How do we aim for impact when we’re granting? One of the best ways I know is to evaluate our grants like investors evaluate investments and measure charitable “returns.”
But what form of measurement do we use to determine charitable returns?
Quantifying a nonprofit’s “return”
Through my work as CEO of Simple Charity and director of research at Faith Driven Investor, I’ve had the privilege of interviewing more than 100 nonprofit CEOs, philanthropic advisors, and professional grantmakers. My team has researched more than 600 faith-based charities, both domestic and international. Our goal was to find ministries that were effective at strengthening the church, advancing the gospel, and combating poverty and injustice.
But when we were thinking about determining effectiveness, we had to decide what returns we wanted to see. What were the “returns” of nonprofits? The answer we came to might surprise you. The bottom line for charity returns is stories.
We decided a charity’s return on investment could be stories of life change: People who profess faith in Jesus, trafficking survivors who find healing and restoration, or homeless veterans who receive affordable housing because of a new service or municipal policy. Each individual’s story is unique and complex and inexpressibly valuable. Through our giving, we participate in these stories of life change. That’s part of the thrill and joy of generosity.
Unfortunately, stories are impossible to summarize quantitatively. The best we can do is to measure impact. Impact metrics are essential tools for non-profit organizations. They are cross-sections of stories, small snapshots of one part of peoples’ stories. They are evidence that life change is happening. Nonprofits can share their impact by carefully measuring a set of relevant impact metrics and reporting these numbers to donors alongside the stories they tell.
Considering impact metrics
But it’s important to understand that impact metrics have limitations. Whether a ministry reports that “100 students professed faith in Jesus” or “10 trafficking survivors received care,” impact metrics leave many questions unanswered. How many of those new Christians will get plugged into a local church and receive discipleship? Are the trafficking survivors receiving trauma-informed care?
If we’re thinking like investors, we will dig even deeper. What do the reported impact metrics mean, and how did the ministry obtain them? This closer look into the information is one of the things a faith-driven investor does. We realized there are a number of things investors do that everyone can do. Here are five tips for thinking like an investor when you give:
- Deepen your discovery and due diligence process. To the extent that you have capacity, do discovery and due diligence on the charities you support, especially for those nonprofits you are considering for bigger checks. Investors sometimes visit companies, test their products, or interview staff members. When evaluating a charity, consider visiting them to see their work on the ground.
Pay attention to staff turnover rates, the humility and competence of leadership, and the procedures they use to measure impact. If possible, interview beneficiaries of their programs. They are the real experts on the charity, and you are investing in stories like theirs.
- Do a deep dive into a charitable vertical. Investors research industry verticals like fintech, real estate, or healthcare to make well-informed investments. We can do the same with a specific charitable vertical, a term that means the same thing as a “grantmaking cause.” Is your passion clean water, human trafficking, college ministry, or something else? Whatever the cause, you can get serious about researching it. What are the most effective models within this cause? Do the organizations you support now share evidence of stories of life change? How strong is that evidence?
- Understand the life-cycle stages of charities. Just like businesses, charities have a life cycle. A charity in its first five years is a high-risk investment but can have potentially high returns if it is solving a niche problem with an innovative program. A charity that has already found “program-problem fit” may need generous growth capital to scale. And a charity at scale may be at risk of growing complacent and lacking innovation. Know what stage a charity is in before investing, and do your due diligence accordingly.
You can learn this information by looking up when the charity incorporated on Guidestar or by reading financial statements in annual reports. This information will help you right-size your investment in accordance with the opportunity for stories of life change.
- Calculate your own impact metrics. Venture philanthropy should have a long time horizon for stories of life change, just like venture capital is patient for profits. But when you give to mature charities, you can do some quick math to determine your personal impact metrics. Just take your total annual gift, divide it by the charity’s total expenses for the year, and multiply this number by each of the charity’s top impact metrics (usually found in the first few pages of an annual report). This will give you the impact metrics that are a result of your generosity.
- Pray. Faith-driven investors are wise to rely on prayer when making investments, and this is just as true for market-rate investing as it is for giving. God is the ultimate story writer. He graciously invites us to participate with ministries in stories of life change through how we steward our money. If the returns on giving are stories, we should pray for God to take our meager loaves and fish and use them to write a story in which he feeds the multitudes and gets all the glory for it.
Strategic, impactful investing
Investors are strategic and intentional about how they deploy capital. We can be strategic, too, because the returns for charities are variable.
Impact is important. We are investing in the church, in missions, and in human flourishing. We should expect returns from these investments in the form of stories of life change, evidenced by impact metrics.
While it’s true God uses generosity to transform givers, we also want to know that our gifts are doing good and helping others. If we view our grants through the lens of an investor, we will ask better questions of charities and, very likely, become more impactful grantmakers.
Brian takes a business finance class approach here, which is valid. But, I especially like his last point, Pray. As we seek the Spirit’s guidiance He will lead us.
He mentions check third party sources like Guidestar, but that’s is incomplete, especially for a number Christian, faith-based church and para-church organizations that are Religious Missionary Orders (RMO). Groups like Guidestar use the reported IRS 990 Form data to look at charities and their financials, but RMOs are not required to prepare the 990 Form. So some good faith-based ministries are recognized by these third party groups. They are likely not hiding anything, they just choose not to file a 990, because it is optional for them.
As Brian says, look at their financial reports and other material and organization may have available online or in print. Also, a few other good third party groups for faith-based non-profits include: Evangelical Council for Financial Accountability (ECFA), ROI Ministry and Excellence in Giving (EIG).
A lot of what Brian proposes above, EIG does for it’s cleints who are high net-worth philanthropists and family foundations. They take a strategic approach of looking at 175 key data points of a charity, before they will endorse or recommend them to a clients. Some of the EIG information is public on their website, but not all.
*Brian Grasso, March 23, 2023, posted on National Christian Foundation stories.