Four Income and Giving Ratios Your Church Should Monitor
1. Net Income Ratio
The ratio of “Change in Unrestricted Net Assets” to “Unrestricted Revenues”
The purpose of this ratio is to show whether the results of your church’s general operations are positive or negative, and by how much. It answers the question of whether the church is making or losing money in its basic day-to-day function of ministering to the local community. Obviously a church is not a business and is not trying to generate a profit. However, if a church is continually losing money in its basic operations, it will eventually reach a point where it is no longer able to function and will close.
That point, of course, is easier to identify in retrospect, but the net income ratio can warn of impending financial distress. The unrestricted change in net assets (or net income or net loss, in business terms) measures operational results for management. It explains whether or not management met the anticipated spending targets, and it tells what percentage of unrestricted revenues resulted in net income.
Consider large one-time events when looking at this ratio. For example, receipt of a large one-time unrestricted gift that has not been spent at year-end would make the ratio temporarily high. Conversely, the ratio would appear low if the church incurred a large one-time expenditure that won’t be repeated much, if ever, in the future, such as buying a new HVAC system.
Your church may not want to have large surpluses every year and instead may choose to spend more than you take in to invest in your ministries. That’s why it is important to monitor this ratio and what it did multiple years before to determine if recent deficits are a one-time issue or a growing, unchecked trend.
The benchmark for this ratio is a positive result for the year. A more important benchmark, however, is for the ratio to show an improving trend over the years, factoring in both years of surpluses and years of deficits.
2. Unrestricted Contributions per Average Adult Attendee and Giving Unit
The ratio of “Unrestricted Contributions” to “Average Adult Attendees and Giving Units”
This measurement introduces the concept of a giving unit. A giving unit is a group of family members, or any recurring supporter of the ministry, who contributes jointly to the church. This excludes individuals who make a smaller one-time gift supporting a specific event, such as a short-term missions trip. To identify only the regular recurring giving units, you must set a minimum dollar threshold, such as giving units that contribute more than $250 annually.
This calculation can be compared between years to see trends and determine the effects on the church and budget. It is also useful to calculate what contributions would be if every giving unit made a certain amount (e.g., $40,000 a year) and tithed on that amount. Your church could use this measurement to make the congregation aware of what the current giving per adult attendee and giving unit is, and what the projected giving level would be if everyone participated.
3. Total Contributions per Average Adult Attendee and Giving Unit
The ratio of “Total Contributions minus the combination of Accrual Pledges and Large One-time Gifts” to “Average Adult Attendees and Giving Units”
The key difference between this result and Measurement 2 is that this uses total (unrestricted and restricted) contributions and removes the effect of pledges (which are essentially a non-cash accrual) and large one-time gifts.
When a church is in a specific campaign, such as a capital campaign, it will likely receive some large, one-time gifts. Since this ratio includes both unrestricted and restricted gifts, it is important to eliminate these from the calculation.
Similar to Measurement 2, the power of this measure comes through analyzing trends in congregational giving habits between years. Keep in mind that during the period of a capital campaign this figure may be inflated due to an increase in smaller gifts, which are not removed from the calculation.
Based on our experience, the following benchmarks are reasonable when compared to the averages calculated in the CapinCrouse Church Financial Health Index™:
- Good: Greater than $1,200 per adult attendee
- Above Average: Greater than $1,500 per adult attendee
- Strong: Greater than or equal to $2,000 per adult attendee
4. Median Household Income Given to the Church
The ratio of “Total Contributions per Average Adult Attendee and Giving Unit” (Measurement 3) to “Local Median Household Income*”
*(Source: US Census Bureau, American Community Survey)
This ratio shows what percentage of the local median county household income adult attendees and giving units are contributing to your church. In essence, it tells you how much additional giving capacity your congregation has.
The trends in this data between years are very important because there are two indicators that affect the outcome of this ratio: congregational giving and local median household income. For example, if local median county income decreased between years, the ratio could appear to remain the same while overall giving actually increased. (Decreases in local county income would have a negative effect on the ratio, so giving would have to increase to offset the decline.) The opposite is also true.
This measurement can also provide great feedback for the pastoral staff, as it will enable them to see changes in giving habits between years in response to stewardship teaching and focus.
Monitoring Your Church’s Financial Health
Measuring and monitoring income/giving ratios and other key financial data will help your leadership team assess your church’s financial health, identify areas for improvement, and be good stewards of your resources. The four ratios and measurements outlined above provide a good start for monitoring trends in income and giving, and additional metrics have been discussed in other articles.
This article first appeared on ChurchLawandTax.com.
Subscribers to the CapinCrouse Church Financial Health Index can access these and other key ratios and measures, along with benchmarks and peer information. Learn more here.