Managing Diverse Revenue Streams as an Arts and Cultural Organization

The last few years have been exceptionally hard for arts and cultural nonprofits. Just as organizations started to see patrons coming back to museums, live performances, and art classes, this year saw state governments from Florida to California severely reduce financial support for arts and cultural organizations.  

 Revenue diversity is a good hedge against the unexpected, but diversity alone is not enough when your budget is threatened or dismantled by outside forces. Each piece of your revenue pie needs to be well managed, clearly forecasted, and carefully monitored for ROI. And you need a plan B and C for each one.

Here are three ways you can manage your diverse revenue streams to prepare your arts and cultural nonprofit for whatever lies ahead.

1. Don’t tie your income to a single economic driver, such as government grants or major donors.
2. Use budget scenarios to plan for possible outcomes and contingencies.
3. Save time by leveraging your technology so your finance team can focus on strategy, not bookkeeping.

Make Sure Your Revenue Streams Are Diverse—and Profitable

Diversifying revenue streams is arts and cultural accounting 101. But are your revenue streams really diversified, and are they really profitable?

Think through your revenue streams—are they tied to similar economic drivers that could affect them all at once? For example, you may have several different grants, but if some of them are backed by federal funds, either directly or as pass-throughs, you could be vulnerable to federal budget cuts that affect your sector. How would you cope if that happened?

Or you may rely on a strong group of major donors, but what if a few of them weren’t able to write their usual check because of a downturn in the market or because they passed away? What would be your backup plan?

Or you may have a strong slate of programs reaching several demographics, but if a weather event canceled programs for an extended period, how would you make up for the lost revenue? Or if your demand increased across the board, how would you manage the additional staff and resources needed to meet that demand?

You also need to calculate the ROI of each program and revenue source. How much does it cost to run each program, and how much revenue does it generate? Which programs are more profitable than others, and which ones are more mission-critical? How can you allocate resources to maximize both impact and income?

Ready to have these ROI conversations with your team but don’t know where to start? Check out the Revenue-Wise Conversation Guide to help you lead the necessary conversations about your revenue streams.

Run Budget Scenarios and Reforecast Often

Wouldn’t it be nice if you were awarded every grant you qualified for, and every capital campaign reached its goal? Sadly, that is not reality. But creating budget scenarios helps you prepare for both the good and the less optimal outcomes.

By running different scenarios in your fund accounting software, you can plan for various possibilities and contingencies. For example, you can estimate the impact of getting awarded various grants—or not getting them—and what other options you would have to fill the gap. Is it important to identify other grants to replace them or would it be better to adjust your annual fundraising campaign with higher goals?

You can also project the effect of increased or decreased demand for your programs, and how that would affect your expenses and revenue. If you start to see your numbers increasing, you don’t need to start from scratch. You have a scenario that can help you adjust accordingly.

Reforecasting often also helps you stay on top of your actual performance and adjust your plans as needed. By comparing your actuals to your budget and scenarios, you can identify gaps or opportunities and act before it’s too late.

Leverage Your Technology

Diverse revenue streams may be mandatory for arts and cultural organizations, but without the right technology, all those different funds can be difficult to manage. If your team is focused on manually updating spreadsheets and configuring pivot tables to get a holistic financial picture, that doesn’t leave much time for deep analysis of what’s working and what’s not.

According to a recent report by Blackbaud, 41% of all early tech adopters say their organization exceeded their fundraising goals, compared with 31% overall. And nearly 60% of early adopters report higher total revenue, compared with 45% overall.

By leveraging technology, you benefit from always up-to-date information that reflects your current situation and allows you to make informed decisions. You also streamline your workflows and automate your tasks, saving time and reducing errors. And you access in-depth analysis with detailed reports and easy-to-access dashboards that help you monitor your performance, measure your impact, and communicate your results.

Achieve Financial Resilience

Arts and cultural organizations face unique challenges and opportunities when managing their diverse revenue streams. By ensuring that your revenue sources are diversified and profitable, running budget scenarios and reforecasting often, and leveraging technology to simplify and optimize your processes, you can achieve financial sustainability and resilience in any situation.

Looking for more ways to become a more resilient arts and cultural organization? Check out the white paper, The Way Forward: Diversifying Revenue and Giving Opportunities, to see how you can improve your revenue streams in the face of changing demographics and evolving technology.