Introduction
Social enterprises sit awkwardly inside Australian accountability systems. They trade in competitive markets and produce a profit and loss statement any accountant can read, yet exist for a social outcome no ledger records. National mapping estimated roughly 20,000 such enterprises in Australia, with work integration enterprises, created to employ people excluded from the open labour market, among the largest clusters (Barraket et al., 2016).
This case study examines that problem through Merri Works Ltd, a hypothetical Melbourne social enterprise running a Brunswick cafe and a small last mile logistics business staffed by people unemployed for more than twelve months. It builds a theory of change, applies social return on investment (SROI) to the 2024-25 financial year, tests the result for sensitivity, and evaluates what the method can legitimately tell a board.
Enterprise Background and the Hybrid Mission
Merri Works Ltd is a company limited by guarantee, registered as a charity with the Australian Charities and Not-for-profits Commission and certified by Social Traders, whose standards require a defined social purpose and demonstrable impact (Social Traders, 2023). Victorian and Commonwealth social procurement policies rely on that certification.
Two arms generated combined revenue of A$3.4 million in 2024-25: Merri Grounds, a 60-seat Brunswick cafe, and Merri Logistics, a courier operation in inner northern Melbourne. Both trade at market prices but are deliberately over-staffed so transitional employees can be supervised and rotated. Thirty-six were engaged on twelve-month contracts at Restaurant Industry Award and Road Transport Award rates (Fair Work Commission, 2024), each with a recorded unemployment duration above twelve months, a cohort whose exit rates from Workforce Australia caseloads sit well below those of short-term jobseekers (Australian Bureau of Statistics, 2024; Department of Employment and Workplace Relations, 2024).
The social overhead of that model, meaning job coaching, accredited training, wraparound support and the productivity gap a commercial operator would not carry, sits outside trading revenue. Those inputs totalled A$620,000: a A$395,000 philanthropic grant, a A$110,000 Victorian Government capability grant, A$68,000 of pro bono professional services and A$47,000 of volunteer director and mentor time. What belongs inside that denominator proves the most consequential judgement in the analysis.
Battilana and Lee (2014) describe hybrid organising as the sustained combination of commercial and social logics that normally sit in separate organisational forms, managed rather than resolved. At Merri Works the tension reduces to one fact: the most productive roster is not the roster that develops the least job-ready employees.
The Impact Question and the Choice of Method
The philanthropic grant was due for renewal, the funder wanted evidence beyond output counts, and the executive wished to know whether the more profitable logistics arm should expand at the cafe’s expense. Reporting 36 placements describes activity, not change.
SROI was selected because it is stakeholder-led, which suits an enterprise whose beneficiaries are also its employees, and because it prices outcomes a financial appraisal excludes for want of a market. It is a cost-benefit analysis conducted with stakeholder-derived proxies, inheriting the vulnerabilities of that tradition (Yates & Marra, 2017), and follows the six-stage process in the standard guide (Nicholls et al., 2012). Scope was limited to the 2024-25 cohort over a three-year horizon, with evidence from payroll records, a follow-up survey answered by 62 per cent of participants and fourteen interviews.
Theory of Change and Program Logic
Valuation is meaningless without a defensible causal account, so outcomes were derived from a program logic developed with participants rather than assumed by management. Figure 1 sets out the chain from inputs to impact.
The causal claim in Figure 1 is deliberately modest: supported paid work produces employability, routine and income, which in turn support wellbeing and housing stability.
Stakeholder Outcomes, Indicators and Financial Proxies
Seven material outcomes survived a screen excluding those reported by fewer than a quarter of respondents or lacking a proxy. Wellbeing valuations were drawn from Australian rather than United Kingdom sources, since transposed values diverge from Australian service costs (Social Ventures Australia, 2022). Table 1 records the outcome map.
Table 1: Material outcomes, indicators, financial proxies and quantities, 2024-25 (cohort of 36 transitional employees)
| Ref | Stakeholder | Outcome | Indicator | Proxy (A$ per person per year) | Basis of proxy | Quantity |
|---|---|---|---|---|---|---|
| O1 | Transitional employees | Sustained open-market employment | In paid work six months after exit | 24,800 | Disposable income above JobSeeker, net of forgone benefit | 23 |
| O2 | Transitional employees | Improved mental wellbeing | Rise of one point, Personal Wellbeing Index | 9,400 | Australian wellbeing valuation, anxiety relief | 27 |
| O3 | Transitional employees | Increased housing stability | Insecure to secure tenure, six months | 12,800 | Avoided cost of transitional accommodation | 11 |
| O4 | Family members and dependants | Reduced household financial stress | Fall of one band, caregiver-reported scale | 4,200 | Australian wellbeing valuation, financial stress | 21 |
| O5 | Australian Government | Reduced income support expenditure | Off JobSeeker for six consecutive months | 17,600 | JobSeeker, rent assistance and fees avoided | 23 |
| O6 | Victorian health and justice services | Reduced acute service use | Self-reported fall in emergency presentations | 5,600 | Weighted cost of an emergency presentation | 14 |
| O7 | Corporate procurement partners | Verified social procurement outcomes | Certified social spend independently reported | 8,500 | Cost of equivalent assurance | 6 |
One design choice prevents a common error. Counting both the participant’s income gain and the government’s fiscal saving double counts a transfer unless the participant proxy is net of the payment forgone. The O1 proxy therefore measures disposable income after removing the JobSeeker payment no longer received (Services Australia, 2024).
