What Metric Will You Track This Quarter?

Welcome to the second quarter! With daily changes happening around the world, you must prepare to ensure that your impact-oriented organization continues to thrive. One way to do that is to be clear on the results your work produces and how it gets there. In this edition, we will work through a little practice scenario on metrics for Cato Foods, an impact-oriented organization.

Originally published on LinkedIn.

Practice Scenario: Meet Atinuke, Founder of Cato Foods

About the Business: Atinuke Lebile is the Co-founder of Cato Foods. Cato Foods transforms agriculture into nutrition by harnessing biotechnology to produce affordable, nutrient-rich foods, especially for pregnant women and children, while empowering rural women and youth to build healthier communities and stronger livelihoods. They use technology to create nutrient-rich foods and uplift rural families through agriculture.

Problem: Farmers were losing 40% of produce due to poor storage and malnutrition and hidden hunger was prevalent in rural areas. Atinuke needs funding to scale but wants to better communicate the value of her solution.

Proposed Pivot: Atinuke will need to start tracking both financial and impact metrics. There are several metrics that can be considered but, she may be unable to track all due to several factors, one of which is capacity constraints. However, she can choose the most important to her in this current season of the business and begin to track. For example:

• Financial metrics: revenue growth rate, gross margin, operating cash flow, EBITDA, Customer acquisition cost (CAC), Customer lifetime value (LTV), burn rate, inventory turnover ratio, production capacity utilization rate, etc.

• Impact metrics: Percentage of products sold that are Vitamin A enriched, number of smallholder farmers in network, percentage of raw materials sourced from local farmers, number of rural women and youths trained/employed, percentage reduction in malnutrition, percentage reduction in post-harvest losses (e.g. from 40% to 18%), number of SMEs supported through value chain partnerships, reduction of Vitamin A deficiency in target populations, etc.

Recommended Metrics

Financial 

1. Revenue growth rate: This will demonstrate demand for Cato Food’s products, traction, and momentum to investors.

2. Gross margin: This will show the efficiency of production and sales. 

3. Customer acquisition cost (CAC): This will help in assessing the cost of scaling.

4. Operating cash flow: This will show whether core operations are generating enough cash to fund growth.

5. Production capacity utilization rate: This will show how much growth can be achieved with existing infrastructure before major investment is needed.

Impact

1. Reduction of Vitamin A deficiency in target populations: This will show alignment with Cato Food’s intended health outcomes and the SDGs.

2. Percentage of raw materials sourced from local farmers: It will demonstrate commitment to support smallholder farmers and food systems which is key to sustainability. 

3. Household income increase among partner farmers or staff: It will show the transformative change in the livelihoods of key stakeholders.

4. Number of SMEs supported through value chain partnerships: This will show Cato Food’s commitment to economic empowerment and job creation.

5. Number of rural women and youth employed or trained: This will show Cato Food’s commitment to economic empowerment and job creation.

Proposed Pitch:

If Cato Foods were to reflect on its work and generate these metrics from existing progress made or future progress desired, a proposed pitch could be:

"Since inception, we have trained over 15,000 smallholder farmers and supported 1500 smallholder farmers to grow nutrient-enriched crops. This has increased yield by 60% and increased farmer income by over 50%. This has also led to increased availability of nutritious food products reaching over 60,000 BoP consumers."

“measuring impact helps nonprofits to communicate their value to the public. By sharing data and stories about your nonprofit’s impact, you can build support and engage new stakeholders. To reach even further, impact measurement can help you identify areas where collaboration with other organizations is possible to achieve your goals”. 

Why Is This Important?

Investors may not know too much about your sector or industry. Sometimes, when investors are unclear about an industry, they do not engage. As a founder you can make it easier through having clear metrics that aid your external communication. Internally, it helps you and your team members understand the work you do and plan better. Working through the scenario above with an agriculture business, you can clearly see why the work they do is important even if this is the first time you are interacting with an agriculture business. 

For an impact investor to support your impact-oriented business, they need to see that it is viable and it contributes to meaningful change. According to Nonprofit Megaphone, “measuring impact helps nonprofits to communicate their value to the public. By sharing data and stories about your nonprofit’s impact, you can build support and engage new stakeholders. To reach even further, impact measurement can help you identify areas where collaboration with other organizations is possible to achieve your goals”. In the case of Cato Foods in the practice scenario, they could partner with a health organization or NGO to collect the data on reduced Vitamin A deficiency.

You can read more about Impact Measurement in the sixth edition of the ImpactVantage newsletter.

Moving To Action

Since founders are busy and resource-constrained, here are a few quick steps you can implement this quarter to get you on your way:

1. Identify your priority: What are the top 3 - 5 financial and impact metrics you will track? 

2. Create a tracker: This can be done by leveraging tools like Google Sheets, Notion, or Airtable. At the minimum, the table should feature: the metric name, how it will be measured, the responsible person, frequency of measurement, baseline and target value, etc.

3. Turn your data into a story: Numbers by themselves do not have any impact without further context. So you must convert your data to a powerful message because it provides proof of impact and financial progress. For example, "We’ve empowered 1,200 women with clean energy, increased household incomes by 30%, and grown revenue by 40%."

What will you start measuring this quarter? Remember when you measure what matters, you will build what will last. 

Resources

Worth Reading

Social Impact Metrics Guide - SoPact

Impact Measurement: A Full Introduction & How To Get Started - Upmetrics

Plotting Impact Beyond Simple Metrics - Natasha Joshi, Stanford Social Innovation Review

End Notes

If you have a product or resource that can be helpful to an impact-oriented organization on its way to becoming investible, fill out this Google form. Who knows, you might be featured in the highlighted resource section.

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