Social Return on Investment
As a nonprofit social enterprise, One Acre Fund generates earned revenue, but we also receive donor dollars to support a variety of countries and program types. We use a concept called Social Return on Investment (SROI) to help us guide donor dollars most cost-effectively.
To calculate SROI, we take the total impact of a program in terms of new farmer income generated ($), and then divide it by the donor cost of operating that program ($). On a per-farmer basis, SROI is equivalent to the average incremental profit per farmer divided by the average donor subsidy per farmer. For example, suppose that last year, a country program served 100,000 farmers and generated an estimated $100 of new income per farmer. This resulted in a total impact of $10 million. Against that, suppose One Acre Fund spent $2 million in donor funds to create that impact. The SROI of that program would be $10 million divided by $2 million, or 5. That means that for every $1 donor dollar invested in that country program, we generated $5 in new farmer income. Or – equivalently, we created $100 of new income impact per farmer and spent $20 in donor funds per farmer to generate that impact: $100/$20, or an SROI of 5.
The chart below shows the annual SROI of One Acre Fund’s core program from 2013 to 2016. Notably, after two years of steady increases, our SROI declined in 2016, largely a result of drought conditions in East Africa, which both reduced our impact and increased our cost.
How we use SROI
SROI is a powerful metric in that it enables us to combine impact and cost, to ultimately show how cost-effectively we’re achieving impact as a whole and within specific areas of operations. For instance, we aspire to generate at least $4 in incremental profit for farmers for every $1 in donor subsidy spent on our core program, which we believe is strong for the population we serve.
The biggest use of SROI at One Acre Fund is to inform internal decision-making. As with all donor-supported organizations, we have limited resources and must make decisions as to how we deploy those resources to maximum effect. SROI provides a common metric we can use to analyze performance of our many programs and countries. Of course, SROI should not be the sole criteria for resource allocation decisions. One Acre Fund also considers a number of others, such as need-level, scalability, and non-income impacts, to determine how much to invest across our increasingly diverse portfolio. For this reason, One Acre Fund is now calculating different SROI targets for each country and/or program based on its scale point and need-level. Highlighting the variation in SROI in different countries, below is a chart of average SROI in several of our core countries of operation (note these are actuals, not targets).
Average SROI per country (2014-16)
|Impact ($) per farmer||Donor subsidy per farmer||SROI (impact/cost) per farmer|
We share here two examples of how SROI has supported resource allocation.
Example 1: How should resource levels change for each of our core program countries?
- In 2016, Kenya’s core program SROI was well above target. As a result, we challenged our Kenya team to identify opportunities for faster growth (more resource investment), which resulted in a strategy to increase market penetration and expand outwards. Conversely, Rwanda’s core program SROI was below its target, due in particular to environmental factors. As a result, we prioritized improving efficiency before investing for fast growth, and our Rwanda team responded by trimming 20% of its budget.
Example 2: Among our pipeline of research and development trials, which ones should we scale up, and at what investment level?
- Although harder to calculate, given we are projecting future impact (based on several assumptions) and then discounting to present value, we can generate an SROI for trials in our R&D pipeline, and choose to invest in scaling up those with the highest projected SROI and scale. For instance, tree planting has proven in our innovation trials to have an extremely high SROI (and highly scalable) across many contexts. This category will receive enhanced investment in the coming years.
At One Acre Fund, we put farmers first. Using SROI to allocate resources is part of the pact we make with our staff, our funders, and most importantly our clients, to generate the most social good for every dollar we deploy. Farmers count on us to use our resources responsibly -- doing so means more families can put food on their tables and create brighter futures for their children.
For additional information on SROI, we invite you to visit our publications and blog posts on SROI.