Earned Income challenges in mid-sized non-profit arts organisations

Over the past few months I’ve been working with a number of mid-sized (say £5m turnover) non-profit arts organisations who are looking to extend their income generating activities and reduce their dependency on grants. As part of the pilot for the new Culture Benchmark we now offer.

This post is about how the challenge and approach for these mid-sized organisations is different to that taken by the <£1m turnover crowd.

The Challenge:

If a £5m turnover organisation is to engage in new business models and to develop new products and services then the goal needs to be that they become worth at least 10% of total turnover … i.e. in the region of £500,000 per annum as a minimum and over time growing to some 20-30% of turnover. This is not to say that a single product or service will be worth this but a range of activities needs to be aiming for this in total.

It may of course take several years to get to this level but again the steps towards it need to be fairly substantial ones … there is little point in entering a market where you cannot foresee revenues of more than a few thousand year on year. A year 1 goal of £50-100k in income would help separate the wheat from the chaff!

This means that the evaluation of market potential are of critical importance early in the planning process in order to weed out those ideas that might sound nice in principle or represent a fairly easy step to take based on existing activities or are not too challenging for the artistic team to accommodate without feeling that they are dancing to the tune of the finance department in their artistic decision making processes.

Evolution vs. Revolution?

If the first responses of the team are to extend current activities e.g. the issuing of multiples to accompany an exhibition, the negotiation of contributions towards publications, the development of tiered membership programmes then how do you determine whether these have the potential to meet the financial goals of the organisation and the extent to which the organisation has the processes in place to make these a standard part of contracts with the creatives you commission?

Part of the challenge here is the extent to which you task the creative team with devising products and services that would develop income (even if it is allocated to the marketing team to actually deliver the sales) and the connection to the budgets for the artistic programme. For example if the typical process for agreeing budgets with the artistic team is to allocate a gross sum and then leave it to the finance, sales and marketing teams to work out how the difference between grant levels and budget will be made up then there is little visibility or incentive for the artistic team to contribute to this financial gap filling. If however this gap is made clear and assistance is provided to help the artistic team work out how they would fill the gap with sales and it is agreed that the latter part of the budget can only be spent if and when the income is achieved then the visibility of the challenge is higher and the focus on the achievement of the income is greater.

The implicit message here is that for a mid-sized organisation to develop substantial new earned income it will require the concerted efforts of the whole senior management team and a set of collaborations that actively involve the creative and artistic teams as well as the sales, marketing and finance teams. At a minimum it will require the organisation to be more consistent and systematic about the ways in which earned income related to the artistic programme are delivered regularly and to agreed sales goals.

The corollary to supporting the artistic team in its growing engagement with the income generation challenge is that if it is not enough and this is seen and agreed by the artistic team then the negotiation of the extent to which new ideas for income generation impact upon the artistic process is likely to be a more fruitful and less defensive one.

Can we just cut costs?

Whilst of course there are also savings in the costs of running an organisation and considerations of shared back-end and admin systems and group buying processes should certainly be explored the actual savings as a percentage of total turnover will depend on the extent to which the organisation is already running on lean overheads. If your organisation has an overhead base (excl. salaries) of say 25% then extra savings are likely to be in the region of 2-4% on a one off basis. If however your overhead base is closer to 40% of total turnover then you can reasonably expect to make significant savings (say 10%) again as a one off not year on year. Therefore even if you can make significant savings in the short term this is unlikely to be enough to counterbalance the expected grant funding cuts and you will still need to look for new income generation activities.

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Organisations can join the Culture Benchmark by going to www.mycake.org and registering. The subscription cost is £250 per year or £600 for a single purchase 3 years subscription. Data can be input immediately using the online form. MyCake offers guidance through this and on how to view results.

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