Benefit-Based Revenue Streams and Financial Health: The Case of Arts and Cultural Nonprofits

A large number of empirical studies have discussed the revenue diversification strategy for nonprofits, but little attention has been paid to the components of revenue portfolios, even though each revenue source flows into a nonprofit with its own characteristics. Drawing on Young’s benefits theory, this study tests the proposition that a nonprofit would be stronger financially if its income portfolio reflected the mix of benefits it provides. We find evidence that the benefit-based revenue strategy is associated with better financial outcomes using the data set from DataArts (2008–2016). Yet, this relationship is not linear, and the positive relationship is seen only when the share of benefit-based revenues is above a certain threshold. A detailed examination reveals that the benefit-based revenue strategy should be employed judiciously, depending on each organization’s own capacity. We discuss the ways nonprofits can employ benefit-based financing while diversifying revenue streams.