In the current economic landscape, the need for nonprofits to show “hard” returns on investments has become more prominent. With an extremely cloudy outlook for future budgets, agencies are doing their best to get the most out of the time, money, and other resources they currently have. Administrators are now taking a look at almost every workplace employee, function, and expenditure and asking, “What’s our return on this investment?”
What is Return on Investment?
Return on investment, or ROI, is expressed as a percent. Essentially, what its calculation does is explain what you are getting in return for your efforts. When the investment is money, an ROI is extremely easy to calculate. However, when the investment is time and resources, it can be more difficult to quantify. Luckily there are ROI calculators out there for many industries. We’ve even developed one for volunteer management professionals. Try it for your own organization now by clicking here.
A Closer Look
The name of the game is to increase your total return in relation to investment as much as possible. So, how do we do that? The simplest and most risk-adverse method is by simply saving. It doesn’t matter if the effort focuses on saving time, money, or resource. The end result will be a better ROI, which translates to a better bottom line. And we all know a better bottom line means better services for your cause. The key here is that the savings can’t affect our total return to the point where it decreases or the efforts make no sense. Simply put, make darn sure you aren’t doing more harm than good when making cuts. For example, having a volunteer coordinator/recruiter do his or her job by phone and email may save a little on volunteer management software, but the cost of extra administrative time wipes out the savings.
Also Consider Opportunity Costs
When making decisions on ROI, it’s very important to think about opportunity costs. A simple definition would be what am I missing out on if I don’t go with this choice? We’ll use the volunteer coordinator as an example again. We know that the average volunteer hour is worth $20 to an agency. Let’s say that by using VolunteerHub, our online volunteer management system, you can get at least four more hours of volunteer time per week (worth $320/month) because it’s efficient and convenient for sign-ups. We’ll also say that VolunteerHub saves your coordinator five hours a month in administrative time, freeing him or her up to give three presentations per month to groups in the area. Let’s suppose each one of these talks yields one volunteer, who signs up for four hours a month. That’s 12 more hours, worth another $240. That means, in our example, that you’d be passing up a total of $6720 in resources per year (minus the cost of the software) if you decide not to invest in an online volunteer management system. Of course, your numbers will be different, but this example — even with very conservative estimates — easily illustrates our point that volunteer management software makes sense for nonprofits.
However, oftentimes opportunity costs aren’t this obvious. Some agencies have asked staff to take on many roles in an effort to cut costs. Take a look around: is your grant writer, volunteer coordinator, or gifts officer doing a lot of non-revenue producing activities in the name of saving a buck? If so, take a closer look to determine if your plan is saving you money or costing you opportunity.
It’s clear that considering ROI is not just for business and finance anymore. Nonprofits don’t have owners or shareholders to appease, but staff, donors, and community members deserve and expect spending/saving decisions to be well thought-out and financially sound.
