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What's the right ratio of earned to contributed revenue?

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Revenue composition differs by organization. The right revenue mix is the one that covers your organization’s costs reliably and yields surpluses. When surpluses convert to savings, they strengthen financial health.

There is a common myth in the nonprofit sector that organizations can and should achieve self-sufficiency from earned revenue alone. In fact, the majority of cultural organizations rely on contributions from individual and institutional supporters to cover a significant portion of their budget.

A greater reliance on earned income will not necessarily lead to healthier finances. For example, a small museum that charges minimally for admissions and programs might achieve surpluses by covering 80% or more of its budget with donations. On the other hand, a dance organization that generates 60% of its revenue from box office sales and school tuition might still run annual deficits.

It is more important for your organization to manage its expenses in line with its revenue realities than to strive for an arbitrary balance between earned and contributed revenue.

Management Tip:  Determine the revenue mix that most reliably moves your organization toward annual surpluses. When setting annual revenue goals, evaluate the capacity and willingness of your donor community and audiences or visitors to pay for your program offerings. Be prepared to make difficult decisions if your organization’s costs exceed the earned and contributed revenue it can realistically count on.



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