"Mission-Based Objectives, Market-Based Funding: The Relationship between Earned Revenue & Service"

Abstract

This paper addresses the relationship between earned revenue activities and organizational performance as it relates service-level outcomes. Past studies have examined earned revenue as aggregate measures, i.e.: the sum of all market-driven income activities, or the sum of revenue from program/service related activities. Some of these studies argue earned revenue complements organizational performance because organizations can use this financial resource to invest in the organizational technologies and acquire the resources needed to deliver their core services. Other studies have considered the potential negative effects because the pursuit of this type of income can distract the organization from its core services, in effect becoming a substitute for mission activities. However, not all market- based activities may affect organizational performance in the same way. This study uses fixed effects regression to analyze data from 2115 arts and culture organizations over a period of four years in order to assess the embeddedness (use of the same organizational technologies, targeting the same markets) of the market-driven activity relative to the core mission activity. Findings show that activities that are fully embedded are positively related to increases in some aspects of service delivery (i.e.: volume or total consumption), but earned revenue activities that are not fully embedded – that is, that share some but not all organizational inputs or target markets – are negatively related to both service volume and service access. These findings may help nonprofit organizations considering the pursuit of earned revenue to determine the best strategy to complement core mission activities and improve service delivery.