Unlocking Your Organization's Revenue Potential: Earned Income Growth for Arts, Cultural and Creative Organizations

Antoni Durski and Adrian Ellis

Declines in public funding, the ever-changing social, technological and philanthropic landscape; and a global pandemic have all landed arts and cultural organizations in the same boat — one that requires a major rethink of institutional business models, particularly income streams. Both philanthropic giving and public funding are becoming increasingly less fungible as funders become more directive. In response, the growth of earned (or self-generated) income is emerging as a promising funding solution. The net profit or surplus from earned income is unrestricted – and can therefore be deployed at the discretion of board and management, creating greater autonomy in the management of programming and operations.

AEA Consulting has extensive experience helping our clients develop strategies for actionable and sustainable earned income growth. Our process includes:

1. Alignment with Organizational Strategy

Growing revenue is not a goal in itself; rather, it is a tool to achieve specific objectives, which may include: delivering more impactful programs, expanding audiences, or achieving greater financial sustainability. Clarity with respect to objectives is important for any successful strategy. The process begins by clarifying the strategic institutional objectives supported by additional (earned) income, and then setting specific financial targets based on the scale of resources required.

2. Identifying Assets with Commercial Potential – and Developing Ideas to Deploy Them

We move organizations from potential opportunity to concrete business concept. We identify potentially exploitable assets, including brands and sub brands; particular marketable skills and expertise, real estate, and IP; as well as the expansion of commercial areas already in service — such as food and beverage, rentals, and merchandise. Our work also includes the identification of partners with complementary assets, including access to necessary capital. Trend-watching and case studies from other sectors assist in ideation, and we think imaginatively about potential ‘moonshots’ — that is, higher risk and higher reward options that may represent radical alternatives. AEA maintains a database of innovative ventures being explored by cultural organizations worldwide, including art-themed hospitality ventures, online content creation, immersive spaces, franchising, naming rights, out-of-home advertising, impact investments, and more.

3. Prioritizing Opportunities Based on Impact and Feasibility

We then analyze the earned income-generating opportunities and rank them against multiple criteria, including market scale and opportunity, capital intensity (what level of investment is required), impact — adverse and positive — on brand and identity, and the extent and character of commercial and other risks. We consider the ‘hygiene’ factors, e.g., tax status, charitable objects, covenants, and compatibility with the small print of existing funding agreements. This process clarifies the options that are most attractive, and assists in creating a consensus within board and management as to which options should be pursued.

Once the opportunities are prioritized, we ‘quantify’ each selected opportunity. This involves attaching financial projections and timelines to the opportunities that have been prioritized. We also compare these to available alternatives to ensure that organizations understand opportunity costs.

4. Creating an Implementation Plan

Implementing entrepreneurial activities within arts and cultural organizations, particularly those structured as not-for-profit entities, can present distinct challenges: the legal and organizational framework underpinning nonprofit arts organizations is not primarily designed for entrepreneurial risk-taking. These organizations are overseen by boards with strong prudential mandates and bound by fiduciary duties. This conventional structure can make the adoption of entrepreneurial ventures, and the pursuit of financial incentives, more complex.

To navigate these inherent constraints while pursuing increased earned revenue, it is important to explore strategies that balance these different organizational imperatives, for example, the creation of an arm’s-length entity tailored for entrepreneurial activities in which profits are covenanted back to the nonprofit parent organization. Other options might include internal restructuring, outsourcing, or forming strategic alliances. AEA assesses these options, helping to identify and tailor a solution that aligns with organizational ethos and revenue aspirations. We pinpoint essential skills and core capacities needed within organizations to achieve strategic goals; and create specific, step-by-step roadmaps for each prioritized income opportunity.

Ready to Unlock New Possibilities?

In an era of shifting funding landscapes and increasing financial pressures, arts, cultural, and creative organizations must adapt to thrive. Earned income growth presents itself as a funding solution that can enhance financial sustainability, increase operational flexibility, and maintain mission-driven focus. The path to increased net profit or surplus from earned income requires innovative thinking, careful planning, and strategic execution. For more information and to discuss how AEA can help support your organization, please contact Antoni Durski at [email protected]. ?