Managing and calculating the Social Returns on Investment (SROI) is a challenge for any organization investing in generating social capital. The idea behind the social return on investment calculation is to assign a monetary figure to the work carried out by an organization within the community.

It’s a notoriously difficult aspect to measure, and many companies struggle to report on their social ROI to stakeholders.  Assigning positive economic, social, and environmental outcomes a number can enable your business to track the outcomes of its active programs.

Here’s what you need to know about calculating social returns.

What is Social Return on Investment (SROI)?

Calculating the value of a standard business investment is a matter of going over the numbers. Understanding your social rate of return is an entirely different challenge than most.  But, how do you measure the intangible?

Figuring out how to calculate SROI involves using certain principles to measure additional financial value. Through assigning monetary values to active social projects, organizations of any size may identify areas for improvement, determine what’s working, and report overall impact to stakeholders.

SROI is always calculated with the business’s stated goals in mind.

The Seven Principles of SROI

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

The following seven principles were devised by the UK Cabinet Office and are considered to be the gold standard in making these calculations.

Any individual or group impacted by a program is a stakeholder.  Stakeholders could include an investor who provided an SROI loan or a group that is affected in some way by an activity or program.

Figure out who the affected are and ensure they are active participants when calculating social ROI.

2. Understand Change

You must figure out how change has occurred through an activity or program. This could be a positive or a negative change. Organizations are expected to distinguish between expected and unexpected changes.

3. 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.

4. Include Material Outcomes

When making these calculations, organizations must include only what is material. Take the time to ask how including or omitting certain information could change the way stakeholders are impacted.

If a piece of information would alter the decision-making process, it should be included. This improves both transparency and credibility.

5. Avoid Exaggerations

Transparency is vital in the world of social campaigns. Commit to transparency in the social return on investment calculation process.

The easiest way to come up with a transparent conclusion is to ask what would have been different if your organization hadn’t taken the action it did. This approach negates the temptation of over-claiming and exaggerating an organization’s impact.

6. Be Transparent

Transparency must apply across all aspects of the accounting process. This includes tracking, communication, stated goals, prioritized metrics, data collection, and campaign analysis.

Again, this all ties into communicating with all stakeholders and involving them in the decision-making process.

7. Results Verification

Ensuring credible outcomes demands external verification of results. It’s important to show how the organization reached its conclusions and enable stakeholders to independently verify social returns.

It’s also recommended that organizations utilize the independent assurance process, which enables third-party verification.

How is SROI Useful?

You may be wondering why you would want to make this calculation in the first place. Why go through this process?

Let’s take a look at some of the benefits of social returns on investment for different organization types.

SROI for Nonprofits and Social Enterprises

You may be wondering why you would want to make this calculation in the first place. Why go through this process?

Let’s take a look at some of the benefits of social returns on investment for different organization types.

Assign Monetary Value to Impact – Are you able to 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’re having on the communities you serve.

SROI for Private Businesses

Improve Program Management – Enhance the way you manage your various initiatives. Understand what worked and what didn’t.

Offer Insight into Company Impact – You’ll be able to see the stories behind the data. How is your organization making an impact?

Marketing – Social impact is a powerful form of marketing. Provable results could elevate you above the competition.

Evaluative vs. Forecast SROI

Deciding how to calculate SROI is the first step to measuring your social ROI. There are two major types of calculation: forecast and evaluative.

Forecast Analysis

A forecast analysis is a type of analysis that occurs before implementing a social impact program. It’s a type of predictive tool that enables organizations to determine potential social value from the program.

Forecast analysis helps implement relevant metrics and data collection processes before launching a campaign. It also helps leaders figure out how monetary resources can be targeted to create the most impact.

Evaluative Analysis

As the name indicates, this type of analysis is implemented either following the conclusion of a program or after a program has been running long enough to generate enough data to evaluate.

Once you have outcomes to measure, you can use that data to figure out whether a program is underperforming or overperforming.

It’s helpful to perform both calculations to track whether an organization is meeting its goal.

How Do You Calculate SROI?

Calculating your social impact ROI doesn’t have to be difficult. There are certain terms you need to know, and then you need to understand how to implement the specific ROI formula.

It’s highly recommended that you perform a forecast and evaluative analysis to maximize the benefits of this process.

Terms You Need to Know

Attribution – Assessment of how much an individual or group contributed to an outcome.

Deadweight – The amount of an outcome that would have occurred if an initiative hadn’t taken place.

Discounting – Recalculation of how future costs and benefits can be boiled down to present-day monetary values.

Discount Rate – Chosen interest rate for discounting future costs to a present-day value.

Drop-Off – Outcome deterioration over a period of time.

Impact – Overall influence on an outcome while taking into account deadweight, third-party contributions, and outcome durations.

Inputs – Stakeholder contributions needed to enable an activity or initiative to proceed.

Net Present Value – Present-day value of currency projected in the future, with the investment required subtracted.

Outcome – Change created by a social impact campaign. Outcomes may be foreseen/unforeseen and positive/negative.

Outputs – A method of describing an activity using stakeholder inputs in quantitative terms.

Outcome Indicator – Measure of an outcome.

Proxy – An alternative value estimator where an exact measure is unavailable or impossible to calculate.

Social Return Ratio – Preset value of an impact divided by total investment.

Formula

The general formula for the social return on investment calculation is as follows:

SROI = (SIV – IIA) / (IIA x 100%)

For the purposes of this formula, SIV stands for Social Impact Value, and IIA stands for Initial Investment Amount.

Example:

The formula itself looks scary and intimidating, but in practice, it’s a relatively simple calculation to follow. Here’s how social return on investment examples work in practice.

Let’s say that a nonprofit has decided to target ex-felons through a job-readiness program. Their stated outcome is to get as many jobs for ex-felons as possible. Success is based on the income of the graduates of their job-readiness program.

During year one, the nonprofit invests $100,000 to connect with, train, and educate ex-felons. Twenty ex-felons manage to secure jobs at an average salary of $32,000 per year.

In theory, this would mean the nonprofit generated $640,000 (20 x $32,000) in income. However, six left the program early, and three secured a job via alternative channels.

Using SROI principles, only 11 ex-felons completed the program and secured jobs with the help of the nonprofit.

At an extremely basic level, nine must be discounted from the calculations as deadweight, whereas 11 can be directly attributed to the actions of the nonprofit.

So, based on the nonprofit’s stated outcomes, they generated $352,000 (11 x $32,000) through their job-readiness program.

If we perform the calculation using the formula above, we come up with a figure of 1.88.

($352,000 - $100,000) / ($100,000 x 100%) = 2.52

This means that for every $1 spent, the nonprofit created a social impact of $2.52 for the first year.

Take note, this is an extremely basic example and analysis can become far more in-depth.

Challenges of Measuring SROI

Measuring social return on investment follows a similar process to ordinary ROI, but there are challenges. Using this concept can be difficult because it’s inaccurate and relies on a lot of assumptions.

A full in-depth analysis typically requires costly and time-consuming analysis into cost-benefits.

At UpMetrics, we believe organizations can form a comprehensive narrative that details their impact in a compelling way that inspires actions by looking at qualitative and quantitative data in one place. 

UpMetrics' next generation Impact Measurement and Management platform makes measuring, optimizing, and showcasing your organization's impact easier than ever before.