If you’re ready to go beyond internal comparisons and start looking more broadly at your church’s financial performance, comparative ratios are the next step. Ratios can be a key indicator of how well a church is functioning in comparison to its peers. Not only is the actual ratio important, but also understanding how it fits in the range of peers, and which churches are included as “peers.”
Comparative Ratios
If your financial information is compared to your peers’, it may be helpful to calculate both the average (mean) and the mid-point (median). The benefit of calculating both the mean and median is to reveal the spread of results in the range. If both the mean and median are numbers that are close together, then most of the ratio results in the range are close together and the average is likely to be very useful. If the mean and median are far apart, then the underlying organizations’ results are spread out and the average is less important.
An individual that works with church ratios extensively finds it useful to show a minimum and maximum in each range. This lets you know how close you are to the top or bottom of the range. Depending on the ratio observed (for example, average salary per full-time equivalent), it may be beneficial to know how close to the high or low your church is in the particular range.
Benchmarks
Another key to properly interpreting the ratios is to understand the demographics of the other participants in the range, beyond the minimum and maximum in the range. It is important to consider how many participants are in the ratio averages your church is using as a benchmark. An average ratio calculated with only a few churches may be much different than one calculated with several churches.
It is also important to benchmark your church against others similar in size and region of the country. For example, property and equipment per full-time equivalent employee may be significantly different for churches in the Midwest than ones on the West Coast, due to higher property costs in the West.
Benchmarking against organizations with similar asset sizes may be very misleading because organizations with older properties tend to have smaller property and equipment values due to depreciated property values. Perhaps a better way to group peer organizations is by arranging organizations together that have a similar average number of attendees (excluding children), or by the size of unrestricted charitable contributions.
There are various ways to benchmark your church against other churches. You may do it informally yourself or opt to get outside information.
FAQs:
Q1: What are comparative ratios in church finances?
A: Comparative ratios are metrics used to evaluate how well a church is functioning financially compared to its peers. They provide insights into averages, medians, and ranges within similar organizations.
Q2: Why is it important to calculate both the mean and median when comparing ratios?
A: Calculating both helps reveal the spread of results. If the mean and median are close, the average is useful. If they are far apart, it indicates a wide range of results, making the average less reliable.
Q3: How can benchmarking improve financial analysis for churches?
A: Benchmarking helps compare your church’s financial metrics with similar organizations, considering factors like size, region, and property costs. This ensures more accurate and relevant comparisons.
Q4: Why should churches consider regional differences when benchmarking?
A: Regional differences, such as property costs, can significantly affect financial metrics. For example, West Coast churches often have higher property costs than Midwest churches, impacting benchmarks like property per full-time employee.
Q5: What is the benefit of including minimum and maximum values in ratio ranges?
A: Including minimum and maximum values helps identify how close your church is to the top or bottom of a range, providing better context for financial performance.
Q6: What are some common ways to group churches for benchmarking?
A: Churches can be grouped by attendee numbers, region, or unrestricted charitable contributions. Avoid grouping solely by asset size, as depreciated property values may skew results.
Q7: How can churches access external benchmarking data?
A: Churches can benchmark informally by comparing metrics on their own or by obtaining data from external sources that specialize in church financial benchmarks.
