Key Financial Ratios Every Nonprofit Should Track

Purpose:

• Measures how much of total spending goes directly to programs vs. overhead (admin & fundraising).
• Higher is better (usually 75% or more is considered strong).

Example:

If a nonprofit spends $75,000 on programs and $100,000 in total expenses:

75,000 ÷ 100,000 = 75%

A 75% ratio means 75 cents of every dollar is spent on programs.

Benchmark: Generally, 75% or higher is considered good.

Purpose:

• How many months can the nonprofit survive using its savings (without new income)?
• A healthy reserve is 3-6 months of operating expenses.

Example:

If a nonprofit has $150,000 in reserves and $600,000 in annual expenses:

150,000 ÷ 600,000 = 0.25

That means 3 months of reserves (0.25 × 12 months).

Benchmark: Nonprofits should have at least 3-6 months of reserves to handle unexpected challenges.

Purpose:

• A nonprofit’s ability to cover short-term debts with its available assets.

Example:

If a nonprofit has $50,000 in current assets and $25,000 in current liabilities:

50,000 ÷ 25,000=2.0

That means the nonprofit has $2 in assets for every $1 in liabilities, indicating strong financial health.

Benchmark: A ratio of 1.0 or higher is recommended.

Purpose:

• Measures a nonprofit’s ability to generate surplus funds to reinvest in its mission.
• Higher is better (indicating financial sustainability).

Example:

Total Revenue: $500,000

Total Expenses: $475,000

(500,000−475,000) ÷ 500,000 = 0.05.

That means the nonprofit has a 5% operating margin, meaning 5 cents of every $1 earned remains after covering expenses.

Benchmark:

Above 5% → Healthy, provides a cushion for growth and reserves.
Between 1% and 5% → Manageable, but leaves little room for financial flexibility.
Below 1% or Negative → Risky, may indicate financial instability or reliance on external funding to stay operational.

Purpose:

• How much money is raised per dollar spent on fundraising.
• Higher is better (above 4:1 is strong, meaning $4 raised for every $1 spent).

Example:

If a nonprofit raises $400,000 and spends $100,000 on fundraising:

400,000 ÷ 100,000 = 4

That means $4 was raised for every $1 spent on fundraising.

Benchmark: A nonprofit should aim for at least a 3:1 or 4:1 ratio.

Purpose:

• How much it costs to raise $1.
• Lower is better (below $0.25 is ideal).

Example:

If a nonprofit spends $50,000 on fundraising and raises $200,000:

50,000 ÷ 200,000=0.25

That means it costs $0.25 to raise $1.

Benchmark: Under $0.25 per dollar raised is strong. Anything over $0.50 is a red flag.

Purpose:

• Measures how well a nonprofit keeps its donors.
• Higher is better (40% or higher is good; 50%+ is excellent).

Example:

If 500 donors gave last year, and 250 donated again this year:

(250 ÷ 500) x 100 = 50%

That means a 50% donor retention rate.

Benchmark: A 50%+ donor retention rate is a sign of strong relationships with supporters.