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Oct 24, 2013

Defining social enterprise, placing a dollar value on social impact

For me social enterprises are defined as having a modest positive financial return and a measurable social impact-the familiar double bottom line.  They come in three forms:

  1. They have a disadvantageous revenue structure, which limits the financial return of the business.  An example would be a grocery store featuring fresh fruits and vegetables that is locating in a food desert.  Customers will be slow to appreciate the value of the fresh food and prices may  need to be lower than could be charged in a middle class neighborhood.
  2. They have a disadvantageous cost structure which raises their costs above what a regular enterprise would incur.  An example would be hiring ex-felons or autistic adults, personnel that may need supplementary support such as counseling, closer supervision. child care, soft skills training, transportation, etc.
  3. They are run as competitive businesses but dedicate virtually all their profits to a charitable task.  Examples of this would be Goodwill Stores, Habitat for Humanity ReStores.  This third form is most commonly used by nonprofits who are forming social enterprises to supplement their fundraising for their charitable mission.

This YouTube video lays my view out in more detail.  Anne Miller  suggests we focus on the financial value of the social impact, moving beyond just outcome measures.  Here is an excerpt from her article which first appeared in SEE Change Magazine.

When social outcomes are established and measured, the Social Return on Investment (SROI) methodology, like accounting, offers a set of standard principles for the valuation of outcomes, assigning a financial value to the social impact created. SROI takes into account both the value of the outcomes achieved, as well as the value of avoiding alternative outcomes. By consistently ensuring value creation is represented from each stakeholder’s perspective, overall value is better captured and represented in the analysis. And social value is, thus, fully understood.

A recent example of using SROI to understand the value of a social enterprise in Canada is the CanDo! Employment Now program in Newfoundland.  CanDo! employs people who are otherwise considered unemployable due to mental illness, physical limitations, or addiction. Through an SROI, the organization demonstrated that for every dollar invested in the program, a minimum of $1.77 is created in social value. This value includes direct cost savings, value from avoiding homelessness, value from avoidance of accessing healthcare services, social services, and justice services, and value of increased income.

By moving from measuring outcomes to valuing these outcomes, CanDo! has been able to demonstrate the overall social value of its social enterprise, which goes beyond the business-related financial value generated. This can be extremely advantageous in communicating the value add of social enterprise, as well as in improving processes and practices, creating a business case, and demonstrating benefit to the community.

Social enterprise combines social impact and business practice by contributing a blend of financial and social value. By measuring and valuing the impact created by social enterprise, organizations can demonstrate the impact and importance of shifting business practices. This will become increasingly important as more investors contemplate impact investing and look for investment opportunities that offer a social return.