SROI Methodology: How to Measure Social Return on Investment
Social Return on Investment (SROI) is a method for putting a monetary value on the social, environmental and economic change an activity creates, then comparing that value with what it cost. The result is usually a ratio, such as £2 of value for every £1 invested. This guide walks through the stages in order, shows a worked calculation with every figure visible, and explains what the number can and cannot tell you.
Key takeaways
SROI follows six stages: scope and stakeholders, impact map, evidence and valuation, impact adjustments, calculation, then reporting and verification.
The ratio is the present value of outcomes divided by the value of inputs. Above 1, the value created exceeds the money put in.
Deadweight, attribution and drop-off adjustments matter more than the headline ratio. Without them, results are overclaimed.
Treat the ratio as one part of the story. Show the assumptions and test how sensitive the result is to them.
What SROI measures
The UK Cabinet Office guide describes SROI as a framework for measuring and accounting for broader value, bringing social, environmental and economic costs and benefits into one account. It focuses on change that matters to the people and organisations affected, and it uses money as a common unit so that very different outcomes can be added together.
The National Institute for Health and Care Excellence gives the same reading: SROI measures social, environmental and economic outcomes, values costs, benefits and disbenefits in money, and presents results as benefits gained per unit invested. A decision-maker comparing a recycling programme with a skills programme can then look at both on one scale.
Social Value International is careful on one point. It presents SROI as a framework for measuring, managing and accounting for social value, not merely a way to produce a ratio. That distinction shapes everything below: the process of talking to stakeholders and understanding change is where most of the value of the exercise sits.
Evaluative and forecast SROI
The Cabinet Office guide separates two types. An evaluative SROI looks back, using outcomes that have already happened. A forecast SROI predicts the value you would create if the intended outcomes were achieved. Forecasts suit funding bids and project design. Evaluations suit reporting to funders, boards and regulators. Many organisations run a forecast first, then return to the same impact map after a year to test it against real data.
The seven principles behind the method
Social Value International’s guide sets out seven principles. They are involve stakeholders, understand change, value what matters, include only what is material, do not overclaim, be transparent and verify the result. The guide says social-value accounting can inform strategy, resource allocation, impact management and communication.
In practice, the principles act as a checklist for every judgement you make in the analysis:
Principle | What it means when you are working | Typical mistake |
Involve stakeholders | Ask the people affected what changed for them | Deciding outcomes in a meeting room |
Understand change | Map how activities lead to outcomes, including negative ones | Counting activities (workshops held) as results |
Value what matters | Give weight to outcomes people care about, using financial proxies where fair | Valuing only what has an easy price |
Include only what is material | Leave out changes that would not alter a stakeholder’s decision | Padding the map with minor outcomes |
Do not overclaim | Deduct what would have happened anyway and what others contributed | Claiming the full change as your own |
Be transparent | Show sources, assumptions and proxies | Publishing a ratio with no workings |
Verify the result | Get an independent check | Marking your own homework |
If you already work with materiality for sustainability reporting, the fourth principle will feel familiar. Our guide to double materiality assessment covers how that filter works in ESG reporting.
The six stages of an SROI analysis
The Cabinet Office guide organises the work into six stages. Each one produces something you can show to a reviewer.
Stage 1: Set the scope and identify stakeholders
Decide what activity you are analysing, over what period, for what audience and for what purpose. Then list the stakeholders. BetterEvaluation’s introductory guide defines them as people or organisations that experience change, positive or negative, because of the activity. That includes people who bear a cost or lose something, not only beneficiaries and funders.
Not every group needs a full analysis. Keep those who experience significant change and explain why you left others out. Our stakeholder engagement plan guide helps you structure who to consult and how, and stakeholders and business sustainability gives the wider case.
If the activity is a physical development, scoping also means knowing the costs and constraints of the site. A site feasibility assessment sets out how that early appraisal works for developers, and its figures become your inputs.
