Cost Revenue Analysis for Non-Profit Organizations

by Sean Butner, studioD Google

Unlike for-profit organizations, which operate with the purpose of increasing owner value, nonprofit organizations focus their efforts on carrying out their particular missions. Some nonprofits collect revenue only from donations, while others operate in a way nearly indistinguishable from for-profit organizations. While for-profit organizations can generate higher earnings by increasing revenue and decreasing costs, profit isn’t the only reason to conduct cost revenue analyses. Nonprofit organizations can improve their operations through careful cost revenue analysis.

Cost Revenue Analysis

When an organization conducts a cost revenue analysis, it looks at the relationship between cost and revenue. Because nonprofit organizations’ outputs typically do not generate their revenue, you may need to conduct several different cost revenue analyses at different stages of your organization’s business cycle. For example, fundraising is a common source of revenue and can be matched with specific costs. Providing services, however, might not generate any revenue despite incurring the majority of expenses. For nonprofit cost revenue analysis, you can replace revenue with the desired outcome as needed.


It costs money to raise money. Even for organizations that operate on an entirely volunteer basis, fundraising and collecting pledges will incur some cost. The percentage of revenue spent on fundraising is an important metric for many nonprofit organizations. Conducting a cost revenue analysis on donations helps identify ways the nonprofit could reduce the percent spent to raise money. Calculating the return per fundraising drive can identify what campaigns work better than others. For example, if your organization sent 1,000 mailers at a cost of $420 and received $1,750 in donations then the mailing campaign had a return of $1,330 or 317 percent. Compare with a donor gala that cost $4,750 to set up and generated donations of $16,500. The return on the gala was $11,750 or 247 percent.

Sales Revenue

Some nonprofit organizations generate revenue through sales, such as charitable thrift stores. Because such sales operations typically resell donated items, simply looking at the revenue versus the cost of the goods provides a misleading sense of how much the operation contributes to the organization. Cost volume profit analysis allows managers in such organizations to determine what sales volume they must achieve to cover the fixed costs of operating the store, such as rent, utilities and wages. Dividing the fixed costs by the contribution margin ratio of the store, the ratio of profit left over after covering any cost attributable to the item sold divided by total sales, provides the total sales volume in dollars necessary to cover fixed costs. When items are donated and sold as-is, the contribution margin ratio will be 100 percent and the operation will break even when sales is the same as fixed costs.

Services Provided

Nonprofit organizations often face difficulties trying to upgrade their infrastructure or expand their administrative staff. Donor and peer pressure encourages nonprofits to keep administrative costs at levels far below their for-profit peers. Performing cost revenue analysis on the services they provide can help nonprofits make the case for additional investments in infrastructure. For example, a nonprofit that spends $200,000 providing financial counseling services to 1500 struggling families spends $133 per family. The director believes that a one-time cost of $20,000 for scheduling software would allow counselors to see 500 more families, allowing the organization to fully utilize its existing counselors. Spending the additional $20,000 reduces the cost per family to $100, helping the organization more efficiently use donors’ dollars.

Quantifying Results

Some nonprofit organizations might provide services that have direct financial impact on their recipients. For example, the organization that provides financial counseling services at a cost of $133 per family might conduct a study of past participants that concludes participants in the counseling services save on average $217 in fees and $724 in interest. By quantifying the impact of their results, the organization can then show that for every dollar they spend on services they save a family $7.08 in fees and interest. Further, if they can reduce the cost per family to $100, then they increase the impact of each dollar by a third.

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