12 important financial KPIs for nonprofits you should be tracking

Tracking key performance indicators (KPIs) for nonprofits is no longer optional—it’s essential.

With technology making data collection easier, nonprofits can now make smarter, data-driven decisions to optimize their impact. However, in a landscape still feeling the effects of economic challenges, nonprofits face rising costs, dwindling donor numbers, and increasing competition.

For example, according to research from Candid, surveyed organizations reported a 12% drop in earned revenue, with 25% of those experiencing significant financial difficulties that worsened during the pandemic. By the end of 2023, expenditures exceeded 10% of their total budgets due to inflation further straining their financial stability. The combination of slow income recovery and rising costs has placed considerable stress on nonprofits.

To stay resilient, nonprofit leaders and executives must focus on the right financial KPIs for nonprofits to streamline operations, reduce administrative burdens, and measure performance effectively.

In this article, we’ll cover the essential nonprofit metrics and KPIs and how to use them to drive your organization forward.

Why are KPIs so important for nonprofits?

Financial KPIs for nonprofits measure an organization’s ability to achieve its mission and extend its impact on society. While KPIs for nonprofit organizations share similarities with those used by for-profit businesses, they typically focus on assessing return on mission (ROM) rather than return on investment (ROI).

By quantifying efforts across areas—such as program outcomes, financial health, and operational efficiency—KPIs provide a clear picture of an organization’s performance and guide data-driven decisions.

In a sector where resources are often limited and the need is great, tracking the right KPIs helps nonprofits navigate challenges, optimize funding, and sustain their impact. Here’s why monitoring these nonprofit metrics is essential for success:

Show maximum dollar efficiency

KPIs help nonprofits make the most of every dollar. By tracking metrics like cost per beneficiary or fundraising efficiency, organizations can ensure that donor funds are directed toward the mission rather than getting tied up in administrative costs. This kind of financial transparency reassures everyone—from donors to board members—that resources are being used wisely and for maximum impact.

Maintain financial credibility

Financial KPIs give a clear view of a nonprofit’s financial health, making it easier for leaders to monitor things like cash flow and sustainability. By consistently keeping an eye on these metrics and understanding your nonprofit financial statements, organizations can stay on top of their financial obligations and weather tough economic times. Strong financial performance not only keeps the nonprofit running smoothly but also boosts its credibility with grant makers and partners, showing that the organization is in good hands.

Demonstrate granular financial control

KPIs help nonprofit leaders stay in control of their finances by breaking down big numbers into smaller, more manageable insights. Regularly tracking nonprofit performance metrics such as revenue diversification and program efficiency allows organizations to spot areas for improvement and adjust when needed. This way, resources are always allocated to where they can make the most difference.

Thrive even with limited funding

When budgets are tight, making smart decisions about where to invest is vital. KPIs help nonprofits pinpoint which programs and initiatives provide the greatest value, ensuring that funds are allocated strategically. By focusing on metrics that show program outcomes and funding needs, organizations can optimize their efforts and continue to make an impact, even with limited resources.

Establish a solid contingency plan

Being prepared for financial ups and downs is key for any nonprofit. KPIs play an important role in this by tracking factors like cash reserves, fundraising trends, and dependency on certain funding sources. By staying ahead of potential challenges, nonprofits can put strong contingency plans in place and keep delivering services when times get tough.

How to measure nonprofit organization performance using financial KPIs

To effectively measure performance, you need to track financial KPIs for nonprofits that cover key areas such as funding model, revenue, cash flow, sustainability, expenses, efficiency, and debt management.

Monitoring these nonprofit performance metrics helps stakeholders understand the organization’s financial health and informs data-driven decisions. Additionally,nonprofit accounting software can streamline tracking and reporting, ensuring greater transparency.

Here are there are four areas of key metrics, with 12 KPIs in total, that can help organizations stay on top of financial trends and maintain stability.

Funding model and revenue

Funding model and revenue KPIs help you assess your organization’s financial stability. It’s all about analyzing where your income comes from and how reliable it is. Here are the metrics to track:

1.  Revenue composition

Revenue composition looks at where your nonprofit’s income comes from, such as grants, donations, membership fees, or program fees, and whether funds are flexible (unrestricted) or designated for specific uses (restricted).

This nonprofit performance metric helps you see how dependent your organization is on different funding sources. A diverse revenue mix reduces financial risk since you’re not relying too heavily on one income stream.

By analyzing this financial KPI, you can make strategic plans to diversify and reduce risk. For instance, if your nonprofit relies primarily on grants, you might focus on increasing individual donations or offering paid services. Accounting software can help you track these sources and adjust strategies for a more balanced approach.

2. Revenue reliability

Revenue reliability measures how consistent your nonprofit’s income is, helping you determine whether you can count on recurring revenue or if you’re dependent on one-time grants and donations.

Tracking this KPI is crucial for planning and budgeting, ensuring your organization can sustain itself without sudden financial disruptions.

Keeping an eye on this metric helps you anticipate low-income periods, enabling you to adjust your fundraising efforts accordingly. For example, nonprofits with strong monthly donor programs can forecast income more accurately, making it easier to support long-term projects. Spotting seasonal dips in income can also help you plan ahead and address funding gaps.

Cash flow and sustainability

Cash flow and sustainability KPIs give you a clear picture of your nonprofit’s financial resilience, helping you manage cash effectively and prepare for the unexpected. Here are the KPIs to monitor:

3. Cash flow from operations

Cash flow from operations measures whether a nonprofit’s daily activities generate enough cash to cover costs.

