Program Expense Ratio Formula

Program Expense Ratio Formula:

\[ PER = \frac{\text{Program Expenses}}{\text{Total Expenses}} \times 100 \]

Program Expense Ratio (PER):

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1. What is the Program Expense Ratio?

The Program Expense Ratio (PER) is a key financial metric used by nonprofits to measure how efficiently they are using their resources. It represents the percentage of total expenses that are directly spent on program activities versus administrative and fundraising costs.

2. How Does the Calculator Work?

The calculator uses the Program Expense Ratio formula:

\[ PER = \frac{\text{Program Expenses}}{\text{Total Expenses}} \times 100 \]

Where:

\( Program Expenses \) — Direct costs associated with delivering programs and services
\( Total Expenses \) — Sum of all organizational expenses
\( PER \) — Program Expense Ratio expressed as a percentage

Explanation: A higher PER indicates that more of the organization's resources are being directed toward its mission-related activities rather than overhead costs.

3. Importance of PER Calculation

Details: The Program Expense Ratio is crucial for nonprofit transparency, donor decision-making, and organizational benchmarking. It helps stakeholders assess how effectively a nonprofit is using its funds to achieve its mission.

4. Using the Calculator

Tips: Enter program expenses and total expenses in the same currency. Program expenses should not exceed total expenses. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good Program Expense Ratio?
A: Generally, a PER of 70% or higher is considered good, with many reputable nonprofits achieving 80-90%. However, this varies by organization size and mission.

Q2: What expenses are included in program expenses?
A: Program expenses include all direct costs related to delivering the organization's mission, such as staff salaries for program delivery, materials, equipment, and direct service costs.

Q3: How does PER differ from overhead ratio?
A: PER focuses on program spending, while overhead ratio focuses on administrative and fundraising costs. They are complementary metrics that together should equal 100%.

Q4: Are there limitations to using PER alone?
A: Yes, PER doesn't measure program effectiveness or impact. A nonprofit with high PER but ineffective programs may be less valuable than one with moderate PER and high impact.

Q5: How often should PER be calculated?
A: PER should be calculated annually for financial reporting and can be monitored quarterly for internal management purposes.