Does Revenue Concentration Really Bring Organizational Efficiency? Evidence From Habitat for Humanity

Abstract

Past empirical studies demonstrate a positive connection between revenue concentration and organizational efficiency. This supports the idea that concentrating revenue helps minimize transaction costs of nonprofit organizations, resulting in greater efficiency. However, this finding contradicts the belief that revenue concentration increases the risk of revenue volatility, leading to service delivery disruptions and reduced efficiency in nonprofits. Moreover, these studies have used an efficiency measure that might not be suitable. To address this, our study examines the relationship between revenue concentration and organizational efficiency using a more appropriate measure. Analyzing data from Habitat for Humanity, we discover a U-shaped relationship: nonprofits are most efficient when fully diverse or fully concentrated in revenue. These findings contribute to the ongoing debate on nonprofit revenue diversification, with significant implications for nonprofits. They also highlight the importance of using more appropriate efficiency measures in future scholarly research.