Calculating Social Return on Investment
Step 1: Gross outcome value
Gross value is the financial proxy multiplied by the quantity observed:
Gross value (O1) = A$24,800 × 23 = A$570,400
Across the seven outcomes this totals A$1,587,400, the unadjusted value of everything observed, including change the enterprise did not cause.
Step 2: Deadweight and displacement
Deadweight, the proportion of the outcome that would have occurred anyway, was estimated from published exit rates for long-term unemployed jobseekers and from referred applicants who were not placed (Department of Employment and Workplace Relations, 2024), and set at 30 per cent for employment outcomes. Displacement, where a job created here removes one elsewhere, was set at 10 per cent for employment outcomes only:
After deadweight (O1) = A$570,400 × (1 – 0.30) = A$399,280
After displacement (O1) = A$399,280 × (1 – 0.10) = A$359,352
Step 3: Attribution
Attribution recognises the contribution of others. Participants also received support from Workforce Australia providers, a Victorian homelessness service and family networks, and interview evidence apportioned credit: 25 per cent for employment, rising to 35 per cent for housing.
Year 1 net impact (O1) = A$359,352 × (1 – 0.25) = A$269,514
Repeating this across all outcomes gives a Year 1 net impact of A$818,216, or 51.5 per cent of gross value. The filters remove almost half of what was observed, which is the work SROI exists to perform.
Step 4: Duration and drop-off
Outcomes were assigned durations of one to three years, with drop-off applied from Year 2 against the preceding year’s impact:
Year 2 (O1) = A$269,514 × (1 – 0.30) = A$188,660
Year 3 (O1) = A$188,660 × (1 – 0.30) = A$132,062
Undiscounted three-year impact for O1 = 269,514 + 188,660 + 132,062 = A$590,236
Step 5: Present value and the SROI ratio
Future impact is discounted at the 7 per cent real rate used as the central case in Australian Government cost-benefit guidance (Office of Impact Analysis, 2023). Year 1 impact is treated as contemporaneous with the investment, giving factors of 1.0000, 0.9346 and 0.8734:
PV = Σ [net impactt × (1 + r)-(t-1)], where r = 0.07
PV = (818,216 × 1.0000) + (533,893 × 0.9346) + (264,393 × 0.8734)
PV = 818,216 + 498,976 + 230,921 = A$1,548,113
Table 2: Impact map: gross value, adjustments and present value by outcome (A$)
| Ref | Outcome | Gross value | Deadweight | Displacement | Attribution | Year 1 net impact | Duration (years) | Drop-off | Present value at 7% |
|---|---|---|---|---|---|---|---|---|---|
| O1 | Sustained employment | 570,400 | 30% | 10% | 25% | 269,514 | 3 | 30% | 561,178 |
| O2 | Improved wellbeing | 253,800 | 20% | nil | 20% | 162,432 | 2 | 40% | 253,517 |
| O3 | Housing stability | 140,800 | 25% | nil | 35% | 68,640 | 3 | 25% | 150,475 |
| O4 | Household financial stress | 88,200 | 20% | nil | 20% | 56,448 | 2 | 40% | 88,102 |
| O5 | Reduced income support | 404,800 | 30% | 10% | 25% | 191,268 | 3 | 30% | 398,256 |
| O6 | Reduced acute service use | 78,400 | 20% | nil | 30% | 43,904 | 2 | 35% | 70,575 |
| O7 | Verified social procurement | 51,000 | 40% | nil | 15% | 26,010 | 1 | nil | 26,010 |
| Total | 1,587,400 | 818,216 | 1,548,113 | ||||||
The ratio follows directly:
SROI = PV of impact ÷ value of inputs = A$1,548,113 ÷ A$620,000 = 2.50 : 1
Net present value of impact = A$1,548,113 – A$620,000 = A$928,113
Payback on the social investment = 620,000 ÷ 818,216 = 0.76 years, or about nine months
Every dollar of input therefore generated approximately A$2.50 of social value over three years. Participants capture A$965,170, or 62.3 per cent, and government and system savings A$468,831, or 30.3 per cent.
Sensitivity Analysis
A single ratio invites false confidence, so nine scenarios were tested, varying one assumption class at a time and then in combination.
