This fall the National Center for Arts Research (NCAR) released its second report examining the health of arts organizations nationwide. MPRINT, SMU Meadows Alumni Magazine, sat down with NCAR Director Zannie Voss and Research Director Glenn Voss to talk about some of the newest report's findings, the work of new NCAR Fellow Kate Levin, and what's next for the Center.
Q: What would you say are the most surprising findings in this second report?
One, regardless of budget, there are predictable returns on investment in both fundraising and marketing, and two, digital offerings are having a significant impact on community engagement.
In fundraising, we discovered for every dollar spent, $7.80 is typically raised regardless of big differences in levels of total contributions. This was true across all sectors, most of which came within about 40 cents of each other. In marketing, we learned that for every dollar spent, you are able to earn around $4.15 in program revenue. This was true for all performing arts sectors. The returns on marketing were a little bit higher for the art museum, other museum and arts education sectors.
Bottom line: If you want to raise more money, you have to spend more on fundraising. And don’t expect to earn more program revenue if you aren’t willing to invest more in marketing.
Regarding the use of digital offerings, such as virtual tours, online podcasts, putting collections online, high-def broadcasts of opera, etc., some sectors have had tremendous success using it to build community engagement. Opera, symphony orchestras, natural history and science museums, and children’s museums were at the forefront here. You know, we’ve had a traditional form of how you participate in arts and culture and it required live attendance. Now we’re starting to see exploration of how that could be done virtually and what it could mean in terms of engagement. Digital offerings are not cannibalizing live attendance – they are actually stimulating demand by creating another avenue of access. While it’s not prescriptive in saying every arts organization should dive into digital offerings, we’re seeing that when it happens, the increase in how many lives the organization can touch is remarkable.
Also, for our second report we coupled measures on the operating bottom line with balance sheet health. One of the surprising things was that by looking at it this way you start to see strategy by sector. For example, art museums and other museums have money in the bank, on average. One-third of the art museums had two years’ worth of access to available cash. That makes sense because they are responsible for a permanent collection and its maintenance. But that also enables them to have more flexibility in strategically deciding “this year we are going to spend in excess of our operating income because we know we have the funds to cover it.”
This is different from other sectors like general performing arts organizations. These tend to be presenting organizations that are a mix of maybe music and dance that often don’t have a permanent physical facility. They also don’t have any money in the bank, so they are forced to run annual operating surpluses. It’s really the only way they’re going to be able to survive. And for some sectors like dance, no matter how you calculate bottom line, it was negative – and they really don’t have money in the bank. For dance it was five months of access to available cash and less than one month of working capital. So, I look at a sector like that, and it becomes apparent how precarious and in danger the sector is at the moment.
Q: Your team has been able to find a way to estimate what has previously been immeasurable in the arts, using the “KIPI” scores. Can you talk about some of the intangible aspects of success that you’ve identified?
This idea of a KIPI, the Key Intangible Performance Indicator – think of it as your organization’s mojo. It’s what sets you apart from everybody else after you take into account the characteristics of the organization that are observable and measurable, like what sector you are in, your size, your age, how many offerings you have, what community you operate in, etc. Think of it as three coffee shops on the same corner, all with similar offerings, but everybody gravitates to one versus the others. The KIPI is a way of estimating why. To some extent it’s what you do as an organization: great decision-making, the artistic quality, the brand, the reputation, the relationships in the community. It’s really hard to put your finger on, but it all works.
We are at work now on an interactive, online dashboard – created with the help of IBM – that will allow arts leaders and managers to plug in information about their companies, learn their KIPI scores on a variety of different measures, and use the results to help figure out what they’re doing well and where improvements could be made. KIPIs can help estimate just how much performance is owed to those intangible factors like manager expertise, and they can also point out what is “out of skew” for arts organizations.
In some preliminary testing of the dashboard with several arts organizations, the KIPI scores are bringing to light areas where the organizations say, “Ah, I kind of figured that was a problem, and now I can go back to my board or I can go back to the staff and say this is the area where we need to get a lot smarter if we want to improve this performance, and what do we need to change about what we are doing?” And that’s been really gratifying to us that the KIPIs are capturing the value of expertise relative to the field.
Q: Where does charisma fit in to success?
If charisma can be translated into an ability to galvanize people around a cause, then I would say charisma could certainly fit in. But I think charisma alone without the knowledge of how to execute a plan, or what the strategy is going to be for achieving something, probably wouldn’t have the same effect. It also takes marketing smarts to know how you get out there and in what channels, how people are getting their information and how you capitalize on that. In artistic decision-making, understanding which artists to hire, which pieces to produce or exhibit, how that is going to relate to a community, all of those things come into the KIPI.
