We talk a lot about capacity building at Brighter Strategies. That’s because our greatest passion is to grow a strong nonprofit sector. And we do so by developing capacity, or improving and enhancing your ability to achieve your mission and become financially sustainable.
How does capacity building relate to return on investment, or ROI? Many nonprofits struggle with increasing demand for their services while facing flat or decreased funding. As a nonprofit leader, you must show that the resources you are investing in your organization’s programs and services are reaping a tangible return. As deeply as you care about the impact you’re making in the community, such devotion is not enough. Your funding sources, governing bodies, and regulatory agencies are more concerned about how profitable you are, and expect you to show evidence of such fiscal responsibility.
The good news is that when your organization is financially efficient, you have greater freedom to achieve your mission, therefore making a larger impact on the community, and achieving financial sustainable. It’s a positive cycle, and one that you want to get on!
So let’s get on it.
Return on investment: The basics
First, what is ROI, anyway? In its original definition, return on investment is the benefit to an investor resulting from an investment of some resource. A high ROI means investment gains compare favorably to investment cost. In these terms, ROI is one way of considering profits in relation to capital invested.
When we talk about ROI in the nonprofit sector, we’re looking beyond basic economics. ROI can be used to measure value in addition to finances, such as social value. It can be used by any entity to evaluate impact on stakeholders and identify ways to improve performance. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment, and the result is expressed as a percentage or a ratio. You can use the following formula to calculate the ROI of marketing campaigns, employee training and development initiatives, or agency programs.
ROI = (Gain from investment – Cost of investment)/Cost of investment
To cut through all of this complexity: In its simplest terms, return on investment is about efficiency. It is a measure of profitability that shows to what extent an organization is using its resources in an efficient manner.
Capacity building and ROI
So what does this have to do with capacity building? One of our goals at Brighter Strategies is to teach nonprofit leaders how to grow their organizations holistically so that their ROI is ever-increasing. When you can show a positive ROI year-over-year to your stakeholders, you will have no problem justifying a request for greater funding dollars, the need for more staff resources, or a plan for expanded service reach.
Connecting your capacity building to ROI is an important step in your organization’s growth.