12 Top Financial Metrics Nonprofits Need to Know

Imagine running a marathon without knowing how far you’ve gone or where the next water station is—it would be nearly impossible to pace yourself effectively.

Similarly, nonprofits need accurate financial data to guide decision-making, sustain programs, and ensure long-term mission impact. In this post, we’ll break down the key financial metrics every nonprofit should monitor, explain why they matter, and provide actionable guidance on how to use them.

Financial Metrics for Nonprofits

As a nonprofit, prioritizing the right financial metrics helps you focus on what’s most impactful for your organization’s health and sustainability. The metrics you emphasize will depend on your funding sources, financial situation, and strategic goals.

For example, a heavily grant funded organization aiming to expand to other revenue sources may be more focused on their dependency quotient and revenue stream ROI. A program-based nonprofit may be focused on expanding programs, so they may want to closely monitor their operating margin and burn rate.

Whether you’re looking to optimize donor retention or ensure your operating reserves are solid, these financial insights are essential for making informed decisions.

1. Annual Revenue

Your annual revenue is like the heartbeat of your organization—it represents the total revenue your organization generates in a year, including donations, grants, and earned income. This high-level metric helps you evaluate growth trends and predict future funding needs. Knowing your annual revenue is foundational for accurate budgeting and strategic planning.

How to Calculate: Add all revenue streams—donations, grants, earned income, etc.—over the fiscal year.

How to Use: When monitored year-over-year, your annual revenue tells the story of your organization, when donations were down, when events were strong, and when new programs gained traction. Tracking these changes in your annual revenue helps you identify growth opportunities or areas requiring improvement. Benchmark your annual revenue against organizations of similar sizes, programs, and impact areas to understand if you are overperforming or have room to grow.

2. Program Ratio

Often called the program expense ratio or the program efficiency ratio, this metric measures the percentage of total expenses spent directly on programs. It reflects the proportion of total expenses your organization uses directly on mission-related programs. A high program ratio often signals operational efficiency and donor trust, and can reinforce transparency. Your program ratio is required on IRS Form 990.

How to Calculate: Program Expenses ÷ Total Expenses

How to Use: Track your program ratio annually to understand if your investment in programs is increasing, decreasing, or staying flat. Like your overhead ratio, there is a balance between what goes toward programs and what needs to go toward administrative costs and fundraising. Understanding your program ratio and industry benchmarks for similar organizations can help you recognize if your ratio is on par with your peers. For many nonprofits, a program ratio above 75% is considered strong.

3. Operating Margin

Your operating margin measures your financial sustainability. While nonprofits often want to use every penny for programs, having margin allows your organization to reinvest in mission-related growth and weather uncertainty.

Your operating margin showcases the financial performance of your nonprofit and how much revenue remains after covering expenses. By focusing on day-to-day activities and excluding one-time investment income or endowment withdrawals, this financial metric tells you whether the core mission work is financially viable on its own.

How to Calculate: Operating Revenue – Operating Expenses

How to Use: Use this metric to ensure your organization generates surplus funds to reinvest in its mission. It can provide insights into whether your organization is scaling too quickly, causing you to eat into your margins, or running too lean, potentially causing burnout among your staff. Chronic negative margins can raise red flags about over-reliance on unstable or unsustainable funding.

4. Dependency Quotient

Your dependency quotient reveals how reliant your nonprofit is on a specific subset of revenue sources, such as major donors or grants. Understanding this metric helps mitigate risks of over-dependence, and helps you proactively find additional revenue streams that don’t overlap.

How to Calculate: Revenue from Key Sources (e.g., top 5 donors or all federal grants) ÷ Total Revenue x 100

How to Use: A high dependency quotient means that losing a significant portion of the subset you are measuring could significantly impact your operations. If your dependency quotient is high, diversify your revenue streams to reduce vulnerability and create a more stable financial foundation. It can help you identify where you can cultivate new donors or earned income sources to reduce risk. Also, if your dependency quotient is high, you might decide to have more in your operating reserves until you have more diverse income streams.

5. Operating Reserves

Operating reserves measure how many months your nonprofit can continue operations if funding stops. Some organizations may worry about holding several months of expenses in reserve, thinking those funds could be better spent on direct services like feeding families or providing malaria nets. However, having operating reserves means you are better prepared to keep supporting these efforts in the long term. With financial stability, your organization can ultimately serve more people over time.

How to Calculate: Unrestricted Net Assets ÷ Average Monthly Expenses

How to Use: Most organizations aim for 3–6 months of reserves to safeguard against funding interruptions and provide flexibility for unforeseen expenses. These resources also help your organization take advantage of opportunities that would be difficult to incorporate into your normal cash flow. Just make sure you have an operating reserve policy to outline how your reserves can be spent and how they are rebuilt.

6. Overhead Ratio

Overhead ratio calculates the percentage of expenses spent on administrative and fundraising costs. It’s a key transparency metric for demonstrating how efficiently your organization uses donor funds and showcases how your organization is investing in the infrastructure to deliver impact.

How to Calculate: (Management and General Costs + Fundraising Costs) ÷ Total Expenses

How to Use: Sharing your overhead ratio—with context—demonstrates responsible stewardship and helps your donors understand your larger financial picture. Your overhead, like employee salaries and benefits, rent, and fundraising, are necessary ingredients for your long-term success. Provide benchmarks for your program types and highlight how you are balancing your spending across programs, fundraising, and operations.

Use your Statement of Functional Expenses to break down these costs clearly so you can pair your overhead ratio with your impact metrics to tell the fuller financial story.

7. Budget to Actuals

Your budget-to-actuals report is where planning meets reality. Budget to actuals compares your projected budget to actual financial performance over a specific time period, helping identify discrepancies and improve forecasting accuracy.