Q: Let’s talk about attendance.
The larger the organization becomes, the higher the level of community engagement – in terms of attendance as well as volunteers, board members, etc. Of course, attendance is heavily affected by supply. We look at the attendance-to-expenses ratio: How many dollars does it take to get one person to attend? And we look at venue capacity: In performing arts centers there are only so many seats and so many performances that they have to offer. So, of course, their figures are going to be much different than something like a science museum, whose doors are open for many hours of the day. Opera and symphonies actually have really high attendance per offering, but they have relatively few offerings compared to other sectors. So you start teasing out what these differences are.
For some of the KIPI scores, organizations really will want to strive for a low score. Because their intent is to invest a lot in programs, they over-invest relative to the field, which would make them more inefficient if you are looking at it just on an expense scale, but there’s a payoff for them and a mission-related reason why they want to do that. Just as there would be a mission-related reason why somebody would not want to have a lot of program revenue because they want to maintain free admission and be more accessible. It’s been interesting to see some of those trade-offs playing out.
Q: Tell us a little bit about where contributions come from.
We looked at the five expected contributed revenue sources – trustees, individuals, corporations, foundations and government – and found that corporate giving was really stable across sectors at about 1% to 3% for every sector. Trustee giving was also stable at 3% to 4% for all but dance, music and opera where it was 6% to 7%. These contributions were money received and spent within the same year.
What differed was how the rest of the portfolio fit together. We found that as arts organizations grow they are able to diversify their funding sources. But the really interesting thing is that as they become large they can start attracting contributions this year for projects in future years. There is a strategic advantage to saying “We are not just short-term oriented; we can really start thinking about what projects we want to do down the line and ensure that the resources will be available for them now so that we can commit to them.” You don’t see this nearly as much in the smaller organizations. One of the takeaways is, the more reliance you have on fewer sources, the more vulnerable you are. It’s also the question of longer-term planning that you see surfacing. And, of course, some sectors have a higher average budget size, so they have greater tendency to be able to do that kind of longer-range planning than sectors that tend to have smaller budgets.
Q: You had an interesting finding about organizations targeting children as well.
Yes, and this was more confirmatory than surprising: Organizations that primarily target children tend to have lower marketing expenses that yield higher attendance, higher engagement, and higher program revenue and earned revenue – and at the same time they have higher development expenses that yield lower contributions. It seems to suggest that parent-contributors have a short-term focus on immediate benefits for their children without necessarily supporting the long-term financial health of the organization. These organizations tend to be much more earned revenue-reliant because of that.
Q: What was the impact of community factors like socioeconomic level and median age?
The findings this time around reinforced those from the first report even though we approached the analyses a bit differently. Since education, employment and income levels tend to hang together, we combined these characteristics and created one larger socioeconomic factor. We found that higher socioeconomic levels had a positive influence on contributions from trustees and other individuals, and from corporations. It had a negative impact on government and foundation grants and a negative impact on physical attendance and engagement. This likely reflects the fact that the higher the socioeconomic level, the higher the access to other leisure opportunities like travel. So people are very willing to give, but they are not more likely to attend or engage with the organization. Also, the higher the median age in the community, the lower the attendance and engagement with arts groups. When different approaches to answering a question yield the same outcome it gives you confidence in that outcome.
Q: Tell us about some of the differences you found in arts markets across the country.
In the area of where the funds come from to cover expenses, we found that individual contributions (not including trustees) cover the highest proportion of expenses in San Francisco – twice the level as in Los Angeles.
The percentage of total expenses covered by corporate contributions is slightly higher in Small and Very Small markets, and is lowest in San Francisco.
Foundation support covered the highest proportion of expenses in Very Small markets and the lowest in Washington, D.C.
Government support from all sources as a percent of expenses was lowest in Chicago and highest in New York.
In the area of earned revenue, we found that program revenue earned per in-person attendee was lowest at organizations in Small markets and highest in Chicago and Los Angeles. Chicago also has the highest return on program revenue per dollar spent on marketing, regardless of whether we include marketing staff costs or not.
Other interesting results: We found that organizations in New York tend to allocate the highest level of operating revenue to total program expenses and payment to artists and program-related personnel. These figures were lowest on both accounts for organizations in Very Small markets.
Also, New York organizations tended to have a negative bottom line regardless of which calculation was used – the most negative of the market clusters in each case.
It costs more in marketing dollars to attract one attendee in Los Angeles than elsewhere, and less in Small markets than elsewhere.
In addition, Los Angeles had the lowest total touch points (in-person and virtual) compared with the local population and Chicago the highest. If we examine only in-person touch points, community engagement was highest in Small and Very Small markets, which have smaller populations.
