Earned Income and Funding
Overview
The next two topics explore the various income generating options available to arts and cultural organisations. Included in the first topic is the identification of various ways of maximising earned income as well as the highlighting of the different types of government funding available to arts organisations. The second topic looks at alternative streams of revenue including sponsorship, philanthropic trusts and donors. New approaches such as crowd-sourcing and use of social media are also explored.
While the arts are about producing something unique and transformational they also need to find sources of income to exist. These can be in the form of ‘earned’ income, which includes box office revenue including subscription schemes, entrance fees, venue hire, catering, membership fees and retail/merchandise sales. The other source of income is described as ‘unearned’ and might include grants, sponsorship, donations and bequests.
The use of the words ‘earned’ and ‘unearned’ are a little confusing because arguably all money brought into an arts organisation has been earned by the workers either directly or indirectly. However, the use of the word ‘earned’ relates directly to the retail/box office/sales area of the undertaking. As we have seen in preparing budgets we first need to consider what income we can generate from our activities, or our ‘earned’ income. Arguably, the need to increase earned income for many arts organisations has been growing as the level of government subsidy nationally and internationally has reduced, proportional to the overall costs. The problems this poses for many arts organisations relate in part to the cost structure of their operations.
Maximising Earned Revenue
Sometimes what is perceived as a ‘cash cow’ becomes a drain on resources. Conversely, an undertaking that may have been pursued for more artistic reasons turns out to have real commercial possibilities, but there is no flexibility in the programming, venue hire, contracting of artists etc. to enable full exploitation of the product to occur.
The most critical aspect of successful outcomes in earned income is usually quite simple. The relationship with the audience is what makes or breaks the undertaking. If booking a ticket is difficult then only the most committed will persist. If the atmosphere in a gallery says we do not welcome visitors then why would visitors come? If you do not make an effort to encourage and nurture the audience or possible buyers/consumers then why would you expect a positive outcome? Just because you believe the material is worthy or important does not mean that this view is shared by others or even should be. If you are serious about wanting an increase in your audience examine your communication lines and ensure you are being integrated about the way you present yourself. If you only want a particular audience that has the same value system as yourself, you may be successful in achieving that aim and therefore play to a very limited audience.
Ticket Pricing
Pricing successfully can be quite complicated and this is where marketing and financial management come together. Offering subscription and flexible ticketing packages that guarantee an income up front to the organisation can impact on the programming decisions. Expanding the audience demographic to include a younger audience may decrease the overall ticketing income because of concessionary prices. Yet sticking to the older, well-heeled audience may be a short-term decision as that audience ‘dies off’. Relying on single ticket sales is risky and hard to accurately forecast sales unless the merchandising is seen purely as a marketing exercise and not related to generating income. Most events offer scaled ticket prices with premium seats offered at higher prices. Group discounts and ‘early-bird’ discounts are other ways to encourage sales (McDonnell, Allen and O’Toole 1999:183)
Merchandising
The cost of producing merchandise related to arts activity has to be balanced with the profit it returns. If it is only breaking even or making a loss then the effort involved in producing it may be a waste of time and an additional drain on limited resources.
McDonnell et al (1999:183) note the importance of sympathetic merchandising strategies:
The first consideration is “Does the sale of goods enhance the theme of the event?”
They go on to note “It is easy to cheapen a ‘boutique’ special event with the sale of ‘trinkets’” (1999, p. 183). Many events produce souvenir programs or catalogues as well as other merchandise which may be of value not only to the audience but also the performers and artists involved
In Kind Support
When we looked at drafting budgets we talked about ‘in kind sponsorship’ arrangements. We will look further at sponsorship in the next topic but the concept can be used in a number of ways. Many arts organisations offer free tickets in exchange for goods and/or services. Companies can offer these tickets to employees or customers and this can be a successful way to encourage a wider audience to attend. Those that attend can then be encouraged to ‘spread the word’ and act as publicity for the production. Another example is to offer free tickets to clubs or groups, which can provide the same benefits. However, a short season of full houses may be better economically than a longer season of half full houses. As such, ‘word of mouth’ about a show may take several days to be effective, by which time the show is about to close.
Providing free entry to an exhibition may be offset by the sales produced by the artwork, the merchandise and the catering activity. Developing promotional packages with other organisations such as restaurants, other arts organisations, venues etc. can increase the audience but reduce the immediate income. Another variation used by organisations targeting schools is to offer free tickets to the teacher in a group booking of students.
