Nonprofits and nonprofit donors sometimes look to benefit per dollar as a metric for comparing one potential grantee to another. The GIIN has assembled a helpful database for finding applicable benefit evaluation metrics for social enterprises in a number of sectors including education, agriculture, and healthcare. You can search the metrics here.
Public companies sometimes base decisions to invest in new projects on the net present value of those investments. In these projections, companies calculate the weighted average cost of capital (WACC) as a weighted mix of the cost of debt and equity. Early stage nonprofits likely do not have debt, and nonprofits never have equity shareholders. However, nonprofits do require a comparable metric to ensure that ROI calculations, capital models, and NPV accurately reflect the opportunity cost faced by the organization. Additionally, multi-year grants require nonprofit finance teams to discount related cash flows to NPV.
In the absence of its own cost of debt, a social enterprise can source three proxies such as similar nonprofits that do have outstanding debt or publicly traded digital publishers of a comparable size. Some social enterprises may have a tax rate, but a 501(c)3 would see no tax effect (benefit) related to the capital structures' debt component.
For cost of equity, the comparable capital for nonprofits is a mix of retained earnings, donor contributions, and grants, otherwise referred to as fund capital. The cost of "fund capital" (instead of cost of equity), could reflect the approximate return the nonprofit would realize if invested in securities. The logic here is that a return on investments in the market could be used to cover operating costs of existing programs. If your nonprofit does use debt, remember to use a higher rate for cost of fund capital as percent debt increases. You may also look into annual development costs as an indicator of the cost of fund capital. Ultimately, thinking through the WACC equivalent for a nonprofit will improve decision making around new program investments.
Consider the example of a foundation. The foundation has an asset base of $10m and operates under a mandate to annually return $1m of its assets through scholarships. It would require a 10% annual return on fund capital.
A quick review of Thomson Reuters provides an example of WACC at a public company with a values-based mission statement. Thomson Reuters' WACC is 5.88% (as on February 1, 2019). With a ROIC of 6.46%, TR has a strong track record of generating returns on investment that exceed the company's cost to raise capital.
Read more about WACC at nonprofits from the Association of Finance Professionals.