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How do I calculate and interpret cost per outcome?

This article explains the concept of cost per outcome and two types of cost per outcome: (1) program cost per outcome and (2) donor cost per outcome.

Cost per outcome is defined as the dollar amount (USD) required to achieve an individual outcome. By using a standard analysis as the basis of comparison, you can compare a program's effectiveness within your philanthropic portfolio and to other programs outside of your portfolio. There are two types of cost per outcome to consider when reviewing your investments.

Program Cost Per Outcome

Program cost per outcome allows you to analyze the effectiveness of a program by calculating the dollar amount required to achieve an individual outcome for the program. For example, if a program costs $100,000 to run and helps 100 people get jobs, the cost per outcome would be $1,000.  Program cost per outcome gives you a standardized way to review the effectiveness of a program as compared to its peer programs (i.e. programs focused on the same beneficiary group or outcome).

How program cost per outcome is calculated: full program costs (USD) / # of full program outcomes (of a particular impact)

When to use program cost per outcome: When you are considering the effectiveness of different types of interventions and would like a standardized way to review the outcomes of different interventions.

Donor Cost Per Outcome

Donor cost per outcome allows you to analyze the the effectiveness of your investment by calculating a how much of investment is required to achieve a claimed impact. Using a standard contribution claim calculation (% impacts claimed = % funded), if you had invested $20,000 in the program above, your funding represents 20% of the program costs. This means you can claim 20% of the program's impacts. Your funder claim of the program's impacts would equal 20 jobs (20% x 100 jobs). Therefore, your cost per outcome is $1,000 ($20,000/20 jobs).

However, if you are a foundational funder, (you attracted other donors to the program, the program is replicated, or your donation brought about a sustained increase in the program's efficacy) your impact claim would include "catalyzed" impacts or additional impacts beyond those you directly fund. If you are a foundational funder to the program described above, your funder claim would equal 100 impacts (because you can claim 100% of the program's impacts). Therefore, your cost per outcome would reduce to $200 ($20,000 invested / 100 jobs). 

Investing in programs that catalyze additional social impacts can generate significantly lower cost per outcomes because your claim of impacts is significantly increased while your investment amount stays the same.

How donor cost per outcome is calculated: amount invested (USD) / # of claimed outcomes

When to use donor cost per outcome: When you are considering the effectiveness of different types of investments and would like a standardized way to review the outcomes of your investment approaches. 

Additional notes about program and donor cost per outcome calculations:

  • The program and donor cost per outcome are always the same if you are not a foundational funder. The program and donor cost per outcome are always the same if you fund 100% of the program.
  • The program cost per outcome is lower if you are a foundational funder and you don't fund 100% of the program because you receive "extra credit" through catalyzed impacts. 
  • Contextualizing your cost per outcome is critical. While a program or investment may have a low cost per outcome, the program or investment may not align with your priority outcomes, beneficiary groups, or markets. While cost per outcome is a useful tool in reviewing your philanthropic portfolio, it is important to consider it within the context of the specific program, who it serves, your goals, and priorities.