In her new blog for Arts Journal, Diane Ragsdale (formerly of the Andrew W. Mellon Foundation) comments about the predictability of revenue in the cultural sector. She points to a comment by our own Clara Miller who once provocatively spoke about the singular sound business model as being the one characterized by reliable revenue that meets or exceeds expenses.
Diane asks in her post whether, in this environment, any revenue sources are reliable for nonprofit arts organizations –and if not, whether and how the business model (and our assumptions about it)may be broken. We’ve been asking ourselves some of the same questions here at NFF as we invest $10 million of “change capital,” provided by the Doris Duke Charitable Foundation, into ten leading arts organizations. These groups are using our funds to change their business models in ways that are more responsive to what audiences want and the economy can support. One of the goals of the program is to help our cultural partners invest this capital strategically.
For some, that means improving their revenue-generating infrastructure and capabilities so that the combination of earned and contributed income is indeed more dependable year to year. For others, it means restructuring their activities to bring costs better into line with market realities. After all, waiting for reliable revenue in this environment can often seem like waiting for Godot!
NFF’s “working definition” of reliable revenue follows. We’d welcome your feedback!
reliable revenue: an estimate of the amounts of earned and contributed revenue with a track record of recurrence. For example, the amounts of ticket sales, memberships or tuition income that have been raised consistently over three to five years. In the case of contributed support, securing reliable revenue typically requires having development staff who have a history of bringing in institutional and individual support year after year. In estimating future reliable revenue, it may be advisable to apply a discount or take an average of historical performance while making a realistic assessment of the environment going forward. For example, if your organization has brought in $100-$125K of earned revenue from ticket sales in each of the past three years and anticipates a tough economic year ahead, a “reliable” amount may be $80K.
NFF’s experience suggests that more cultural organizations need access to change capital. These periodic, sizeable infusions of funds (not to be confused with regular revenue) can be deployed to make organizational adjustments that are more likely to lead to dependable revenue streams. Some examples of how change capital can be used include: hiring additional and more effective development staff, investing in relevant and robust marketing efforts, and/or retooling programming in ways that are more culturally relevant.
Further, arts organizations need capital not just to build their revenue “engines” for the future but also to better align their costs with demand and to build sufficient liquidity for those times when revenue will indeed be less reliable. Of course, there are always risks involved in selecting effective and viable strategies for change.
Finding sources of change capital won’t be easy, but the business models of the future may depend on it.