How do you use financial benchmarking to improve your nonprofit's competitiveness?

1 Choose your benchmarks

Choosing the right benchmarks for your nonprofit is the first step. These benchmarks should be based on your mission, vision, values, strategic objectives, or key performance indicators. It is also possible to use benchmarks from external sources such as peer organizations, funders, regulators, or sector-wide reports. Common financial benchmarks for nonprofits include revenue sources and diversification, expense categories and ratios, program efficiency and effectiveness, liquidity and solvency, reserves and sustainability, and growth and innovation.

2 Collect and organize your data

The next step is to collect and organize your data for the benchmarks you have chosen. You can use your financial statements, budgets, reports, audits, or other sources of financial information. You can also use online tools, databases, or surveys to access data from other nonprofits or the sector. Make sure your data is accurate, consistent, and comparable, and that you use the same time periods, definitions, and methods for calculation. You can also use charts, graphs, or tables to visualize your data and make it easier to understand.

3 Analyze and interpret your results

The third step is to analyze and interpret your results. You can use ratios, percentages, trends, or variances to compare your data with the benchmarks and identify where you are doing well or need improvement. Qualitative methods such as interviews, feedback, or case studies can supplement quantitative data and provide context. Patterns, causes, effects, and opportunities in your data should be identified. Additionally, ask questions like: how does your nonprofit compare with others or industry standards? What are the reasons for similarities or differences? What are the implications and risks of current performance? What are the best practices or lessons learned from others? And what areas of improvement or innovation could be beneficial for your nonprofit?

4 Implement and monitor your actions

The final step is to implement and monitor your actions based on your analysis and interpretation. You can use your results to inform your strategic planning, budgeting, fundraising, program development, or other aspects of your nonprofit management. You can also use your results to communicate your impact, value, and needs to your stakeholders, such as donors, board members, staff, volunteers, or beneficiaries. You should set SMART (specific, measurable, achievable, relevant, and time-bound) goals and action plans for your improvement or innovation, and track your progress and outcomes regularly. You should also review and update your benchmarks and data periodically, and repeat the benchmarking process as needed.