BACO Ratio

A philanthropic investor often looks at several social enterprises at once. Gut feeling is not a good way to pick between them. Acumen Fund built a ratio to help with this choice. It is called the BACO Ratio. BACO stands for Best Available Charitable Option.

The workbook says BACO is used for one job: deciding on a social enterprise investment. It checks three things at once. These are financial strength, technology, and social impact.

BACO belongs to the workbook's Fully Integrated Model of social impact assessment. This model is used by social venture capital firms and impact investors. They track their investments on an ongoing basis. They do not just check once, after the fact.

Two things matter about BACO in this workbook, and one of them is a deliberate criticism of it.

What it is meant to measure. BACO evaluates a potential investment's viability across three lenses: financial leverage, technological leverage, and social impact — helping an investor decide whether a given social enterprise is the "best available" use of its limited charitable or investment capital compared to alternatives.

Where the workbook flags it as a cautionary example. In section 7.4 (Issues or Challenges in conducting SIA), under "Lack of Standard Use of Terminologies," the workbook singles out BACO by name: "Acumen Fund writes about its BACO Ratio as a ratio of cost per outcome or cost per social impact but it actually focuses on output." In other words, the workbook uses BACO as its concrete illustration of a wider problem — organisations naming a metric as though it measures outcome or impact, when what it actually captures is output.

Illustrative figures.

A social impact investor is comparing two clean-cookstove enterprises before deploying ₹3 crore of investable capital.

On the face of it, Nirmal Chulha looks like the better BACO score — lower cost, more units. But following the workbook's own caution, "units sold" here is an output, not a verified outcome (such as confirmed reduction in indoor air pollution exposure, or fuel cost savings actually realised by households). Before deploying the ₹3 crore based on the BACO comparison alone, the investor would need to check whether either enterprise has outcome-level evidence behind its cost-per-unit figure — exactly the gap the workbook warns BACO can paper over.

Chapter 7, section 7.2.3 (Fully Integrated Model), introduces BACO as Acumen Fund's investment-decision ratio; section 7.4 revisits it as a named example of terminology confusion between output and outcome. Expect a question on who developed BACO (Acumen Fund), what it stands for (Best Available Charitable Option), and the workbook's specific criticism of it (it is presented as measuring outcome/impact but actually measures output).

• BACO stands for Best Available Charitable Option — do not confuse the expansion with a description of what it measures.
• The workbook explicitly criticises BACO's own framing — a question may test whether the candidate knows this is one of the workbook's named cautionary examples, not simply a neutral tool description.
• BACO evaluates financial leverage, technological leverage and social impact together — a question listing only one or two of these as the full definition is incomplete.
• BACO sits under the Fully Integrated Model, used by social venture capital firms and impact investors for ongoing tracking — not under the Outsourcing Model or the DIY model.
• Do not confuse BACO with the Benefit-Cost Ratio, Robin Hood Foundation's separate methodology, which the same section of the workbook discusses immediately afterwards.