Most donors, both individuals and institutions, want to understand the impact of their donation. When you buy a consumer product, you get something tangible in return and you can evaluate your purchase directly. When you buy stock in a for-profit company, you get feedback via the performance of the stock and/or the financial performance of the company. But when you donate to a nonprofit, most people don’t have any sense of what their money actually does.
Some nonprofits try to remedy this by creating “gift opportunities” (ie. “Your $100 will provide immunizations for baby Sarah and her two siblings”). Frequently, this “offer” are not actually literal (the $100 will provide immunizations for three kids, but your money will not specifically buy the shots that go to Sarah and her siblings).
For large grants, nonprofits are often under pressure to report on the impact of the specific grant on the nonprofit’s operations. But what is missed when this request is made, is that money is fungible. Fungible means that it is interchangeable. If you give $10,000 to a nonprofit for their new childcare center, did your money really go to the childcare center? What if before your grant, the nonprofit had budgeted $100,000 of their existing funds for the center and after your grant they reduce their budget to $90,000. “Your” $10,000 goes to the childcare center, but the center still has the same budget before and after your grant.
I think that trying to measure the impact of specific grants doesn’t generally make a lot of sense. In the for-profit sector, companies measure things like “Return on Invested Capital” so that investors can get a sense of what the company achieved with the money they spent on the business. Since we’re never going to be able to numerically calculate the “good” that a nonprofits does, the nonprofit sector will never have a true metric that works as well as ones used by for-profits. But the concept is still valuable. For-profit businesses are not as numbers drive as many people think. Advertising is a perfect example; you cannot truly measure the return on advertisement spending because you can’t really connect ads to sales. But even without strong metrics, companies spend money on advertising because they know it works. They know it works through using both qualitative and quantitative evaluation. Even without a single, easily measured ratio, companies still know that advertising works.
So weaving these various concepts together, my point is that as nice as it would be to have tangible, numerical feedback, it is not going to happen and it is not necessary. Trying to force the issue, requiring tangible, numerical feedback when it is not possible, is a destructive process. How do you know someone loves you? Imagine how misleading it would be to try to assign numerical scores to the relationships in your life. But that does not mean that you don’t need feedback from your friends and family.
Nonprofits need to demonstrate that they do great things with the donations they receive; they need to prove that they are high-impact enterprises. Donors need to accept that there is never going to be a numerical score that determines if a nonprofit is doing a good job. The work of nonprofits, the work of social benefit, is far too messy and far too wonderful to be fully captured by statistics.
Update: A comment from Bruce Trachtenberg spurs me to clarify that I don’t believe that there is any single metric that will work across multiple cause. And I think that focusing too heavily on metrics can lead to misleading conclusions. But I definitely believe that evaluation is critical and that good evaluation will bring together both quantitative metrics and qualitative observations.