Social Return on Investment (SROI) has its place. It brings rigour, clarity, and a common language. But it is not the whole story. The best impact decisions happen when the head and the heart sit at the same table.
In the world of philanthropy and social impact, few metrics have risen as fast – or been questioned as fiercely – as SROI. Promising to distill complex human outcomes into a neat “1:3” ratio, SROI has become a prevalent ambition in social impact & ESG reports, and a supposed must-have for nonprofits seeking funding.
But is it? By reducing human benefits to a single financial proxy, the overwhelming use of SROI is leading us toward what economist John Maynard Keynes called being “precisely wrong” rather than “approximately right”. Whilst there is a place for SROI-driven decision making, we must be mindful not to fall for homo economicus – the mythical perfectly rational being who makes decisions based on complete information from which mathematical optimizations derive. Homo economicus does not exist. And neither does the perfect SROI ratio.
What it is and how it works (The Pros)
To understand why SROI remains so sticky, we have to acknowledge its legitimate value.
There is ample material out there discussing SROI. But in a nutshell, SROI can be described as a process involving, in sequence: identifying and mapping stakeholders to a social intervention; theory of change development; engaging with said stakeholders including beneficiaries to ask what changed as a result of the intervention – rather than assuming; identifying relevant financial proxies applicable to valuing these changes which, finally, when multiplied by the number of stakeholders and discounting deadweight, displacement, attribution and drop-off, can lead to the $:$ ratio.
Perhaps I lost you there for a minute but precisely this highlights the extent to which working out an SROI figure relies on both a series of assumptions and availability of financial proxies. Used as an internal roadmap to work out data needs and define what the intervention aims to do, and with whom, SROI is a fantastic compass. It forces clarity. It demands engagement with beneficiaries. It brings rigour to sectors that have sometimes relied too heavily on anecdotes.
Downsides (The Cons)
But when SROI is applied indiscriminately – to new social interventions, differing regional contexts, or causes where there is a paucity of data – the problems begin.
First, the math can become imaginary. To get a number, analysts must assign financial proxies to human conditions. How much has a homeless person regained in “sense of belonging”? Soon, practitioners risk asking people in need reductive, and sometimes dehumanizing, questions, bringing about an ethical risk. Further, financial proxies are often not exactly aligned to social interventions being assessed. This calls for further approximation and assumptions, eroding its accuracy and altruistic effectiveness.
Second, comparability has limits. Yes, programmes could be reduced to ratio figures, but these ought to be compared within their respective social sectors, contexts and beneficiary groups. A youth programme returning 1:4 and an elderly care programme returning 1:4 are not equivalent. The ratio alone tells us little about whether we should fund one over the other.
Third, “deadweight” and “attribution” calculations are often guesswork. Without a control group, practitioners are taking optimistic guesses from stakeholders on how much they believe the changes experienced result from their participation. This is not manipulation; it is simply the limitation of the method when robust counterfactuals are unavailable.
Finally, fourth, the process demands significant resources in terms of time, data collection, stakeholder engagement and analytical capacity. And whilst the recent advancement of AI can alleviate the analytical challenge, human capacity is still required to engage with stakeholders and define adequate deadweight, attribution and drop-off assumptions underpinning the model.
The Missing Piece (What is Possible and The Place of SROI)
Donors are emotional human beings who seek meaning, not just maximization.
This is not irrationality. It is integrated decision-making. The most sophisticated donors do exactly what good investors do: they use quantitative data as one input among many. They ask:
- What does the SROI tell me about efficiency?
- What do the stories tell me about impact?
This is where rigorous qualitative research becomes invaluable – not a substitute for numbers, but as their essential partner. Deep structured interviews, participatory methods, theory-based or quasi-experimental methods: they do not just add “colour” to the data. They reveal what the numbers by themselves hide. They capture the dignity, the struggle, the unexpected ripple effects that no financial proxy can price.
What does it all mean for social impact measurement?
So, what is the path forward? From experience, two interrelated principles help keep SROI in its proper place.
Use SROI as one tool in the toolbox, for learning not judging. Use the SROI principles to ask the right questions of both programme delivery and stakeholders – what are the desired changes, what are the outcomes that matter and that should be valued? Often, there are divergences between what donors think beneficiaries want and what said groups actually hope for. Unless these are acknowledged from the outset, the SROI ratio may be hollow of any social sense.
Apply mixed-methods, treating qualitative research as equal to quantitative. Human experiences are messy and outcomes realization is not linear. Hearing the voices – through participatory methods alongside survey questionnaires – does not just add nuance; it brings, the numbers to life. This also ensures effective communication in impact reporting with stories attached to the numbers. A ratio might tell you that 80% of participants found work. Qualitative research tells you that one woman cried when she got her first payslip because her children would eat tonight. Both are true. Both matters.
Implications and recommendations
The SROI methodology is a mirror reflecting our desire for certainty in an uncertain world. If we build philanthropy that only speaks in ratios, we may deprive the very humanity that makes giving possible.
So where do we go from here? Three recommendations emerge.
First, apply SROI only where appropriate. This means adequate financial proxies must exist, and there must be a clear strategic purpose for the exercise beyond simply generating a number. Donors also need education – not on how to read a ratio, but on the processes and methodology required for its computation. Understanding how the value is constructed, where assumptions are made, and what the final figure actually represents (and does not) turn the ratio into a useful data point.
Second, invest in mixed-methods. Numbers need stories to make sense of them. This means treating rigorous qualitative research as an equal partner to quantitative data – not as a soft accompanying insight. The implication here is the upskilling of researchers to conduct qualitative research that is methodologically sound, embedding ethical practice at every stage. Yes, AI could help with data triangulation, but the research itself needs a trained human touch.
Third, fund the research infrastructure collectively. If we are going to use financial proxies, we need a bank of them – rigorously developed, contextually appropriate, and regularly updated. This requires investment in research that no single organisation should, or can, shoulder alone. Shared resources, open access, collective funding. Some countries, like the UK, are ahead of the game on this, and key lessons should be learned and adapted elsewhere.
By Marianna Lemus Boskovitch
Associate Director, Purpose Impact Action
Views are my own.
At Purpose Impact Action, we help mission-driven organizations demonstrate their value to funders and investors. Contact us to learn more about our impact measurement frameworks.
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