By Kim McCormick, Senior Vice President, McCormick Group
The spectrum of nonprofit organizations (NPO) in the United States ranges from $3+ billion to $250 in annual revenue. The huge disparity paired with the sheer number (1.5 million) of registered NPOs begs the question, does size matter?
Interestingly, there are two conflicting concepts regarding size. Larger organizations have greater resources to make changes, acquire technologies and train staff, however it’s more difficult to shift system wide. Smaller organizations may shift models easily, yet lack capacity and financial resources to make impactful change. Knowing the sweet spot for your organization’s size can help you deliver your mission more effectively. Unfortunately, many NPOs are busy raising money and managing daily operations. Building capacity for greater impact is the stuff of dreams.
Capacity can be measured by in many ways; stating efficacy in relationship to size is but one. NPOs at an effective capacity level raise more money in relationship to their size than smaller organizations. Comparing average gross revenue to size, research shows that the minimum financial capacity for organizational effectiveness is between $1-5M with $10M being the beginning of the sweet spot for strategic growth.
NPOs raising less than $1-3M simply don’t have the capacity to deliver the brand, attract and train quality employees, implement major programs, deeply invest in technology or significantly impact mission. If that is the case, then how can we build capacity? There are several ways, including:
• Raise more money
• Cut staff, programs and services
• Seek collaborative agreements to broaden the footprint, gain economies of scale and reach more constituents
The focus of a collaboration solution to capacity starts with mission, not money, and is centered on ‘what we can do better together.’
The first step to measuring success requires looking beyond the dashboard to multi-year trends. If a drop is noticeable or the organization is losing impact, volunteers and influence, the reason can usually be traced to capacity. Whether it’s lack of consistent funding, staff, volunteers, lack of “pick your point” there are missing elements that if present would result in positive trends. Additional factors including increased competition, the complexity of managing donors, policy shifts and environmental influences can inhibit success year after year.
Consider the impact of scale. The difference between a $1M versus a $10M organization spending 10% on branding is significant such that to achieve the desired results, the larger organization may only need to spend 7% on branding and have more funds available (in this example $300,000) to invest in strategic objectives. As scale increases, capacities increase simply because of size. There is direct evidence of entities lacking consistent financial capacity and not achieving goals due to weak brand recognition.
Donors relate to an organization on brand, but judge effectiveness on programmatic, fundraising and administration costs compared to monies raised. The larger an organization’s revenues in relationship to their expenses, the more appealing these ratios are to constituents.
Finding success through building capacity can be likened to realizing that you need something, like vegetables to sell at your market. You can either buy land, equipment and seeds, plant and tend hoping your investment pays off; or you can visit a vegetable farmer, get to know her, share resources, create a partnership and start offering high quality vegetables to your constituents quickly and inexpensively. Dream big!