We’re glad to see our “multiplier”, the ratio of our money moved to our expenses, has risen to 5.5 from 3.2 in 2014. In many ways this is our most important metric. If we aren’t raising more money for effective charities than we spend, there’s no reason for us to exist.
The metric I personally care a lot more about is not the ratio, but just (a) the profit—counterfactually adjusted money moved minus expenses and opportunity cost and (b) the growth—change in profit over time.
The ratio is important for comparing investment opportunities but I think it confuses the actual impact of the organization, understates the presence of diminishing marginal returns, and incentivizes keeping costs low even at the expense of reducing profit.
If you moved $1.55M at a 5.5 ratio, that means your profit prior to opportunity cost adjustment is ~$1.26M. Taking your response to Rob Wiblin on donations in kind, I’d guess that your true profit becomes closer to $900K, and I imagine that the growth is a lot more than double given that costs are roughly the same as last year?
Good points… these would be good numbers to add to future reports, though I’ll note that profit calcs (like ratio calcs) don’t do a great job of handling investments with upfront costs and delayed benefits.
I think your profit calc is in the ballpark, and agree that growth in that number would be >2x.
Good point about upfront costs and unrealized benefits… it might be good to drill-down into costs and profit by project and focus only on the ones that are mostly finished or have realized their benefits (or have a clear annual return for things that are ongoing).
The metric I personally care a lot more about is not the ratio, but just (a) the profit—counterfactually adjusted money moved minus expenses and opportunity cost and (b) the growth—change in profit over time.
The ratio is important for comparing investment opportunities but I think it confuses the actual impact of the organization, understates the presence of diminishing marginal returns, and incentivizes keeping costs low even at the expense of reducing profit.
If you moved $1.55M at a 5.5 ratio, that means your profit prior to opportunity cost adjustment is ~$1.26M. Taking your response to Rob Wiblin on donations in kind, I’d guess that your true profit becomes closer to $900K, and I imagine that the growth is a lot more than double given that costs are roughly the same as last year?
Good points… these would be good numbers to add to future reports, though I’ll note that profit calcs (like ratio calcs) don’t do a great job of handling investments with upfront costs and delayed benefits.
I think your profit calc is in the ballpark, and agree that growth in that number would be >2x.
Good point about upfront costs and unrealized benefits… it might be good to drill-down into costs and profit by project and focus only on the ones that are mostly finished or have realized their benefits (or have a clear annual return for things that are ongoing).