunteer at the organization itself. On one hand, this approach provides direct recognition for the contributions of an organization’s donors, supporters, volunteers, employees and vendors. On the other hand, it aims to provide meaningful and memorable stories of impact and outcomes, which will ultimately boost engagement, support and retention of key stakeholders.

Two other lynchpins to this approach are dedication and consistency. Once a content marketing program is established, the nonprofit needs to commit to producing a continuous stream of content and regularly engage with its audiences on different traditional, digital and/or social media platforms. This commitment in turn keeps stakeholders dedicated and interested in supporting the organization’s mission and success moving forward.

Stay tuned for Part Two of our series on communicating nonprofit success, in which we will discuss how organizations can effectively demonstrate their economic impact in the communities they serve.

James D. Woods, PhD., is principal in BDO Consulting’s Dispute Advisory Services practice. Chris W. Johnson is director in BDO Consulting’s Dispute Advisory Services practice. They can be reached at jwoods@bdo.com and chris.johnson@bdo.com, respectively.


Blog-subscribe-ad_NP.JPG