Social Returns on Investment (SROI): A Guide to Measurement

There are dozens of tried-and-true methods for analyzing your organization's impact. One popular framework for doing so is social return on investment (SROI), which involves assigning a monetary figure to the social, economic, and environmental value generated by your organization's efforts.

Though SROI can be incredibly useful for your organization’s stakeholders and community, it's notoriously difficult to understand and measure. To help you get started, we've created this guide that will cover: 

• Common Questions About Social Returns on Investment (SROI)
• 13 Key Terms to Know Before Calculating SROI
• How to Calculate SROI
• A Real-World Example of an Organization Using SROI 

Common Questions About Social Returns on Investment (SROI)

What is SROI? 

SROI challenges your organization to measure the intangible—the impact it generates for its community. It is determined by assigning monetary values to specific projects or programs to more objectively evaluate the social, economic, or environmental value generated by those projects or programs. 

SROI may make you think of traditional return on investment (ROI). However, there is a clear difference between the two concepts:

• Normal ROI allows you to measure only financial returns.
  • Example: "We saw a 30% return on the $5 million investment made in the solar panel company."

• SROI empowers you to quantify the value of specific projects, programs, or initiatives.
  • Example: "For every dollar invested in the company's solar panel adoption program for rural communities, we created an environmental impact valued at $4.50."  

What Are The Principles of SROI?

When calculating social returns on investment, there are certain principles all organizations must keep in mind.

Social Value UK devised the following eight principles, which are considered the gold standards in the SROI impact framework: 

• Involve stakeholders. Any individual or group impacted by your work is a stakeholder. Stakeholders could include an impact investor who provided an SROI loan or program beneficiaries. Pinpoint relevant stakeholders and ensure you involve them when calculating social ROI to show you value their input and continue building trust with them.
• Understand change. Determine what changes have occurred through the focus activity or program. Your organization’s social impact encompasses all changes, including positive and negative, intentional and unintentional.
• Value the most important things. What distinguishes this process is the principle of assigning financial proxies or monetary values to generated outcomes. It enables organizations to objectively value the things that matter the most.
• Include material outcomes. Consider how including or omitting certain information could affect stakeholders. If a piece of information would alter the decision-making process, you should include it to improve transparency and credibility.
• Avoid exaggerations. Your organization should only claim the value its activities created directly. Consider what would have changed if your activities, programs, or projects weren't in the picture. Also, acknowledge changes resulting from others' actions.
• Be transparent. Transparency and trust must apply across all aspects of the SROI accounting process, including tracking, communication, stated goals, prioritized metrics, data collection, and campaign analysis. Again, you must communicate with all stakeholders and involve them in the decision-making process.
• Verify results. To ensure credible outcomes, you need to verify your results externally. Show how your organization reached its conclusions and enable stakeholders to independently verify social returns. Additionally, use the independent assurance process, which enables third-party verification.
• Be responsive. Once you have verified your results, make timely, evidence-based decisions that help your organization drive more social, economic, or environmental value. Use accounting and reporting to support your decisions.

What Are The Types of SROI?

In addition to understanding the underlying principles of the SROI impact framework, you should also be familiar with the two major types of SROI calculation: 

• Forecast: A forecast analysis occurs before implementing a social impact program. It’s a predictive tool that enables organizations to estimate the potential social value of the program.
• Evaluative: As the name suggests, this type of analysis happens either after a program's conclusion or after it has been running long enough to generate sufficient data for evaluation.

Each calculation has its own benefits. Forecast analysis helps define relevant metrics and data-collection processes before launching a campaign. It also helps leaders decide how to allocate monetary resources most efficiently to create the greatest impact. On the other hand, evaluative calculations allow organizations to use their data to determine whether a program is underperforming or overperforming.

Why Do Organizations Measure SROI?

So, why go through the process of calculating a program or project's social return on investment? Let's look at some of the benefits of understanding social returns for two types of organizations. 

Nonprofits and Social Enterprises

• Assign monetary value to impact. Can you articulate the dollar value of the impact you're achieving with your funding? Attract additional investment by showing profitable social returns.
• Improve credibility. It can be difficult to communicate the impact that you're making in an indisputable way. A provable social rate of return provides you with credibility.
• Boost transparency. Be open and honest about what you do and the impact you have on the communities you serve.

Private Businesses

• Improve program management. Enhance how you manage your initiatives. Understand what works and what doesn’t, and then make a plan for moving forward.
• Offer insight into your company's impact. You’ll be able to see the stories behind the data, allowing you to understand how your organization makes an impact and articulate this value proposition to stakeholders.
• Level up your marketing strategy. Social impact is a powerful marketing tool. Provable results could elevate your brand above the competition.

What Are The Challenges of Measuring SROI?

Though measuring and monitoring your organization's SROI offers many perks, this approach to social impact measurement also has some challenges.

For example, many feel that SROI is inaccurate because it requires your organization to make subjective judgments and assumptions (especially when assigning monetary value to intangible things). This can lead to ethical issues if your organization overestimates its impact or its SROI insights don't reflect your community's values in a fair way. 

However, taking the right approach to measuring SROI from the beginning can mitigate these difficulties and cultivate a productive, positive experience all around. It starts with a holistic view of an organization’s impact data and a structured framework for analyzing it.

At UpMetrics, we believe that organizations can form comprehensive narratives that detail their impact and inspire action. Our approach is rooted in bringing qualitative and quantitative data together in one place with our next-generation impact reporting tool.