ROI for Nonprofits: The New Key to Sustainability

As the boundaries between philanthropy and business continue to blur with the rise of venture philanthropy, social enterprise, and other "hybrid" philanthropic models, the assumption that nonprofits and for-profit businesses are essentially different and should be operated differently becomes more difficult to defend. In ROI for Nonprofits: The New Key to Sustainability, Tom Ralser, founder of the nonprofit fundraising consulting company Capital Strategists Group, takes the lessons he has learned over the course of eighteen years as a consultant to nonprofit organizations to justify the value of an investment-based approach to fundraising.

The "ROI" of the title is, of course, the financial concept of return on investment, and it is at the heart of Ralser's argument. As he writes in the book's opening chapter, nonprofits

typically have short timelines for funding (read need money sooner rather than later), and do not have the budget to devote to ad campaigns or lots of glossy material. In other words, the distance between Point A (potential funder) and Point B (a check arriving in the mail) has to be short. We have found, over and over again, that the shortest distance between these two points, in the fastest time possible, is the credible demonstration that the outcomes effectuated by the nonprofit are valuable. If the right value, in the true economic sense, is conveyed to potential funders, they become investors.

As a CFA and former finance professor, Ralser brings an economist's eye — and jargon — to the ongoing challenge of fundraising. In chapter two, he argues that the nonprofit landscape is evolving as nonprofits increasingly look for sustainable revenue streams, and that three "paradigm shifts" are particularly relevant to sustainability: the shift from a charity mindset (i.e., "the gift mentality") to an investment mindset; the shift to an emphasis on results (i.e., demonstrating the value of outcomes to funders); and the shift away from what Ralser calls the emotional approach.

Essentially, Ralser argues that that while emotion-based fundraising appeals are successful with some audiences, nonprofits have the opportunity to expand their potential donor pool by looking at funders as investors with a (justified) expectation of a demonstrable return on their investments. Such an ROI-based approach, he argues, is of special interest to large companies, banks and financial services firms, and other corporate funders who use ROI metrics to evaluate the success and profitability of their own products and services. Indeed, the crucial element of Ralser's investment-based approach — and the most valuable lesson for nonprofits in the book — is its emphasis on the ability to demonstrate your organization's value. Without that ability, an ROI program breaks down and a nonprofit won't be as successful as it could be in expanding its pool of potential investors.

Ralser well understands the difficulty of demonstrating your organization's value and impact on its community — especially given the fact that he thinks both value and impact should be demonstrated in quantitative terms. But he makes the point that nonprofits are already used to demonstrating their value to foundations through the grant application process; and in ROI for Nonprofits he is simply asking readers to take that process a few steps further. Fortunately, he shows readers exactly how to do that in Part Two of the book.

In four short chapters filled with tables and exhibits, Ralser walks readers through the process of building an Organizational Value Proposition (OVP) — the nonprofit world's answer to the corporate concept of Economic Value Added; suggests a number of methodologies used to develop nonprofit ROI scenarios; explores the importance of communicating your ROI-based program to investors; and offers eight case studies that demonstrate the wide variety of ways in which ROI can be used to improve an organization's fundraising results.

Is an ROI approach right for every nonprofit? Probably not. As Ralser makes clear, ROI for Nonprofits is most likely to benefit organizations with small staffs and no dedicated development person, organizations that are about to embark on their first-ever capital campaign, and/or organizations that have found that traditional fundraising methods are not producing the results they expected. Can such an approach be time-consuming? Absolutely. But nonprofits that make the effort to follow Ralser's guidelines are likely to find themselves with a development strategy that puts them on the road to sustainability.

Brielle Bryan
Research Assistant
Foundation Center
New York, New York