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The Earned Income Ratio

Arts management is a young field and, like any young field, can take some wrong turns when it comes to theory.
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Arts management is a young field and, like any young field, can take some wrong turns when it comes to theory. Just as it is difficult to argue today that Freud was correct when he wrote that every dream represented some form of wish fulfillment, so arts management has had its share of theories that are difficult to defend.

One favorite early measure of fiscal health used by arts managers was the ratio of earned income (ticket sales, tour fees, auxiliary income, etc.) to total income (earned plus contributed income).

When I started in this field 25 years ago, I was led to believe that the higher the level of earned income to total income the healthier the organization. After all, it was argued, it is far better to earn your own way than to rely on contributions from corporations, foundations and individuals.

I learned the fallacy of this argument when I arrived at the Alvin Ailey American Dance Theater. The group was proud that it earned 75 percent of its income; the Board members believed that it showed self-reliance and tremendous demand. To me this was not a strength. It simply meant that this was an organization that didn't know how to raise money! And worse, it was forcing the dancers to perform more often than was healthy in order to earn tour fees which paid the bills.

Other organizations that serve very poor communities, conversely, have very low levels of earned income. Their missions demand that they produce art for very low ticket prices if they are going to make their art accessible to people with little or no discretionary income. They must rely on contributed income for a large share of their total revenue. This is not bad; it is an essential part of the strategy for these groups.

The level of earned income as a percent of revenue differs from organization to organization. There is not a better ratio, nor a worse one. There are simply implications of having strong or weak levels of earned income.

Arts organizations with strong earned income must protect it by developing important art and by ensuring their programmatic marketing efforts are significant. If the environment is changing and it seems unlikely that these steps will be enough to protect the level of earned income, these organizations must develop stronger fundraising capabilities.

Organizations with low levels of earned income must develop the strong institutional marketing programs required to ensure growth of contributed income. If it will be difficult to continue to build the level of contributed revenue, they must also explore ways to bolster earned income through additional ticket sales or touring activity or by finding new auxiliary sources of earned income (rentals, merchandising, parking fees, food service, etc.).

But when organizations work to change the earned income ratio, and explicitly change strategies, they must ensure that they are not coincidentally -- and unintentionally -- also changing missions. The arts group that services people with low income levels and tries to raise its earned income level by raising prices may be disenfranchising the very people they wish to serve.

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