Stage 2: Map inputs, outputs and outcomes
Build an impact map, sometimes called a theory of change. Inputs are what you put in (money, staff time, donated space). Outputs are the direct, countable products (50 workshops, 300 households visited). Outcomes are the changes in people’s lives or in the environment that follow (lower food bills, better wellbeing, less waste to landfill).
Keep outputs and outcomes apart. A common weakness in weak SROI reports is that outputs are valued as if they were outcomes. A workshop has no social value until something changes for someone.
Stage 3: Evidence the outcomes and value them
For each outcome, choose an indicator that stakeholders would recognise, collect data and assign a value. The Local Government Association’s guide says outcome evidence should use stakeholder-informed indicators, collected data and financial proxies to establish monetary values.
A financial proxy is a stand-in price for something not traded in a market. The avoided cost of disposing of a tonne of waste is a fairly direct proxy. The value of improved confidence or reduced isolation is harder, so the proxy needs its source stated and ideally tested with stakeholders.
Stage 4: Establish impact
This is the stage that separates a credible analysis from a flattering one. The same LGA guide says you must estimate what would have happened anyway and what resulted from other factors, then deduct those amounts from the outcome value attributable to your investment. The usual terms are:
Deadweight: the share of the outcome that would have happened without your activity.
Attribution: the share that was caused by other organisations or programmes.
Displacement: value created in one place by taking it from another.
Drop-off: how much an outcome fades in each later year.
Stage 5: Calculate the ratio
The Cabinet Office guide describes calculation as adding the benefits, subtracting the negatives, comparing the result with the investment and testing the sensitivity of the findings. The next section shows this with numbers.
Stage 6: Report, verify and embed
Share the findings with the stakeholders who helped build them, have the work verified, and use the results in decisions: budgets, programme design, the next round of data collection. An SROI that sits in a drawer has cost money and returned nothing.
How to calculate an SROI ratio: a worked example
The LGA guide defines the ratio as the present value of outcomes divided by the value of inputs. A result below one means the investment exceeds the social return. Above one, the return exceeds the investment.
The example below is a hypothetical illustration, built to show the arithmetic. It is not a real programme, and the proxies are invented for the exercise.
The programme: a community food-waste project run for one year. It trains volunteers, runs household workshops and sets up a neighbourhood composting scheme. Total inputs: £100,000 (grant funding, staff and donated space).
Step 1: Value the outcomes for year one
Outcome | Stakeholder | Gross value | Deadweight | Attribution | Net value |
Avoided waste disposal cost | Local council | £18,000 | 10% | 0% | £16,200 |
Lower food bills (250 households at £120) | Households | £30,000 | 30% | 20% | £16,800 |
Improved wellbeing (40 volunteers at £1,500) | Volunteers | £60,000 | 20% | 0% | £48,000 |
Total | £108,000 | £81,000 |
The net value is the gross value multiplied by (1 minus deadweight) and by (1 minus attribution). For households: £30,000 × 0.70 × 0.80 = £16,800.
Step 2: Project the outcomes forward
Suppose the outcomes last three years, halving each year (a 50% drop-off). Year one is £81,000, year two £40,500 and year three £20,250, a total of £141,750 before discounting.
Step 3: Discount to present value
Future value is worth less than money today, so you apply a discount rate. Here we use an illustrative 3.5%.
Year | Net value | Discount factor | Present value |
1 | £81,000 | 1 ÷ 1.035 | £78,261 |
2 | £40,500 | 1 ÷ 1.035² | £37,807 |
3 | £20,250 | 1 ÷ 1.035³ | £18,264 |
Total | £134,332 |
Step 4: Divide by inputs
SROI ratio: £134,332 ÷ £100,000 = 1.34 : 1. The net present value is £34,332. In plain terms, each £1 invested generates an estimated £1.34 of value, on these assumptions.
Step 5: Test sensitivity
Now ask which assumption carries the result. Volunteer wellbeing is £48,000 of the £81,000 in year one, and it rests on a proxy that is easy to challenge. Halve that proxy to £750 per volunteer and the year-one net value falls to £57,000. With the same drop-off and discounting, the present value becomes about £94,530, and the ratio drops to 0.95 : 1.
