What Factors Drive Effectiveness in Earnings?

Earned Operating Revenue

Key factors in generating total earned operating revenue and efficiency in managing total Expenses

Identifying High Performance Indicators

What Drives Effectiveness in Generating Total Earned Operating Revenue?

31% of the variation in the level of total earned operating revenue is explained by the factors from the A&C Ecosystem. Two-thirds – 68% – is attributable to expertise generating earned revenue, and 1% of variation in the amount of operating revenue earned is random.

What Drives Efficiency in Managing Total Expenses (less deprecation)?

Half of the variation in total expenses is explained by the factors from the A&C Ecosystem. Another 48% is attributable to expertise in establishing and managing the level of total expenses. Only 2% of variation in total expenses is random.

High KIPI percentages imply that there is a significant store of intellectual capital that is driving the difference between low-performing and high-performing arts and cultural organizations with respect to generation of earned operating revenue and management of expenses.

What Drives Effectiveness in Generating Total Earned Operating Revenue?

What organizational characteristics affect this performance?

  • Total earned operating revenue varies with organization size and sector. It tends to be higher for organizations with higher fixed assets and square footage, those that spend a greater proportion of their budget on programs, and those that primarily serve Asian Americans.
  • When organizations target kids, African Americans, or Hispanics/Latinos, total earned operating revenue tends to be lower. It also tends to decrease with organizational age, proportionally higher levels of public funding, and more national and world premieres.

How do community arts and leisure characteristics affect performance?

  • Effective generation of total earned operating revenue tends to be lower for organizations in communities with more leisure activities, which in this case act as substitutes.
  • Having more orchestras, opera companies, and art museums in a community tends to raise the total earned operating revenue tide for all organizations in these sectors in a market, while having more arts education organizations tends to lower effectiveness in generating total earned operating revenue for all organizations in this sector.
  • More public broadcast activity in a market tends to drive down arts and cultural organizations’ ability to generate total earned operating revenue, as does a higher number of artists and arts organizations.

How do socio-demographic characteristics of the community affect performance?

  • Total earned operating revenue is higher for organizations in communities where the percentage of the population that Hispanic/Latino is higher. This is also the case where socioeconomic characteristics are higher.
  • As the level of individual philanthropy in the market increases, total earned operating revenue generation goes down. It also has an inverse relationship with total population, as well as the percentage of the population aged 18 or younger.

What Drives Efficiency in Managing Total Expenses (less deprecation)?

What organizational characteristics affect this performance?

  • Total expense efficiency varies with sector. The older the organization, the more efficient it becomes in managing total expenses. The same tends to be true for organizations that have a parent organization, and for those that primarily serve African Americans or children.

How do community arts and leisure characteristics affect performance?

  • Expenses tend to be more efficiently managed by organizations in communities with more artists and arts providers and less so for those in markets with higher levels of total arts dollar activity.
  • Specifically, having more organizations in the arts education, community-based, dance, opera, other museum, theatre, and general performing arts sectors in a community tends to constrain total expenses for all organizations in these sectors in the market. The increased level of head-to-head competition pushes organizations to be more efficient.

How do socio-demographic characteristics of the community affect performance?

  • Expenses tend to be more tightly managed by organizations in communities with stronger socioeconomic characteristics.
  • The higher the median age in the community, the greater the tendency for organizations to be less efficient in managing expenses.

What impact does public funding have on performance?

  • Where there is higher overall state and federal grant activity in the local marketplace, organizations tend to have greater efficiency in managing total expenses.

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