Table 3: Sensitivity of the SROI ratio to key assumptions
| Scenario | Change from base case | PV of impact (A$) | Investment (A$) | SROI ratio | Change |
|---|---|---|---|---|---|
| 1. Base case | As modelled in Table 2 | 1,548,113 | 620,000 | 2.50 : 1 | – |
| 2. Lower discount rate | 3.5% rather than 7% | 1,580,874 | 620,000 | 2.55 : 1 | +0.05 |
| 3. Higher discount rate | 10% rather than 7% | 1,522,072 | 620,000 | 2.45 : 1 | -0.05 |
| 4. Higher deadweight | Plus 10 percentage points, all outcomes | 1,335,129 | 620,000 | 2.15 : 1 | -0.35 |
| 5. Higher attribution | Plus 10 percentage points, all outcomes | 1,378,606 | 620,000 | 2.22 : 1 | -0.28 |
| 6. Conservative survey treatment | Non-respondents treated as no outcome (23 to 18) | 1,339,542 | 620,000 | 2.16 : 1 | -0.34 |
| 7. Fiscal savings excluded | Outcome O5 removed as a pure transfer | 1,149,857 | 620,000 | 1.85 : 1 | -0.65 |
| 8. Combined conservative case | Scenarios 4, 5 and 6 together | 1,026,836 | 620,000 | 1.66 : 1 | -0.84 |
| 9. Full-cost investment base | Adds A$1,180,000 of trading-funded costs | 1,548,113 | 1,800,000 | 0.86 : 1 | -1.64 |
The discount rate, which attracts disproportionate attention in practice, is nearly irrelevant here, shifting the ratio by only 0.05 in either direction, because a three-year horizon leaves little for discounting to act on. The impact filters matter more, yet even the combined conservative case returns A$1.66 per dollar.
Scenario 9 is decisive. Defining investment as the full cost of delivering supported employment, including the A$1,180,000 of transitional wages and supervision met from trading revenue, drives the ratio to 0.86 : 1. The base case is not thereby wrong, since trading revenue is an exchange transaction. The point is that a defensible alternative convention reverses the conclusion, undetectably from the headline figure.
Critique: What the Ratio Cannot Settle
The first weakness is proxy subjectivity. The wellbeing proxy of A$9,400 carries A$253,517 of present value, 16.4 per cent of the total, yet rests on a stated-preference valuation of a self-reported scale change. Outcome O7 is weaker still: A$8,500 for a buyer’s assurance benefit is close to an assertion, and a plausible A$3,000 would strip A$16,830 from the result. Maier et al. (2015) argue that monetisation is an act of construction, not a neutral translation; the difficulty is not that proxies are imprecise but that their imprecision is invisible.
The second is comparability. Funders routinely compare ratios, yet ratios are comparable only where scope, horizon, discount rate, filter values and investment definition coincide, which they almost never do. Table 3 shows this one program can defensibly report anything between 0.86 : 1 and 2.55 : 1 without any change in what happened to participants. Ranking organisations on SROI therefore rewards generous assumptions over accurate ones.
The third concerns what falls outside the frame. SROI aggregates value and is silent on its distribution, so large gains to a few are indistinguishable from modest gains to many. It also handles negative outcomes poorly: five participants left before completion, two reporting damaged confidence, and the model records no negative value. Yates and Marra (2017) observe that SROI’s persuasive power derives from the simplicity that suppresses such detail.
Governance and the Risk of Mission Drift
Measurement choices are governance choices. Ebrahim et al. (2014) identify mission drift as the central accountability risk in hybrid organisations, arising when the commercial logic colonises decisions that should be settled on mission grounds. At Merri Works it appears in the executive’s question. Logistics produces the higher trading margin per employee, but cafe placements, where supervision is intensive and rotation possible, account for a disproportionate share of the outcomes in Table 2. Expanding logistics at the cafe’s expense would improve the financial statements and reduce social value.
Two safeguards follow. Australian Charities and Not-for-profits Commission governance standards require responsible persons to act consistently with the entity’s charitable purpose (ACNC, 2023), so the board should treat the impact report as a control document, not a communications product. Second, because the analyst selects the assumptions that determine the ratio, an internally produced SROI is self-assessment; independent review of filter values converts advocacy into accountability.
Recommendations
- Report a range, not a point. Future statements should lead with 1.66 to 2.55 dollars of social value per dollar invested and disclose the investment definition prominently.
- Strengthen the weakest evidence first. The 62 per cent response rate drives Scenario 6, worth 0.34 of the ratio. Longer follow-up, administrative payroll matching, and recording negative outcomes would improve reliability more cheaply than refining any proxy.
- Protect the cafe from the margin logic. Growth capital should follow the greater blended return of trading surplus and attributable impact, under a rule adopted before the expansion decision.
- Separate assurance from production. The impact map should be reviewed annually by a party independent of management, with indicators aligned to comparable Australian evaluations.
Conclusion
Applied to Merri Works Ltd, SROI converts A$620,000 of input into an estimated A$1,548,113 of present-value impact, a ratio of 2.50 : 1 and a net present value of A$928,113. The filters remove 48.5 per cent of observed gross value before any claim is made. Yet one defensible change in how investment is defined moves the ratio to 0.86 : 1, and conservative treatment of causation moves it to 1.66 : 1.
The methodological lesson is that SROI is most valuable where it is least often used: internally, as a structured argument about what an organisation believes it changes and for whom. For an Australian work integration enterprise, the disciplined theory of change SROI demands is a more durable asset than the ratio it produces.
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