How Much of a Difference Are We Making? Using Social Return on Investment in Your Nonprofit’s Storytelling
In 2020, The New York Times published a great article, “Social Programs Can Sometimes Turn a Profit for Taxpayers,” bringing Social Return on Investment (SROI) and cost-benefit analyses into the mainstream. In it, Seema Jayachandran, an economics professor at Northwestern University, shared a particularly compelling insight from a meta-analysis of 133 social programs completed by Harvard economists Nathaniel Hendren and Ben Sprung-Keyser: “Many programs — especially those focused on children and young adults — made money for taxpayers, when all costs and benefits were factored in.” This was important news that paved the way for even more studies to be done. It demonstrated that even from a purely fiscal perspective, policymakers should think twice before cutting social programs. With ongoing discussions about funding cuts at local and national levels, SROI has become an even more critical tool for advocating for the value of social initiatives and explaining why they not only should continue but also be seen as an investment for the American people.
SROI stems from a simple question: “Is the world a better place because of the work we’re doing?” Thankfully, more nonprofits are able to answer this question with the support of economists and research. Here are answers to your most-asked questions on SROI and how your organization can leverage it to strengthen your impact storytelling.
What Is Social Return on Investment (SROI)?
At its core, SROI measures whether the benefits of a program outweigh its costs. Similar to corporate Return on Investment (ROI), SROI quantifies and monetizes the economic and social value a program is likely to create and compares those benefits to the program’s operating costs over a span of years. For example, a workforce readiness program that increases an individual’s potential to obtain a full-time job may claim societal benefits, such as reduced reliance on government assistance (housing subsidies, food stamps, Medicaid) and increased personal income and tax contributions. Its benefits would be weighed against its costs, such as programmatic expenses and overhead for the job-attainment services.
What SROI Doesn’t Measure
While SROI is a valuable way to estimate impact, there are some things it doesn’t measure. It does not prove causality and cannot replace measuring actual outcomes. It also cannot measure unquantifiable social benefits, such as increasing self-confidence or family stability. For organizations to maximize their SROI model’s strength, they should combine it with evidence-based research or self-evaluation studies to ensure accuracy.
How Do You Interpret SROI?
SROI is typically expressed as a cost-benefit ratio, with a breakeven point of 1.0. That is, if your program’s SROI is greater than 1.0, it means that for every $1 invested in the program, your program generates more than $1 in societal benefit. Therefore, it justifies your program’s expense. Put another way, the bottom line (or profit) of your program is your impact. For example, Americans spend thousands of dollars on a college education, expecting to earn more income through higher-paying jobs than it cost to attain that education. If your program’s SROI is less than 1.0, the intervention may be generating less benefit to your clients and society than it costs to operate. When that is the case, the organization may want to consider alternative activities (or a lower cost structure) that can produce greater benefit at the same cost.
What Are the Next Steps?
The strength of SROI lies in its ability to demonstrate impact in a way that resonates with funders, policymakers and communities. Nonprofits can use it as a powerful storytelling tool to share their value to the community in annual appeals and connect to forms of impact investing, such as social impact bonds or Pay for Success. Likewise, social investors can use it to evaluate the success and payout of similar social investments.
For many social programs, the groundwork for SROI has already been done over the past two decades. To begin, start with secondary research. Employ a little detective work (using Google or ChatGPT) to find any SROI data from programs comparable to your own (e.g., early childhood, teaching art in classrooms, mentorship). If comparable SROI data exists, you can use it in your storytelling to illustrate your own Social Return on Investment. For example, “Similar programs to XYZ agency are proven to have a high social return on investment — for every dollar invested, taxpayers get back $Z.”
If no existing SROI data applies to your program, consider conducting your own SROI analysis. Certain aspects of this process, such as researching comparable SROI studies, gathering cost-benefit data and compiling background information, can be excellent tasks for your summer intern. To start investigating this approach, we recommend taking the following steps:
Understand Your Costs: Work with your CFO and/or Finance Chair to ensure you have a firm grasp of your program-related costs — both direct AND indirect — using a methodology such as activity-based costing.
Gather Impact Data: Work with your program team and/or evaluators to conduct secondary research on:
- Cost-benefit analyses or SROI estimates from other organizations with a similar program model
- Assessing individual and community benefits generated by your program model (e.g., less reliance on government assistance, increased likelihood of higher-paying job)
Choose the Right SROI Tool: Research popular SROI tools, such as the one developed by REDF, to decide how to build the best model for your organization.
Build Your Model: Bring finance and program teams together to finalize a high-level model and begin inputting data to determine a SROI calculation unique to your organization.
Test Your Model: Pressure-test the model with your board and local funders to ensure that you accurately capture your impact.
Refine Your Model: Refresh the model as new data and research become available.
As social sector moves to an investment mentality, SROI can be as a compelling mechanism to tell your story, because it helps your organization confidently answer the question, “How much of a difference are we making?” If your organization has recently completed an SROI analysis, please share the results and lessons learned with us and our TrendSpotters.
