The 7 KPIs Every Nonprofit Leader Should Track
We understand the challenge you face every day: balancing your mission to change lives with the financial realities of running a nonprofit. You became a leader to make a difference, not to get lost in spreadsheets.
We've analyzed hundreds of nonprofit financial statements to identify these metrics. Here's a breakdown of essential nonprofit financial metrics, including formulas, benchmarks, and guidance on choosing the right KPIs.
Why These 7 Metrics Matter
After working with hundreds of nonprofits, these are the metrics that actually change how boards and leadership teams make decisions. More metrics doesn't mean better financial management. The best finance teams pick a handful that actually drive decision-making.
These metrics help you:
See what's working
Spot potential issues early
Make confident decisions
Communicate with your board
The Vital 7: Financial Health Metrics
1. Months Cash on Hand
What it measures: How many months of operations your current cash can cover
How to calculate: (Total Cash - Cash with Donor Restrictions) / Monthly Operating Expenses
Why it matters: This is your organization's emergency fund. It tells you exactly how long you could operate if all funding stopped tomorrow.
Target: Minimum 3 months, ideally 6+ months
Example: If your monthly expenses are $100,000 and you have $300,000 in unrestricted cash, you have 3 months cash on hand.
💡 Tip: Make sure to separate restricted from unrestricted cash. Having $500,000 in the bank doesn't help if $450,000 is restricted for specific programs. Calculate this using unrestricted cash to get a true picture of your flexibility.
2. Program Efficiency Ratio
What it measures: How much of your spending goes directly to the mission
How to calculate: Program Expenses / Total Expenses
Why it matters: Donors and rating agencies look at this closely
Target: Typically 75-85%, though this varies significantly by nonprofit type
Example: A youth mentoring program spends $850,000 on programs and $150,000 on administration/fundraising out of a $1 million budget = 85% program efficiency.
3. Funding Dependency
What it measures: Your reliance on any single funding source
How to calculate: Largest Funding Source / Total Funding
Why it matters: It's the "don't put all your eggs in one basket" principle - over-reliance on one source creates vulnerability
Target: No single source over 30-40%
Example: If one foundation provides $600,000 of your $1.5 million budget, that's 40% dependency - time to diversify.
4. Restricted vs. Unrestricted Net Assets
What it measures: Of your Equity (Net Assets), how much of it is tied to donor restrictions?
How to calculate: Unrestricted Net Assets / Total Net Assets
Why it matters: Shows how much financial flexibility you have to respond to unexpected needs or opportunities. Higher unrestricted assets mean more freedom to pivot when your community needs change.
Target: Aim for at least 50% unrestricted | 25-50% is workable | Below 25% signals it's time to strategize
💡 Tip: During year-end appeals, share how unrestricted funds helped you respond to unexpected community needs. Real stories help donors understand why flexibility matters for your mission.
5. Funding Pipeline Coverage
What it measures: Secured funding vs. budgeted expenses
How to calculate: (Secured Funding for Next Period) / (Budgeted Expenses for Next Period)
Why it matters: Helps you see funding gaps before they become cash crunches
Target: 75%+ of next quarter secured
⚠️ Development vs. Finance Alert: Your development team might count a pledge differently than finance does. For these operational metrics, use finance's numbers - what's actually receivable this fiscal year. Learn why these numbers often don't match and how to reconcile them.
6. Cost Per Unit of Service
What it measures: Efficiency in delivering your mission
How to calculate: Total Program Costs / Number of People Served (or appropriate unit)
Why it matters: Tracks if you're becoming more or less efficient over time
Target: Trending downward or stable
Example: A food bank spending $500,000 to serve 100,000 meals = $5 per meal. If next year it's $4.50 per meal, efficiency is improving.
7. Operating Surplus or Deficit
What it measures: Whether you're building or depleting reserves
How to calculate: (Total Funding - Total Expenses) / Total Funding
Why it matters: Positive margins let you build reserves and invest in growth
Target: 5-10% surplus for sustainability
💡 Tip: Build your surplus gradually. If you're breaking even now, aim for 2% next year, then 5% the year after. Share this goal with your team - when everyone understands why that extra 5% matters, they'll help find creative ways to get there.
Getting Started: Choose Your Key Metrics
Not every nonprofit needs all seven KPIs. Here's how to choose:
Start with Your Biggest Worries or Red Flags
If you wake up worried about making payroll → Track Months Cash on Hand
If your board keeps asking whether you're sustainable → Focus on Operating Surplus
If one funder is threatening to leave → Monitor Funding Dependency
If donors question your efficiency → Show them Program Efficiency Ratio
Implementation Approach
Start Small: Pick 3-5 metrics maximum to begin
Get Reliable: Make sure you can accurately calculate these monthly
Build Habits: Review them at every leadership meeting
Then Expand: Add metrics only when the first ones are routine
Presenting to Your Board
Keep it simple:
Use a dashboard with visual indicators. It could be Excel with a chart.
Show trends, not just snapshots
Compare to targets, not last month
Focus discussion on metrics outside target ranges
Common Pitfalls to Avoid
Pitfall 1: Tracking Too Many Metrics
More isn't better. Seven metrics you actually use beat twenty you ignore.
Pitfall 2: Using Stale Data
Monthly updates minimum. Quarterly is too slow to catch problems. Good accounting for nonprofits means timely data.
Pitfall 3: Setting Universal Targets
A food bank and a symphony have different healthy ranges. Research your sector's benchmarks or ask your accounting firm.
Your Next Steps
This Week: Calculate your Months Cash on Hand. It's the most critical
This Month: Choose 3-5 metrics from this list that address your biggest concerns
Next Quarter: Create a simple dashboard and start monthly tracking.
This Year: Refine targets based on your organization's specific needs
Remember: The goal isn't perfect financial management. It's having enough insight to make good decisions quickly.
Need help with nonprofit accounting, making sense of your numbers, or creating dashboards your board will love? Sutro Li specializes in accounting and financial advisory services for growing nonprofits like yours. Reach out to discuss your specific challenges.