That swing is the finding. The programme is marginally positive or marginally negative depending on a single proxy. An honest report says so, and it might add stronger evidence on wellbeing before the figure is used to argue for funding.
Reading the ratio with care
BetterEvaluation advises that the ratio should be seen as one element in explaining and communicating progress, not the end goal. The same page identifies reliable research data and sound estimates of deadweight and attribution as key to credibility, while noting those estimates are difficult to make.
A few rules keep you out of trouble:
Never compare ratios across studies without checking the method. Different scopes, time horizons, proxies and discount rates produce ratios that are not like for like.
Publish the workings. The transparency principle means a reader should be able to follow every number back to its source.
Report the range. “Between 0.95 and 1.34” is more honest than a single figure, and more useful.
Keep the qualitative story. The New South Wales Department of Communities and Justice describes SROI as a holistic approach that attends to benefits which are hard to quantify. Quotes and case notes belong beside the numbers.
For how SROI sits alongside other ways of evidencing impact, see measuring ESG impact beyond the numbers.
What an SROI template should include
Social Value International publishes an SROI Value Map with guidance notes and formulas for present value, net present value, the SROI ratio and the discount rate. It also offers a non-SROI version for analyses that weight outcomes by relative importance instead of valuing them in money.
Whether you use that file or build your own spreadsheet, the structure is the same. One row per outcome per stakeholder, with columns for:
Stakeholder and number affected
Input value and source
Output description and quantity
Outcome and indicator
Financial proxy, with its source
Deadweight, attribution, displacement and drop-off percentages
Duration in years
Discount rate and resulting present value
A sensitivity tab where you change each assumption and watch the ratio
The worked example above fits that layout. Replace the numbers with yours and keep a separate sheet listing every source.
Examples of where SROI is used
SROI is common wherever a funder or public body must justify spending on outcomes that do not appear on a balance sheet: community health programmes, employment and skills schemes, housing support, and environmental projects such as waste reduction and green-space improvement. A public body can use it to compare options, and a charity can use it to show what a grant achieved.
The approach also links to finance models that pay for results. If you are interested in how outcomes become investable, read our pieces on social impact bonds and impact investing.
Where Exereco can help
SROI works best when it feeds a wider sustainability and ESG picture, rather than sitting alone. Exereco combines sustainability news and analysis focused on Europe and Africa with ESG reporting software, advisory and compliance support, training courses and networking events. If you are deciding who needs to see your impact results and how to present them, start with our guide to the key audiences of an ESG report, or explore the full offering at Exereco.
Our team can talk through how impact evidence fits your reporting and which stakeholders to involve first.
FAQ
What is a social ROI?
It is a measure of the social, environmental and economic value an activity creates compared with the resources invested, with outcomes expressed in money. The result is typically a ratio, such as £3 of value per £1 invested. It complements financial return rather than replacing it.
How do you count SROI?
Value each outcome for each stakeholder, deduct deadweight, attribution and other overlaps, project the outcomes over their lifespan, and discount them to present value. Then divide the total present value by the value of the inputs. Finish with a sensitivity test on your weakest assumptions.
What is a good SROI ratio?
There is no universal threshold. Above 1 means the estimated value exceeds the cost, but a ratio depends on scope, proxies and discount rate. Judge it by how well the assumptions are evidenced and how stable the result is under sensitivity testing, not by size alone.
What is the difference between forecast and evaluative SROI?
A forecast SROI predicts the value expected if intended outcomes are achieved, and is used when planning or bidding. An evaluative SROI looks back at outcomes that have already occurred. Many teams do the forecast first and update it with real data later.
Is SROI the same as financial ROI?
No. Financial ROI compares monetary gains with costs to the investor. SROI includes value to other stakeholders, such as participants, communities and public bodies, and includes environmental and social outcomes that markets do not price directly.
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