July 2021

By Maryfrances Porter & Alison Nagel

The Skinny on Nonprofits and Impact Data

The other day a nonprofit leader asked us why nonprofits are held to a different expectation than for-profit corporations. Why do nonprofits have to measure and report impact when corporations don’t?

So, we know there are nonprofit leaders out there who, other than the fact that funders are incessant about asking for impact, wonder why outcome measurement is important. It’s SO VERY FAR afield from the pavement pounding, physically exhausting, under-funded, mostly inspiring, heart-filling, soul-lifting work you do every day?

We’ve tried to answer this question. Let’s start understanding the real value of impact and storytelling!

Profits v. Social Impact

First, let’s consider how we know a for-profit corporation has value (for our purposes, we’ll use a made-up for-profit, MegaWidget). The essence of a valuable corporation is that it is profitable. MegaWidget can be profitable because widgets are cheap to produce and a lot of people buy them, or because widgets are rare and expensive and the few people who buy them will pay a lot of money (cue Supply and Demand).

Now, let’s consider how you measure a nonprofit organization’s value (we’ll again use a made-up organization, Housing for All). Nonprofits clearly do not produce profit. We also can’t only look at how many people use services at Housing for All: Fewer people going in for services might just mean less demand, which is good… right? We want people to have secure housing and therefore not need Housing for All. Conversely, more people going in for services might mean that people aren’t getting what they need and are having to come back, which is bad… right? In the nonprofit world, value has to be measured some other way than profits.

Corporations v. Nonprofits

Let’s look at the differences more carefully. In the table below, we roughly outline some basic businessy things. Pretty much across the board, corporations and nonprofits are very different.

Take a look at this table… Go ahead, we’ll wait…

Businessy Things MegaWidget Housing for All
Reason to invest You’ll make money You’ll make a difference
Why invest To make money Because you value what the organization does
Run by Board of Investors Volunteer Board of Directors
People served People with money to spend People that don’t have money*
Productivity/Efficiency Profit margin (cost of production is as low as possible) Serving all the people in need for as little money as possible
Keeping it going Sales Fundraising
Goal/Impact Profits People’s lives are positively impacted
Return on investment Investor shares in the company increase in value People’s lives (are hopefully) changed for the better long-term
Benefit for the investors They get richer They feel good about spending their money to support what they value
Benefit for the community Corporate responsibility arm (maybe) Community conditions improve for all

* Also might be activities or services that should be available to everyone regardless of income but which are not covered by taxes (e.g., community festivals)

Nonprofits’ Value-Driven Work

There are lots of things to unpack in the table above. For now, let’s focus on the rows highlighted in orange.

What is particularly important is that people with money invest in both. However, investors make *money* by investing in corporations; they get to *feel good* by investing in a nonprofit.

Why Invest: The investors in MegaWidget know when they’ve made a good bet, simply because they get richer – which is the goal of investing in corporations. Corporations exist to benefit the people who invest in them; investors are the beneficiary. Interestingly, many of these same folks (e.g., people with money and who know how money and investing work) are also investing in Housing for All. However, in the nonprofit world investors don’t get richer; they aren’t the beneficiary. They invest because they value other people having affordable housing.

Goal/Impact: Measuring corporate profitability is straightforward and concrete. Capturing the impact of nonprofits is a lot trickier because… it’s measuring how you have changed people’s lives! As a note: economists have tried, and continue to try, to monetize improvements in people’s lives. We will let you in on a secret… the more expensive and long-lasting a poor outcome is (e.g., 10 years in jail) the more money is “saved” by helping a person not achieve that outcome. Pretty much everything costs less than having people dependent on the social safety net or living in jail. (But, honestly folks, this is a wonky argument, isn’t it? Think about all that’s implied here. Try not to explode.)

ImpactStory™ Coaching – Get Clear, Confident, and Convincing

Storytelling with data is what we do at Partnerships for Strategic Impact®. We coach, train, and support nonprofits, as well as the foundations and corporate CRS who invest in them. You’ve worked hard to develop honest, trusting relationships with all your stakeholders; you have powerful testimonials highlighting how you’ve changed lives. And, we all know numbers still matter. Your funders and the people being served deserve to know more about the value your organization delivers. You can tell the whole story of how your organization is actually improving people’s lives, how people take what they learn and make lasting change, and how your work is done in service of improving community conditions for everyone.

We Get It

So, why do nonprofits have to measure and report impact when corporations don’t? Because nonprofits don’t exist to make profits, they don’t respond to supply and demand, and investors don’t get rich investing in nonprofits. Your work is value-driven. Its value lies in the impact of your work on the people served.

Let us help you tell your impact story.

— Maryfrances & Alison
ImpactStory™ Coaches

By Published On: July 26th, 2021Categories: Blog - ExtrasComments Off on Why the heck do nonprofits even need to measure impact?!?Tags: