The impact of Covid-19 on fundraising: should we tear up the rule book?

Right now past data is a poor predictor of the future, but understanding the scale and nature of change while responding to issues and initiatives of importance to funders will be vital to future success, say Michelle Wright and Sarah Thelwall.

The pandemic has managed to throw everything up in the air and nothing more so than the use of data. Arts organisations using data to build business and fundraising strategies from a position of reality could be forgiven for thinking that, given the uncertainties ahead – and the need for business models to be significantly redrawn – there is absolutely no point in using data pre-March 2020.

Global Indexes, like the Legatum Prosperity Index, which analyses the performance of 167 countries, will presumably have limited value as its current conclusions are drawn from pre-Covid data. And, while we have seen many good research reports looking at predictions for fundraising, marketing and audiences, there is nothing substantive that makes predictions for the sector as a whole, or from a national or international perspective.

This leaves the arts organisations in a quandary. Do they model on a position where some sort of normal practice will resume? Or do they tear up the rule book and assume that business models are forever changed by Covid-19? If the latter, then all decisions need to go back to basics and fundraising strategies need redefining from scratch.  

However, there is one crucial area where pre-Covid data can help, and that’s in helping to assess the scale of change underway. When we combine this with trends in philanthropy, then we can start to get a firm grip on where the main financial gaps are emerging and what we must hang on to as part of our re-forecasting strategies.

What ‘normal’ looks like?

The first area to explore is what the norms are. How similar is our organisation to others? Can we draw comparisons about how our strategy is constructed by artform, region or turnover? If we can define what normal looks like, then we can draw useful conclusions about how similar or different our organisation is to our peers.

The second area to look at is what ‘best in class’ looks like in terms of the business models in the arts that were flourishing before Covid-19. What were the structures, the balance of funding and how was fundraising diversified for sustainability?

With this as groundwork, we can then gain a better understanding of how strong or weak our organisation is by comparison to other organisations, as well as better understanding sectoral strengths and weaknesses.

The Cause4 Arts and Culture Fundraising Data benchmark, which is based on Arts Council England data, looks carefully at the financial resilience and fundraising potential of organisations funded by them and can help draw these comparisons by artform, region and turnover.

Revising our view of financial assets

Of course, the heartbreak of Covid-19 is that the organisations that better diversified their business models over recent years – and especially those with a higher earned income base – have been hit terribly hard as doors have shut. Prior to Covid-19, higher earned income versus grants was considered a good thing.

Similarly, many arts organisations that run venues would perceive these as prized reputational and financial assets. However, since Covid-19, many CEOs running non-venue-based buildings have appreciated the flexibility they have had to adapt workflows, office space and staffing without the high fixed costs that buildings inevitably incur.

One of the most important forecasting aspects post-pandemic will be to understand where the new balance is for arts organisations between assets and liabilities, and what a different ‘best in class’ income profile might look like. Of course, there will still be much uncertainty, including how long it will take for audiences to have the confidence to return, how viable our venues will be if social distancing measures remain in place for the long term, and how fragile the operational and freelance infrastructures will be that serve venues. 

Understanding the scale of change 

If we understand the norms, then we get a sense of what the scale of change actually is. For example, we can understand how resource allocation is shifting when we see which types of jobs are being advertised versus understanding where redundancies are happening. Contextualising this scale of change is an essential part of scenario planning for future strategies.  

The other area that is going to be very hard to predict is how funding decisions may be made in future. To some extent, rescue funding from DCMS has protected the status quo, albeit against a backdrop of devastating scaling back of activities and wide-scale redundancies. However, inevitably, as statutory funders look to regroup post-Covid-19, we will likely see a very different set of decision making, ones that look to rebalance funding investment and meet strategic priorities such as Arts Council England’s Let’s Create.

There's a tricky line to tread here between considering scenarios further into the future and meeting the funding terms of emergency grants. Whatever ensues, it would be unwise for organisations to expect that the terms of emergency funding mean that the status quo will prevail.

Levelling up

When we look at the data, we understand that the balance sheets of smaller arts organisations and larger ones are worlds apart. In the United States, institutions with budgets of $5m or more make up 2% of arts and culture non-profits, but receive more than half the revenue. The financial gap is even worse for non-profits serving marginalized communities. The 20 largest mainstream US arts organisations have a median budget of $61m, while the 20 largest serving communities of colour have a median budget of $3.8m, according to DeVos Institute research from 2015.

This disparity has led to moves to make sure investment is rebalanced. For example, the Ford Foundation has specifically funded 20 American arts organisations serving communities of colour. Each will receive $3m over four years from a $156m pool raised by a consortium of donors and foundations.  

In a post-Covid-19 world we will undoubtedly see a similar levelling up of resources. Funders and donors will want to see fairness prevail and funds will likely be invested in those organisations that maintained and developed their activities as well as those which behaved ethically and treated staff and beneficiaries well. The Covid-19 memory will be a long one. 

Where data and philanthropy collide

The vital balance for arts organisations is going to be understanding the scale of change in business and income models caused by Covid-19, while responding to diverse communities and initiatives of importance to funders and individuals alike. Achieving this balance will be at the heart of successful future fundraising.

Read the original article in Arts Professional here.