The social in social enterprise

August 07, 2018

As a social enterprise, Solar Sister uses a market-driven approach, combining donor investment and earned revenues from product sales, to reach the most people at the least cost. Because Solar Sister focuses on last mile distribution, in remote, off-grid communities where costs are high but impact is transformative, our model also requires external investment.

So we need to understand how our model is impacting communities beyond a simply fiscal equation of return on investment. For this reason, a critical indicator that Solar Sister measures is our Social Return on Investment (SROI). Currently, for every dollar invested in our entrepreneurship model, Solar Sister generates $6.22 of value. But what does this six dollars represent and how do we calculate it?

woman holds receipt book for solar business

Calculating Social Return

Solar Sister’s Social Return on Investment is calculated based on three core indicators:

  1. Entrepreneur Profits — Unlike other models that directly interface with customers, Solar Sister supports women entrepreneurs to reach the base of the market pyramid. Entrepreneurs earn income by purchasing products from Solar Sister at a wholesale price and selling them on at a mark-up. This estimated income is one component of how we calculate SROI.
  2. Customer Savings — Our data shows that customers experience substantial savings when switching from traditional energy services (ie kerosene, candles) to solar and clean cookstoves. We multiply these savings by annual clean energy sales to determine the economic benefit to the customer.
  3. Carbon Credits — Improved cookstoves generate a carbon credit value on the market. We multiply the value of those carbon credits, based on annual averages, by the number of cookstoves sold by our entrepreneurs per year.
graphic social return on investment
The meaning behind the maths

Solar Sister’s SROI has almost doubled since 2015. This growth is largely due to selling higher quantities of clean energy products in a more cost-effective manner. From 2015 to 2017, Solar Sister increased products sold by 53% and also decreased costs of distribution. Entrepreneur profits have grown over time while carbon credits have fluctuated. A steadily growing SROI means more women are bringing in extra income and more customers are saving thanks to clean energy products.

Solar Sister’s social return on investment has almost doubled since 2015.

During the high growth phase of start ups, investment in organizational capacity, systems and marketing are required to generate revenue growth. Solar Sister anticipates that over time these investments in growth will pay off, and enable us to increase the earned revenue from products sales and continue to grow our social return on investment.

With a cash-and-carry model, Solar Sister takes a small margin from inventory sold to our network of entrepreneurs and re-invests it directly back into reaching more communities and kickstarting more clean energy businesses model. Increasing this return on investment ensures that our model can continue to grow sustainably over time with built in agility and flexibility.

How investment produces results

Understanding how investment produces results is an essential part of our work and helps us prioritize the needs and ensure the success of our entrepreneurs’ businesses. If investments do not lead to social returns, entrepreneurs experience fewer benefits from their Solar Sister businesses. Investment in Solar Sister’s model is producing a steadily increasing social return for customers and entrepreneurs, providing the foundation for additional investments to scale up our work across sub-Saharan Africa and ultimately making the business case for investing in women-driven clean energy models.

Last Mile Learning is a monthly blog series by Grants and Impact Manager, Abby Mackey. The series shares Solar Sister’s experiences, data and learning from our work with women-run renewable energy businesses in Nigeria, Tanzania and Uganda.