This article explains the concept of social return on investment (SROI) and two types of SROI: (1) program SROI and (2) donor SROI.
Social return on investment (i.e., social ROI or SROI) is the amount of social value generated per $10,000 (USD). By using a standardized unit ($10,000) as the basis of your 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 SROI to consider when reviewing your investments.
Program SROI allows you to analyze the effectiveness of a program by calculating the number of impacts per $10K of the program's costs. For example, if a program costs $100,000 to run and helps 100 people get jobs, the social ROI would be 10 people attaining employment per $10,000. Program SROI 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).
When to use program SROI: 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 SROI allows you to analyze the the effectiveness of your investment by calculating the number of impacts you can claim per $10K invested. Using a standard contribution claim calculation (% impacts claimed = % funded), if you had invested $20,000 in the program above, your funder claim of the program's impacts would equal 20 jobs. Therefore, for every $10,000 donated, 10 jobs were created.
However, if you are a foundational funder, (as in 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, for every $10,000 donated, 50 jobs were created. Investing in programs that then catalyze additional social impacts can generate significantly higher SROI because your claim of impacts is significantly increased.
When to use donor SROI: 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 SROI:
- The program and donor SROI are always the same if you are not a foundational funder. The program and donor SROI are always the same if you fund 100% of the program.
- The donor SROI is greater 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 SROI is critical. While a program or investment may have a high SROI, the program or investment may not align with your priority outcomes, beneficiary groups, or markets. While SROI 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.