Americans for the Arts

There is no “one size fits all” model when it comes to arts organizations. From performing arts, to museums, and arts education, our structures and operations vary widely; yet we often are melded into one pool of “arts organizations” when it comes to checking boxes for funding and other nonprofit classifications.

As the Executive Director of COCA – Center of Creative Arts, a multifaceted, hybrid organization, I know first-hand how difficult and unhelpful it can be to benchmark our organization against others with different approaches and measures of success. One such benchmark is the ratio of earned to contributed revenue. Our operating budget is approximately 42% earned to 58% contributed revenue. Is our earned revenue too high? Too low? What should it be? The verdict is still out. Even when you encounter information on financial health of arts organizations, it tends to be more diagnostic than prescriptive.

Just last year, I was excited to see that The Wallace Foundation released a report on this topic, Audience Building and Financial Health in the Nonprofit Performing Arts, only to discover the punchline: “To date, we do not know which predictors are most relevant and important for analyzing the financial health of performing arts organizations.”

Despite the lack of definitive benchmarking data, I think most of us would agree that a diversified revenue portfolio is a positive step toward sustainability. At COCA, as we think about our organization’s growth, impact, and longevity, we have focused on building our audience/student base and understanding our organizational assets in an effort to increase our earned revenue.

Here’s why I think earned revenue is important for arts organizations: First and foremost, unrestricted revenue is the holy grail for not-for-profits, and earned revenue is just that.

Secondly, corporate and foundation giving is a shifting landscape that is unreliable. My favorite question on a grant application is, “If you receive this grant, how does your organization intend to continue to fund this program after our funding ceases?” Let’s be real—we all want to say, “We have no idea! That’s why we need your support!” OK, snarky grant responses aside, the reality is that corporate and foundation support is rarely a consistent, long-term revenue stream.

And of course, a diversified revenue portfolio, including earned revenue, can help us navigate through turbulent times. For years, we’ve all heard that we need a “rainy day fund” to ensure that we can weather economic fluctuations. I think this is an understatement. My sense is that nonprofits will be experiencing perpetual monsoon conditions and we are woefully underprepared.

Finally, having programs that rely on “sales” helps you connect with people, requires refreshed messaging, develops your customer service sensibilities, and pushes you to stay relevant in fast-changing times. Simply put, it forces you to constantly adapt and be nimble. This is a muscle every arts organization needs to continue to develop.

After expanding our work in this area, Shawna Flanigan, our Director of New Program Development, and I attended the National Guild for Community Arts Education Conference in Austin, Texas this fall to share some of our learnings with fellow arts education organizations. Here are some highlights to get you started:

The Organizational Need: Start with Why?
Why is your organization doing this; what needs are you trying to address? The answer could be as simple as “we need more revenue,” but dig a bit deeper into other potential outcomes:

• Reaching new, targeted audiences to serve as a pipeline for the future,
• Expanding brand identity,
• Forming strategic partnerships that could benefit the organization,
• Developing new skills and capability within the organization, and/or
• Providing more opportunity for working artists.

Asset Mapping
Take inventory of your organization’s assets. This requires you to think beyond current, core programming and evaluate elements of your organization that have external value. These might include:

• Physical assets (facility/space),
• Talent and expertise,
• Attractive partners, audience, brand, and/or
• Mission-based process, approach, or intellectual property.

When we embarked on this part of our own journey, we found incredible alignment across staff and board members regarding both our needs and assets. That process generated ideas and energized everyone for the next phase. If that had not been the case, it would have been great information and we would have forged a different path forward.

Ideate
This is where you let your ideas run freely. There is a time to filter, but not at this stage. A key element is making sure that you have diverse team members and stakeholders in the process. You need divergent thinkers, people who can look at your organization with fresh eyes, and a multigenerational perspective is extremely beneficial. This is a great opportunity to include junior staff members and cross-departmental teams at the table.

Quick Filter
After you’ve gone wild with ideas, now it’s time to refine. You can start by plotting out potential new programs on what we call our “Impact Matrix.” This is a quick, simple X/Y matrix that sorts out program ideas on their feasibility (how easy or hard is it for us to operationalize?) and their community impact (does this have high mission value and/or meet a community need?) Obviously, ideas that fall into the low feasibility and impact area need to be taken out of consideration.

Screening Questions
Now, it’s time to sort through which ideas have merit. Here are some screening questions:

• Is the program consistent with our core values?
• Does it serve a need/gap in the community?
• Does the program have the potential to bring in a new audience and/or serve as a pipeline to other programs/services?
• Does the program have the potential to be financially sustainable?
• Can we operationalize the program?

Developing the appropriate screening questions for your organization is key. And this phase is a great opportunity to include Board members in conversations about mission, financial health, and strategy. Inevitably, you will have to design, test, and implement new programming. And, yes, it’s nerve-wracking for everyone involved! Before you execute new programming, define what success looks like. Financials are only one measure, so make sure everyone is clear about other beneficial outcomes.

From my experience, developing new programs and earned revenue is not easy. It’s time consuming; it’s a long game, and typically there are no silver bullets. It requires risk, and some things will fail. You must stay flexible in this process and continually asses and adapt.

Despite all the challenges involved with reinvention, status quo is not a viable option. The world is changing rapidly and arts organizations are not immune to the changes. The rewards of this journey may not be apparent on the immediate front end, but I’m confident that building adaptive capacity is ultimately the path to a healthier organization.