When it comes to philanthropy, every donor wants to ensure their contributions make the biggest possible impact. While traditional metrics like overhead ratios and total program budgets provide some insight, they do not always tell the full story. A more nuanced and impactful approach is evaluating cost per outcome—a measure that calculates the cost of achieving a specific result or outcome.
Understanding and utilizing cost per outcome allows donors to align their grant choices with the greatest efficiency and effectiveness, ensuring every dollar counts. In this blog, we will discuss how donors can use this metric to guide their decisions.
What Is Cost Per Outcome?
“Cost per outcome” is a performance metric that measures the cost incurred to achieve a single desired result. Unlike broader financial metrics, it focuses on the actual impact of a program or initiative.
Example:
A nonprofit helps 500 students improve their literacy skills with a program costing $50,000.
The cost per outcome (improved literacy for one student) is $100.
This metric helps donors assess how efficiently their funds contribute to tangible results.
Why Cost Per Outcome Matters
Focus on Impact:
Cost per outcome shifts the conversation from how money is spent to what it achieves, ensuring donations drive real, measurable change.Informed Comparisons:
By comparing cost per outcome across organizations or programs, donors can identify the most effective options for achieving their philanthropic goals.Enhanced Accountability:
Evaluating outcomes encourages nonprofits to be more transparent and data-driven, fostering a culture of accountability and continuous improvement.Alignment with Donor Priorities:
Donors can tailor their giving based on outcomes that resonate with their values, such as improved health, educational attainment, or environmental preservation.
How to Use Cost Per Outcome in Grant Decisions
1. Identify Desired Outcomes
Start by clarifying the results you want to support. Are you focused on providing meals to those in need, improving graduation rates, or reducing carbon emissions? Specific goals make it easier to evaluate potential grantees.
2. Request Outcome Data from Nonprofits
Ask prospective grantees to provide their cost per outcome data. Strong organizations should already track metrics such as the number of people served, improvements achieved, or milestones reached.
3. Compare Programs with Context
Evaluate cost per outcome in light of the organization’s mission and challenges. For example:
A rural literacy program might have a higher cost per outcome due to transportation costs, but could still be impactful in underserved areas.
A health initiative addressing rare diseases might have fewer beneficiaries but deliver life-saving outcomes.
Key Tip: Avoid judging solely by the lowest cost; instead, balance efficiency with the significance of the outcomes.
4. Consider Scalability and Sustainability
Programs with low cost per outcome can often scale effectively, maximizing long-term impact. Look for grantees that demonstrate the ability to grow while maintaining or improving their cost efficiency.
5. Weigh the Quality of Outcomes
Not all outcomes are equal. A low-cost program might achieve superficial results, while a higher-cost initiative could drive transformational change. Ask:
Are the outcomes meaningful and aligned with your values?
Do they address root causes or immediate needs?
6. Monitor and Reevaluate
Effective philanthropy requires ongoing evaluation. After awarding a grant, continue to monitor how well the organization achieves its outcomes. Encourage grantees to share progress reports and adjust funding priorities as necessary.
Challenges and Considerations
Data Limitations:
Not all nonprofits have the resources to track outcomes rigorously. Be prepared to work with organizations to improve their measurement capabilities.Varying Definitions of Success:
Different organizations might define similar outcomes differently. Ensure consistency in how results are reported and evaluated.Overemphasis on Efficiency:
Focusing too narrowly on cost per outcome can overlook the complexity of systemic issues. Balance efficiency with equity and long-term impact.
Real-World Examples
Education:
A donor compares two tutoring programs:Program A improves test scores for 1,000 students at $200,000 (cost per outcome: $200/student).
Program B improves test scores for 300 students at $90,000 (cost per outcome: $300/student).
While Program A is more cost-effective, Program B might focus on underserved communities, offering greater equity.
Healthcare:
A health nonprofit reduces diabetes rates among 500 participants for $250,000, resulting in a cost per outcome of $500/person. A similar program achieves the same result at $800/person but includes comprehensive lifestyle support, reducing hospital visits.
A Balanced Approach to Giving
Cost per outcome is a powerful tool for guiding philanthropic decisions, but it is not the only factor to consider. Effective giving involves blending metrics like cost per outcome with qualitative insights about the organization’s mission, leadership, and broader impact.
By using cost per outcome as part of a holistic evaluation process, donors can ensure their grants drive meaningful change while maximizing the value of their contributions.
