What’s Your Nonprofit’s ROI?

The tough job of nonprofit fundraising just got tougher. The 2017 Tax Cuts and Jobs Act doubles the standard deduction for individual taxpayers. That change is anticipated to slash the number of taxpayers who itemize their deductions because the standard deduction will be higher for them. One itemized deduction those folks won’t be taking is the one for charitable contributions.


Not getting a tax incentive in the form of a deduction means that many taxpayers will donate less to charity. That will be quite a blow to nonprofits that depend on smaller individual gifts that add up to a significant portion of total income. Fundraisers will have to change their strategies.


With competition for contributions getter fiercer all the time, it’s more important than ever to make a convincing case that funds donated to your nonprofit will achieve results. Donating to a nonprofit is just like making an investment – return on investment (ROI) attracts investors. Nonprofits need to “market” their ROI, or program results, so donors are attracted to “invest”.


In a recent episode of With Good Reason on NPR, best-selling business writer Jim Collins discussed the special factors that make for the most successful organizations in the non-profit world. Those organizations are poised to get results. Listen to his reasoning here.


Collins posits that a commitment to excellence in nonprofits results in outcomes beyond measure. That starts with hiring qualified people who are working for more than their paycheck. No matter their role in the organization, they are passionate about the mission and the effective use of donations. It makes sense – professionals collaborating to serve the community within a clear mission and established practices are positioned to achieve a higher ROI.


If a high ROI on donations isn’t compelling enough, Collins presents his case in another very impactful way. He points out that when for-profit organizations have bad financial results or a product failure, they lose money. Sure, that’s bad; but the overall cost to society when nonprofits fall on hard times is immense – homeless citizens whose children do not have a childhood; formerly incarcerated men and women who cannot get re-entry services for support when they come home; working families who have no money for groceries the last week of each month.


We don’t know exactly what taxpayers will do after losing the income tax deduction for charitable contributions. But no matter what, it’s fair to say that nonprofits with a higher ROI on their program results will attract more contributions from taxpayers who keep donating to charity after the tax law change.


Managing Nonprofit Risk

Nonprofits are always focused on serving the community, raising funds, and recognizing volunteers. They often overlook identifying and managing the organization’s risks. That can result in some nasty and expensive surprises.


Nonprofit organizations have all the risk exposures that for-profit businesses have. Plus, they are exposed to other risks peculiar to nonprofits, like risks associated with taking donations and engaging a volunteer workforce.


Failure to appropriately manage nonprofit risk can result in reputational damage and a drop in fundraising. In addition to the “normal” processes and insurance coverages used by for-profits, nonprofits should also manage risks related to these four groups of stakeholders:


  1. Directors & Officers

Board directors and key officers, such as the Executive Director, are responsible for making decisions and taking actions using donated funds. The Board should have a robust set of financial policies to establish risk tolerance and decision-making parameters. To further protect those individuals, consult an insurance specialist about appropriate coverages for various liabilities, based on activities and size.


  1. Employees

Every work environment requires guidance for its employees to communicate employer and employee responsibilities, work conditions, benefits, and rights. Employee or Personnel Manuals assist with training and holding people accountable. Employee candidate screening, especially for staff who work with vulnerable populations or financial assets, is a common risk mitigation tool.


  1. Volunteers

Even though they don’t get paid, volunteers should also have set of procedures to guide their recruitment, training, supervision, and expected conduct. Volunteers should also undergo a screening process and be supervised to ensure that she or he is following the organization’s rules and standards. Volunteers involved with serving vulnerable populations or handling donations should undergo additional screening, training, and supervision.


  1. Clients/Participants

Most for-profit businesses provide services or goods to anyone who needs them. Nonprofits can’t necessarily do that because they have a mission and policies that strictly define who is eligible to receive their services. Managing the risk of providing service outside the mission is mitigated by clear, consistent client in-take and screening procedures.


Nonprofits that manage risk for their directors, employees, volunteers and clients experience fewer surprises that can interrupt service delivery and damage reputations. Getting ahead of those risks with a few preventive measures allows nonprofits to focus time and energy on the mission — serving the community.