Positive cash flow indicates that the organization can support its programs and cover unrestricted expenses without dipping into reserves or relying on loans.

Monitoring this financial metric for nonprofits helps leaders identify cash flow trends and adjust spending or fundraising strategies as needed, to ensure programs can continue without interruption. If cash flow is consistently negative, it may be time to cut back on expenses or find new funding sources to avoid financial strain.

4.  Liquidity

Liquidity measures how quickly your nonprofit can access cash to cover its expenses, calculated by dividing cash on hand by the average monthly expenses.

This KPI shows whether you have enough readily available funds to keep the organization running smoothly during unexpected financial challenges.

Keeping an eye on liquidity ensures you’re prepared to handle emergencies or sudden drops in income without jeopardizing essential programs. Nonprofits with strong liquidity can respond more flexibly to new opportunities or financial setbacks.

5.  Working capital ratio

The working capital ratio, or reserve ratio, compares expendable net assets to daily expenses, showing whether a nonprofit has enough resources to cover short-term obligations.

A healthy ratio indicates that the organization can sustain itself through difficult times, making it a key financial KPI for nonprofits.

Tracking this performance metric helps you understand the sustainability of your operations. If the ratio is low, the organization may need to build reserves to improve its financial stability.

Expenses and efficiency

Expenses and efficiency KPIs help you understand how well your nonprofit is allocating resources, ensuring funds are used effectively to maximize impact. Effective budgeting plays a crucial role here. For tips on optimizing your budget, see our guide on nonprofit budget examples.  Here are the key metrics to keep track of:

6. Percentage spent on programs

The percentage spent on programs metric measures the proportion of total expenses dedicated to programs and services, calculated by dividing program expenses by total expenses.

As a financial KPI for nonprofits, it shows how much of the budget goes directly toward the mission rather than administrative costs, helping to assure donors and stakeholders that their contributions are making a real impact.

Tracking this nonprofit performance metric allows organizations to set goals for increasing program spending over time, which can strengthen donor trust and demonstrate commitment to the mission.

7. Program expense growth

Program expense growth tracks how much program spending increases over time, signaling whether a nonprofit is expanding its impact.

Consistently growing program expenses (backed by revenue growth) shows that the organization is scaling its efforts and making a greater difference in the community.

Monitoring this financial KPI for nonprofits helps leaders identify trends and assess whether they invest enough in programs to meet their mission goals.

8.  Administrative expense percentage

The administrative expense percentage metric shows the portion of the budget spent on administrative costs, calculated by dividing administrative expenses by total expenses.

While some administrative spending is necessary for operations, a high percentage can indicate that too much of the budget goes to overhead instead of the mission.

By tracking this KPI for nonprofits, you can identify areas where you might reduce overhead costs to maximize funds available for programs.

9.  Fundraising expense percentage

The fundraising expense percentage measures how much of your total budget goes toward fundraising efforts, calculated by dividing fundraising expenses by total expenses.

Monitoring this nonprofit performance metric helps you understand the cost-effectiveness of your fundraising activities.

Keeping this percentage reasonable is important to show that the funds raised are used primarily for programs rather than covering the cost of fundraising itself.

10.  Percentage spent on fundraising

The percentage spent on fundraising metric compares total fundraising expenses to the amount raised through donations, giving insight into the efficiency of fundraising activities.

A lower percentage indicates more cost-effective fundraising efforts, meaning a larger share of each dollar raised goes directly to programs.

Donors and funders often prefer to support charities that keep administrative and fundraising expenses low, allocating most donations toward program expenses. According to the Urban Institute, a common standard is for nonprofits to spend at least 65% of their total expenses on program activities and no more than 35% on administrative and fundraising costs.

Tracking this KPI helps nonprofits fine-tune their fundraising strategies and identify ways to reduce costs while maintaining or increasing revenue.

Debt management

Debt management KPIs help nonprofits keep their financial obligations in check, ensuring that debt is managed sustainably and doesn’t hinder long-term goals. Here are the key metrics to monitor:

11.  Liabilities as a percent of total assets

Liabilities as a percent of total assets measures the proportion of an organization’s liabilities compared to its total assets.

If liabilities exceed 50% of total assets, it could indicate potential difficulties in managing debt. Monitoring this metric helps gauge the nonprofit’s debt burden and overall financial health.

Keeping an eye on this financial KPI for nonprofits allows organization leaders to identify debt-related risks and take proactive steps to strengthen the balance sheet.

12. Liability composition

Liability composition looks at the types of debt a nonprofit carries and how that debt is structured (e.g., loans, lines of credit, or deferred payments).

Understanding the mix and terms of liabilities helps assess the risk and flexibility associated with managing debt.

Tracking this KPI for nonprofits ensures that the organization knows its debt obligations and can plan accordingly to avoid financial strain. It also helps negotiate better terms or to restructure existing debt when needed.

Nonprofit accounting software with role-based dashboards

To effectively track and manage the essential KPIs we’ve discussed, having the right tools is crucial.

Nonprofit accounting software with role-based dashboards provide real-time visibility into your organization’s financial health. Dashboards that can be tailored to the specific needs of each team member—from executives to program managers—means everyone has access to the most relevant information.

Leveraging customizable reports and interactive visualizations, financial reporting software enables teams to monitor key metrics, make data-driven decisions, and demonstrate transparency to donors. This allows organizations to focus more on its mission and less on administrative tasks.

For a deeper dive into how real-time financial reporting and dashboards can enhance nonprofit performance, download our eBook, ‘Achieving real-time visibility with nonprofit financial reporting and dashboards’.