Sharing Resources
Adequate research of options needs to occur before commitment. Sharing knowledge and information with other arts organisations may be crucial. For instance a simple phone call may determine when a competitor is planning to have its opening night or season. It is sensible to avoid clashing with dates as there is only a limited audience to go around and two dance companies performing at the same time in the same city may mean reduced audience levels for both organisations. By sharing information you may also find out important information about a particular venue, booker or city, which can impact, on your success.
Broadcast Rights
McDonnell et al (1999:183) suggest:
An increasingly important source of revenue, particularly in sporting events, is the payment for the right to broadcast.
This can be a lucrative area to explore as it extends the life of the product beyond the event and can also dramatically increase your audience reach. McDonnell et al (1999) rightly note the payoff of this is the limitations and inconvenience that can be placed on the event to get the right images, film and sound. The Edinburgh Tattoo is a good example of the value of broadcasting an event but also the downside for the performers and presenters. The filming of this event takes place over a number of nights and often performers are presented with many obstacles such as camera crews vying for that ‘perfect shot’. The upside is the huge exposure a worldwide audience brings to the event as well as sales of videos as souvenirs.
Options for Maximising Earned Income
There are a number of options for maximising earned income. These include:
- cross packaging with other providers such as restaurants, venues or other arts organisations
- selling off a production to other agencies after an initial season to off-set production costs
- variable ticketing packages that encourage a new audience demographic
- targeting to a particular audience with the content of the work and using different entry points for contacting that audience
- allowing for more open outcomes to ensure flexibility for extension or reduction of season
- providing ease of booking and excellent customer service
- liaising and communicating with other providers to avoid clashing and pooling important information
- providing an environment which encourages and develops relationships with key stakeholders including the audience
- being flexible about programming performance times or venue opening hours to encourage a new audience
- work to build loyalty amongst your customer base.
Government Grants and Funding
The major source of so-called ‘unearned income’ in Australia is found from government grants.
In 2006–07, the three tiers of government provided a total of $5,613.5m in funding for cultural activities. This was an increase of $142.3m (2.6%) on the previous year. (www.culturaldata.gov.au) not an inconsiderable sum. However, this figure includes not just arts institutions such as museums but cultural activities such as zoos, libraries, national parks, television and broadcasting. These funds are sourced in Australia at federal, state and local government level and comprise both capital and recurring funding.
In most countries there are various levels of financial support that arts and cultural organisations utilise to support their activities. The makeup of the different sources of financial support that an individual organisation may access generally depends on the type of organisation it is, whether it is a separate company or a government agency, the type of activities it undertakes and its location.
Generally the various types of financial support including:
- · Investment and endowment income
- · Direct government funds
- · Private contributions
- · Earned income
There are many different areas for gaining assistance to undertake organisational activities. Generally we think about government grants and earned income but we can also look at sponsorship and in-kind support as well.
Wyszomirski (2002) highlights the various sources of this support including national, regional and local governments – and from both arts and non-arts agencies. Government monies can come in the form of competitive grants, line items, contracts for service; as well as contributions of personnel, services or material (2002: 224-225).
She also notes that generally unearned income follows two basic operational forms:
- Competitive allocation from a pool of funds put aside for this purpose (as we would understand the basic government arts grant system)
- Customized funding, which is organisational specific. In this regard we might consider private donations or contributions from “Friends” associations in this light.
Both these processes for funding are important to arts managers and understanding the rationale behind both is essential. Wyszomirski suggests that the objectives of these providers might be “intrinsically artistic or regard the arts as instrumental means to other social, personal or community ends” (2002: 225). As such she suggests two key leadership skills essential for managers:
1. “Entrepreneurship in finding new earning mechanisms, in cultivating project partners, in tapping into new grant sources, or demonstrating instrumental potential
2. Development through cultivation of audience, donor, volunteer, and community identification with and commitment to individual organizations and their missions” (Wyszomirski, 2002: 225).
Additional Resources
Included with this topic are the following additional resources:
- A video interview with Greg Adams, Director of Ticketing and Venue Sales
- Two articles discussing revenue generation
- Two examples of funding applications and guidelines
References
Allen, J, O’Toole, W, McDonnell, I & Harris, R (1999), Festival and Special Event Management, John Wiley and Sons Australia Ltd, Queensland.
Australian Govt., Attorney-General’s Dept., Ministry for the Arts Viewed September 2014 http://arts.gov.au/
Government of SA, ArtsSA, Viewed September 2014 http://arts.sa.gov.au/
Government of WA, Department of Culture and the Arts Viewed September 2014 http://www.dca.wa.gov.au/
Wyszomirski, M 2002, ‘Support for the Arts: A Four-Part Model’, Journal of Arts Management, Law and Society