Nonprofit Resources

How to Select the Right Peer Group When Benchmarking Your Church

If you monitor financial and other ratios for your church, you will not only want to compare the results between years but also with peer churches. We discuss how to compare your church’s performance here.

One common question we’re asked is, “How do I identify the right peer churches to compare against?” To identify the best group of peers for your church, you have to look at certain key indicators.

A Key Non-financial Indicator

The first is a non-financial indicator, average adult attendees. Use the average number of adult attendees (not including children) at all weekend services during the year combined. Exclude Easter and Christmas, which typically have an unusually large number of one-time visitors.

So why not use the nonfinancial indicator of members instead? Church members may not be active attendees, especially if the church hasn’t kept its membership roster up to date. Current average adult attendees shows the size of the church now.

A Key Financial Indicator

The second key indicator we use is the financial one of contributions without donor restrictions (formerly unrestricted contributions). These contributions are gifts without purpose or timing restrictions.

In the ideal peer group, these two indicators — one financial and one non-financial — will correlate. This is typical for similar-sized churches.

How to Tell if You’ve Selected the Right Peers

You can immediately tell if you’re using the wrong peer category because the two indicators won’t correlate. For example, you might believe your average adult attendees are at one level but contributions without donor restrictions are significantly higher or lower than peers with similar attendees.

When I encounter that situation with a client, I look closely at both the attendee and contribution numbers to make sure there are no errors. This includes:

• Checking that the number of average adult attendees doesn’t include children or large one-time services that can overstate the average.
• Reviewing contributions without donor restrictions to see if the church had one or several significant one-time contributions. This might explain contributions being higher than at peer churches.

If I can explain the reason one key indicator is out of sync with peers, I go with the one that relates. If I can’t figure out the reason for the variance, I will try the church in both groups and look for the group that correlates best with the church. However, it’s rare that I don’t discover a reasonable explanation for the difference.

I recently worked with a church whose key indicators were much larger for average adult attendees while the contribution levels were similar to churches in a smaller attendee peer group. Upon further inquiry, I discovered that they didn’t track attendance but had to estimate it. This is because they have so many visitors who want to see their historic church that they are unable to easily count recurring attendees. The result was to classify the church in a peer group based on contributions without donor restrictions, not attendees.

If I had grouped them based on average adult attendees alone, the peer churches would have had significantly higher revenues, which would make the correlation of many ratios low. Similarly, the average contributions without donor restrictions for the larger attendee group were significantly higher compared to peers in this range. Not only were they out of sync with contributions both with and without donor restrictions, but also in cash reserves, debt, and expense ratios and measures. This tells me instantly that the attendees were likely overstated. If I move them down one category, they are more in line with peer churches.

If you can get both the financial and non-financial indicators to be in line with peers, you are likely benchmarking your church with the right peer group.

If you want to start benchmarking your church but are unsure where to start, check out the CapinCrouse Church Financial Health Index^™. This convenient online tool is designed to help churches measure and analyze their financial strengths, weaknesses, and trends to see where they have been and map the best route forward. Learn more about how the Index can benefit your church.

 

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