Q: How can the National Center for Arts Research help small arts nonprofits with little time or resources?
I think the dashboard is our greatest contribution, particularly to small nonprofit arts and cultural organizations that may not have the time, the staff depth, the ability to hire consultants, etc., to understand how their performance is relative to the field, to understand what distinguishes small to medium organizations if their desire is to grow. There is a wealth of information within the report that can help the organizations understand for themselves where they stand relative to the rest of the field. The reason we control for so much within the organizational characteristics is we want to be as fair as possible to what your operating reality is and then to say, regardless of size, regardless of sector, regardless of what those particular target markets are that you focus on surveying, given all of that, there are high performers and low performers everywhere. And this is really not to be prescriptive about what performance should look like, but to help them understand where they are and where they have room to grow. I recently spoke at a dance gathering and they have never had access to that kind of information before. Not every sector has done research on its own sector and made that available to the field.
Q: If performance were to continue on the same path that it is currently on, what would that look like for the future of arts in the United States?
Wow. I’ll start with bottom line and working capital and available cash. If you take into account depreciation when you are calculating operating bottom line, every single arts sector is in negative territory on average. Some sectors have an ability to cover those deficits, others absolutely do not. So if there is not something that changes in the relationship of revenues to expenses and the ability to manage those two, I think the dire cash flow situations will worsen and we’ll see more organizations have to shut their doors, especially when there’s a down economy. That’s a really critical issue. None of us in the nonprofit sector are in business to make a profit. But you have to have fiscal stability if you are going to be able to survive long-term. The rest of the report is then about how you start moving the dial to improve revenue or better manage expenses or look at the relationship between those different elements, and understand income, supply and demand.
Another thing for a lot of art sectors to ponder moving forward is this notion of community engagement. As technology becomes an increasingly critical part of our daily lives, it raises the question, are you going to play in a digital space or not? And if not, then in the future will you see declines in live attendance? Is this really a critical factor for getting people to come in person, the ability to start having a greater presence in the digital space? Are you whetting the appetite for getting somebody who’s never visited to lower their perceived risk of actually stepping through your door?
Q: Kate Levin became the first NCAR Fellow this year. How has she helped with research so far?
Kate’s been great, especially in helping us present the information in ways the field would understand. When we had a first draft of the volume two report, we sat together for an afternoon at her office in New York and she patiently went through finding by finding with me: “Does this make sense? Are we communicating about it clearly?” It was her suggestion to say “Don’t look at bottom line separately from balance sheet; those two things really need to be combined.” Once we did, the story began to reveal itself about strategy and managing those two together, presenting information in different ways to shed more light. We’ve also been discussing a possible white paper she’s interested in working on about the myriad forms of arts participation. We don’t have that data now, but one day we will be able to learn how people’s personal participation in the arts, through playing an instrument, taking dance lessons, etc., affects their attendance at arts events, and how that could help arts organizations become more stable. She’s been a terrific Fellow.
Q: What’s next for NCAR?
In the short term what’s next is launching the dashboard and publishing the arts vibrancy index, which will rank arts activity in cities across the country. We also want to make it easy for organizations to find out how their community compares to others, so we will create an interactive map on the website that shows your county’s relative ranking on the five major community factors: socioeconomic level, other available leisure activities, availability of public funding, number of arts providers and total arts dollars available. We’d also like to offer insights from others – perhaps faculty members, people from consulting firms, and high performers themselves – regarding theoretical concepts or practical tools to increase performance. Meanwhile, we will continue to incorporate data sources and to update data. Now that we have examined 27 health measures in depth, I don’t want to add another 25 – that becomes too overwhelming. We’ve got really solid data for the past few years. Now can we do some trend analysis? I think arts leaders feel that “I don’t want to know just what it was and how to improve, but I want to know if it’s going up or going down, and if that’s happening for my organization, then am I experiencing the same thing everybody else is experiencing or are we bucking trends?”
Q: Anything else you would like to add?
I think that the arts and cultural landscape is so varied across the country, the onus is on us to figure out ways to present it so that people can easily navigate to the things that will be most relevant to them. I am really interested in learning more about the things that help. Regarding size, for example – a lot of organizations think about wanting to grow. So, what does growth mean, where do you need to invest if you want to look more like a medium organization than a small organization, or a large organization versus a medium organization? And then are you prepared once you have gotten there? Because the larger the organization, the greater the tendency to run a deficit. So as you are growing, what is it that you want to learn about being able to have healthy, working capital? So you are not just growing but growing and able to pay the bills.
Because we are still so new, we really do want to hear from people in the field, to make sure that it’s a dialogue, not just us talking to them. We want to be useful!