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Social Return on Investment: Best Practice Tips for Those Who Want to Give SROI a Try

by Michael Moody
Social Return on Investment: Best Practice Tips for Those Who Want to Give SROI a Try

With so much attention to measurement and metrics in philanthropy these days, there is a lot of talk about so-called “social return on investment” (SROI). Everybody it seems — funders, grantees, regulators, others — wants to measure SROI. But when we look around, few are actually doing it consistently and confidently.

I recently completed an intensive research project looking at the state-of-the-art in SROI measurement techniques, and studying organizations that have attempted to implement some process for SROI calculation. Conducted in collaboration with colleagues at the Center on Philanthropy at Indiana University, and funded by the Stichting Noaber Foundation in the Netherlands, our research report sheds light on why SROI is so difficult to measure and suggests a number of best practices for organizations that decide to give SROI a try.

Social return on investment tries to move beyond traditional accounting methods and ROI investment evaluations to measure the social impacts of philanthropic investments and social enterprises. SROI is seen as a handy way to understand and communicate the complex social value created by these sorts of public good ventures. SROI proponents see it as a way for organizations to show just how much good they are doing, and for investors to compare and evaluate past or future ventures. But in practice, calculating SROI has proven to be quite difficult, both because of the technical measurement challenges and organizational challenges and costs.

In our report, we review the most current literature on various SROI techniques, and we examine four in-depth, original case studies of organizations in the United States and the Netherlands that have used SROI measures in some way. The SROI methods used in the four cases varied widely, and we distilled a number of lessons learned through comparing the different processes and implementation experiences.

In this work, we aren’t advocating for or against SROI measurements, but seeking instead to provide a sober review of the advantages and disadvantages of SROI, and to help organizations and funders avoid some potential pitfalls if they decide to try SROI measures for themselves. So at the end of the report, we offer a number of best practice tips for maximizing the effectiveness of SROI metrics. These include:

  • Be transparent about assumptions in the model and data used.
  • Be inclusive in identifying stakeholders who can help you assess your social impact, and seek input from as many as possible.
  • Use the most sophisticated methods that your organization’s resources will allow — especially for valuation and attribution/deadweight measures.
  • Avoid overstating social returns; err on the side of conservative estimates.
  • Measure SROI in a continual process, not a one-off, and recalculate and revise the SROI measures based on actual values and new research or data that becomes available.
  • Set up organizational systems to gather appropriate data and track identified measures, both for initial calculation and for ongoing revision.
  • Identify a designated team and influential champion of the process within the organization, preferably one with organizational respect and power.
  • Be realistic about the resources needed for a useful SROI analysis — time, people, money, expertise.
  • As funder or organizational leader, support organizational capacity to commit the necessary resources for a valid and useful SROI measure.
  • Frame SROI calculations in informative and easily understandable ways so that all stakeholders can grasp and support the use of the measure, and see their role in it.
  • Make SROI calculations public, even if they reveal organizational shortcomings — this is particularly important when creating the organizational culture of learning and commitment to maximizing social returns.
  • Be cautious in making claims and comparing SROI measures across organizations with different missions, services, products — SROI is most useful as a measure for assessing performance across time within one organization.

We would love to learn about more examples and experiences of using SROI measurements and to hear your own suggestions for best practices. What has worked — or not — in your own SROI effort?

Michael Moody, Ph.D.
Michael Moody, Ph.D.
Frey Foundation Chair for Family Philanthropy (2010–2023)
Michael Moody joined the Johnson Center in 2010 as the inaugural Frey Foundation Chair for Family Philanthropy — the world’s first endowed chair for family philanthropy — and held this position until 2023. In this role, Michael pursued a comprehensive,...