How to Calculate: You can represent budget-to-actuals as either a dollar variance or a percentage variance.

• Dollar Variance: Actual revenue and expenses – Budgeted revenue and expenses = Variance
• Percentage Variance: ((Actual revenue and expenses / Budgeted revenue and expenses) – 1) × 100

How to Use: Many funders require a budget-to-actual report as part of their quarterly or close-out reporting. You can regularly review your budget-to-actual reports to adjust spending or fundraising strategies as needed. Break down your budget to actuals by department or program to dig into areas that need attention. Like most nonprofit metrics, your budget to actuals work best with a narrative explanation to understand any variances.

8. Revenue Stream ROI

Understanding the ROI for each revenue stream helps your organization move past “how much did we raise” and get to “was it worth the effort?” Revenue stream ROI measures the efficiency of specific fundraising efforts—such as grants, events, sponsorships, and earned revenue—so you can be intentional about your time, energy, and resources.

How to Calculate: (Revenue from Stream – Direct Costs) ÷ Direct Costs × 100 = ROI % For example, if a fundraising gala brings in $100,000 but costs $40,000 to run, the ROI would be 150%. For every dollar spent, the event returned $1.50 in net revenue.

How to Use: Analyze ROI for events, campaigns, and grants to allocate resources to the most impactful initiatives. Not every stream needs a high ROI—some may serve other purposes like donor engagement or mission visibility. The key is to be deliberate about addressing underperforming streams and being proactive instead of reactive or complacent. Are they mission-critical, or can they be improved or phased out? You can also run an estimated ROI on proposed revenue streams to see if the expected effort is worth the expected outcome.

9. Months of Cash on Hand

The months of cash on hand metric, also known as liquidity ratio, shows how long your nonprofit can cover expenses using available cash. This metric helps your organization manage short-term financial obligations, unexpected costs, or revenue delays. Months of cash on hand are typically unrestricted cash from day-to-day operations, which are different from operating reserves, which are designed for long-term sustainability and require board approval to access. You use your cash on hand when a donation is delayed for a week. You use your operating reserves when a grant you were awarded is terminated.

How to Calculate: Unrestricted Cash ÷ (Total Annual Expenses / 12)

How to Use: Combined with other metrics, your months of cash on hand helps your leadership know if there is margin to hire more staff or perhaps they need to delay an expansion. It also gives your staff confidence that you can cover payroll and other important expenses if there is an unexpected issue. Strive for 3–6 months of cash on hand to ensure stability and avoid cash flow issues.

10. Burn Rate

Burn rate calculates how quickly your organization spends its available resources. It tells you if your current spending is sustainable, and tracking it allows you to be proactive before your cash on hand runs low. It’s often measured by quarter.

How to Calculate: (Starting Balance – Ending Balance) ÷ Number of months

How to Use: Knowing your burn rate helps you accurately estimate how long your available cash will last and tracking it over time helps you identify potential issues early. Compare your burn rate across programs or departments to understand if one part of your organization is moving through cash more quickly than others. Combine your burn rate with cash flow projections as you are determining your fundraising strategy to make sure your expenses match what you are bringing in.

11. Donor Retention Rate

Donor retention rate measures the percentage of donors who continue supporting your organization year after year. High retention rates lower acquisition costs and ensure stable revenue. While this metric may live on the development team’s dashboard, knowing and tracking this number helps the finance team better predict cash flow.

How to Calculate: (Number of Repeat Donors ÷ Total Donors from Previous Year) × 100

How to Use: Acquiring new donors is harder—and more expensive—than retaining or re-engaging your current donors. A high donor retention rate means more predictable income, which makes it easier to budget and forecast. Use your donor retention rate to evaluate the ROI of fundraising campaigns and donor engagement strategies. A declining retention rate can signal a larger issue around donor fatigue or economic issues, giving the finance and development teams a chance to adjust projections and potentially evaluate other revenue streams.

12. Restricted vs. Unrestricted Fund Balance

Your restricted vs. unrestricted fund balance is the difference between the money you have and the money earmarked for specific programs. Whether you receive grant funding or you have donors who support specific programs, as a nonprofit you need to track your restricted funds so you can accurately show that funds were spent according to funder intent. And you need to understand how much you have in unrestricted funding to handle administrative and other expenses that aren’t supported by your restricted funds. You’ll typically find this metric on your Statement of Financial Position and Statement of Activities.

How to Calculate: Funds with Donor Restrictions – Available General Operating Funds

How to Use: If your funds are 100 percent restricted, you will likely be limited on what overhead and general operating expenses you can pay. Knowing your restricted vs. unrestricted fund balance informs your fundraising strategy and helps your finance team identify gaps where you need general operating support.

Holistic Analysis of Financial Metrics

Analyzing these financial metrics individually provides valuable insights but combining them paints a clearer picture of your nonprofit’s financial health. For example, if your burn rate is increasing while your dependency quotient remains high, it might indicate that you’re overly reliant on specific funding sources while struggling with sustainability. On the other hand, strong operating reserves paired with high donor retention rates may suggest your organization is well-positioned for program expansion. Look at how metrics interact to identify opportunities and risks that might not be immediately visible.

Take the Guesswork Out of Financial Metrics

Managing financial metrics can be challenging without the right tools. Fund accounting software built for nonprofits, like Blackbaud Financial Edge NXT®, simplifies tracking by offering dashboards, automated reporting, and customizable insights to help you understand the metrics that are most important to you. These features allow you to monitor key metrics effortlessly, so you have the information you need to make timely, data-driven decisions.

Want to see how the right accounting software can streamline your nonprofit reporting? Check out our datasheet, How to Save Time and Make Informed Decisions with Blackbaud Financial Edge NXT Reports.