By Jamie Levine Daniel, assistant professor of nonprofit management, SPEA IUPUI |
Nonprofits often engage in earned revenue activities to generate revenue to fund their mission-driven programs and services. These market-based income activities can take many forms — some directly related to the organization’s mission, some not.
For example to generate funds, an art museum can charge admission to an exhibit, which is directly related to mission or the organization can sell food in a café, which does not have a direct connection to mission. Both generate income, but each may not ultimately affect the organization’s program/service delivery in the same way.
Certain revenue activities may, indeed, ultimately support the organization’s mission. However, these other activities may draw organizational attention and resources away from the mission-related activities. The connection between the earned-revenue activity and the mission matters, and the following embeddedness framework offers a way to assess whether an earned revenue activity will have the desired effect for an organization.
The embeddedness framework looks at two aspects of an earned revenue activity to evaluate its connection to an organization’s mission. The first is organizational technology or the resources (human, physical, capital, etc.) used to delivery both the earned revenue activity and the organization’s core mission-related services. The second aspect is the target audience(s) for both the earned revenue activity and the mission-related service.
If the organizational technology and target market for both the earned revenue and core mission activity are the same, or an organization monetizing what it already does related to its mission, the earned revenue activity is considered to be fully connected or embedded within the organization.
Consider the art museum selling admission tickets. The core service and earned revenue activities are not differentiated. The organizational technology required is the same, and the target audience is the same.
On the other hand, that same museum’s café would be considered external (or unconnected) to the mission. The resources needed to run a café differ from those needed to mount an exhibit. A customer can eat in the café without entering into an exhibit hall, further differentiating the earned revenue activity from the core mission activities.
If the earned revenue activity and the mission activities share only one aspect in common – either the necessary inputs or the target audience — then the earned revenue activity is considered integrated. It is not fully connected or embedded, nor is it external to the core.
The museum taking a traveling exhibit to a nontraditional audience — an elementary school, or a civic festival — could be using existing resources/processes to target new audiences.
Using revenue and program consumption data from the Cultural Data Project from 2007-2010, my initial research shows that embeddedness matters. Both embedded and external activities are positively connected to program attendance, a signal of core mission activity. In embedded case of admission tickets, the organization makes money on what it already does. In the external case of the cafe, since the activities are separate or external and that activity that does not make money for the organization, it would be easy to shut it down, without detriment to core activities.
However, integrated revenue activity show mixed results. These types of activities show a negative relationship to both access and attendance. The negative effect is especially visible when looking at earned revenue activities that use the same organizational resources used by mission activities. This is noteworthy given conversations many nonprofits may have about maximizing resources.
My findings are that earned revenue can serve as an important element of organizational strategy and sustainability, but the nature of the activity is important. By considering the connections between the earned-revenue activity and the mission activity, organizations can use the embeddedness framework to determine the best use of resources that ultimately best serve program outcomes and client interests.
Jamie Levine Daniel is an assistant professor at the IU School of Public and Environmental Affairs at IUPUI. She has a Ph.D. in Public Policy and Management from Ohio State University and studies nonprofit management and nonprofit revenue trends.