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The purpose of this paper is to describe a framework developed for assessing Community‐based Enterprises' (CBEs') impacts on poverty reduction at the household level in northern Thailand, in the context of the UN Millennium Development Goals. The focus is on the use of principal component analysis to develop a context‐specific definition of poverty.

The paper explains how business performance measurement, impact assessment of development projects and poverty measurement have been integrated into a single poverty impact assessment framework in relation to CBEs. This framework has two key steps: identification of poverty groups and poverty components; and impact assessment of CBEs and other factors on household poverty.

The framework captures a number of qualitative and quantitative aspects of poverty necessary for an accurate relative measure for differing geographical, economic and cultural contexts.

The novelty of this paper's approach lies in the design of the framework used to assess poverty impacts of CBEs at the household level. The framework combines three well‐known, but traditionally separately used, methodologies in order to better explore the economic dynamic of CBEs on households. The paper is expected to be of high relevance, both theoretically and methodologically, to researchers undertaking similar poverty, micro‐enterprise and social entrepreneurship studies in other developing countries.