The Evolution of Best Practices for Nonprofits: Measuring a Data-Driven Impact June 2023

by: Daniel Sage
Verified by: CPA

June 8, 2023

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Recent years have seen the adoption of big data spread to practically every industry. The nonprofit sector is far from exempt: if anything, the advent of big data gives nonprofits better tools than ever to qualify their impact on their community.

Today, it’s expected that nonprofits report on a wide range of factors, from the demonstrated impact of their programs to the effectiveness of their fundraising campaigns. Nonprofit organizations that master this will be well-placed to increase donor contributions, while those that fail to adapt will be left behind. 

While this data analysis can take many forms, it should ultimately be centered around the progress of the nonprofit toward its stated mission. Board members and leaders charged with governance must invest in building the skills and tools required to effectively demonstrate the impact of their organization. 

In this guide, we share how best practices for measuring the impact of your nonprofit have evolved in recent years. Read on as we explore the benefits of embracing a data-driven strategy and outline how nonprofits can take their first steps toward this new future. 

What Does It Mean for a Nonprofit to Be Data-Driven?

There are two key ways nonprofits can incorporate data into their operations: to quantify their impact, and to improve decision-making. Let’s look at both in a little more detail. 

Quantifying the impact of your nonprofit’s program activities is vital in demonstrating its effectiveness in accomplishing its mission and goals. A valuable first step is to establish Key Performance Indicators (KPIs) that demonstrate how a nonprofit is progressing. These KPIs will be driven by the nature of the nonprofit’s activities. They should be numerically measurable metrics that the nonprofit can influence through their strategies and the decisions of leaders. 

The other major role data plays is in streamlining decision-making processes. With the right data and analysis, leaders at nonprofits can make important decisions with a higher degree of confidence in the outcome. Here are a few examples of how a nonprofit independent school could make better decisions by embracing data :

  • Fundraising ROI: determining the return of different formats of fundraising events to improve the overall fundraising efficiency of the school.
  • Neighborhood Data: understanding which neighborhoods are home to more affluent families who are able to pay full rate, and which neighborhoods are home to families who need financial assistance. 
  • Test Scores: measuring educational results by class and teacher to identify areas where students need additional support and resources to reach their potential.  

By assessing all of this data, nonprofits can more effectively explain the success of their initiatives – both internally and externally. This not only strengthens performance but also improves relationships with donors. 

Four Best Practices for Using Data to Measure Your Nonprofit’s Impact

Building a data-driven culture is far from easy. For many nonprofit organizations, it can represent a significant shift from the traditional way of operating. It’s likely there will be a transition period. As you navigate this process, there are certain best practices that you should keep in mind. 

1. Establish Clear Goals

Wielded correctly, data is an extremely powerful tool. Unfortunately, it’s all too easy for nonprofit organizations to suffer from ‘analysis paralysis’. With so much data out there today, it can be difficult to know where to start the analysis process. As a result, the analysis often lacks any clear direction and fails to produce meaningful insights.  

To avoid this, align everyone around a set of goals. Start with a series of questions you want to find answers to. A hundred-page report might look impressive, but a one-page summary of the key takeaways from your data translates far better to real world action that makes an impact in your community. 

2. Evaluate the Good and the Bad

Analyzing data gives nonprofits the opportunity to uncover a wide range of opportunities: discovering new donors, identifying programs growing in popularity, and so on. But it also unlocks the ability for leaders to take a self-critical look at their organization and identify areas where efficiency could be improved. 

Not every program your nonprofit runs will be a success. Many will – but others will be underwhelming. Identifying these underperforming programs and reallocating resources away from them towards more impactful programs is key to enhancing the overall effectiveness of your nonprofit. 

3. Incorporate Data Into Decision-Making

Collecting and analyzing data is one thing – acting on it is another entirely. The vision for the nonprofit to evolve into a data-driven organization should come from the Executive Director or CEO, and it’s important these individuals lead by example. 

4. Evolve with New Technology

This is a rapidly evolving field and there are a rich variety of software tools and platforms that nonprofits can use to evaluate their data more effectively. The use of data is growing exponentially every year and nonprofits that fail to adapt will soon be left behind. 

Many nonprofits outsource this process to an external firm that is qualified to advise on the nonprofit’s data strategy. Let’s explore what that process typically looks like. 

Finding a Partner to Help Your Nonprofit Embrace Data

Most nonprofits lack the resources to retain employees tasked with designing and implementing a robust data architecture. Instead, they delegate this process to a firm with the right level of expertise. 

Often, trade associations and word-of-mouth play a big role in helping nonprofits find the right partner for their organization. Educational seminars provided by trade associations such as the American Alliance of Museums and the National Association of Independent Schools often devote significant time to exploring how attendees can help their organizations become more data-driven. Attend these events, connect with fellow nonprofit leaders, and ask for advice – you’ll find a great partner.  

Smith + Howard: Trusted Advisors to Nonprofit Organizations

Embracing a data-driven philosophy is no longer something nonprofits can do to stay ahead of the curve: it’s a step they must take to remain relevant in years to come. Harnessing data to measure the impact of your nonprofit organization yields powerful insights that can be game changers both in a fundraising and operational sense. 

At Smith + Howard, our nonprofit practice is proud to have served the nation’s leading nonprofit organizations for over 50 years. Our advisory team is available to provide strategic guidance around adopting new technology, establishing relevant KPIs, and incorporating data-driven insights into your reporting process. 

To learn more about Smith + Howard’s support for nonprofit organizations, contact an advisor

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If you have any questions and would like to connect with a team member please call 404-874-6244 or contact an advisor below.