Comparing apples to oranges

Being ‘relevant’ means being closely connected or appropriate to what is being done or considered. In a data context, this means quantitative information needs additional context and meaning to ensure it’s relevant to the decision being made.  
 
Benchmarking your business model against other organisations can be incredibly helpful as part of a suite of tools when reviewing strategy, informing a business case or testing assumptions. Often, income generation plans are aspirational and not grounded in the context the organisation is operating in. 

At Arts Fundraising & Philanthropy, we’ve created a benchmark to support thinking in this area, but there are also some things you can do in your own analysis. 

Making sure your data are relevant

When it comes to financial data on business models, there are a number of elements to consider before you can be sure the context and meaning are appropriate to your needs:
 
•    Are data up to date? Using old data is like driving a car looking through the rear-view mirror. Data from recent years can help you think about the future, but you must also consider how Covid might challenge assumptions.

•    Are data based on organisations with a similar business model? The business model of a touring theatre production company will be substantially different to that of a fixed venue receiving house. The costs associated with each are different, so using one to inform decision making in the other is unhelpful. It’s better to compare a theatre touring company to 10-20 other touring companies.

•    Are data about organisations operating at a similar scale? Large and small organisations operate differently. One with £5m revenue can achieve economies of scale not available to another with a turnover of £50,000. While it may be inspiring to see how the V&A shop does business, but you will learn more from organisations of a similar size to your own that are running shops. Benchmarking data from similar-sized organisations can identify achievable opportunities for improvement.

•    Are there enough data for learning to be meaningful? While we enjoy a success story, ‘best in class’ case studies are by their very nature exceptional. Comparing yourself to them isn’t the best basis for decision making. It is more practical to identify 20-30 successful organisations in an area you want to improve and see how their income and expenditure patterns are different from your own. This can help you devise new goals for income streams, quantify the investment needed to achieve them, and identify the likely risks and opportunities. 

You might also pick the brains of some of these organisations to better understand their success. If you only look at one or two organisations, you run the risk that their business model is unusual for reasons that you can’t spot in the data. This skews your view of what is possible. For example, it could be that a trustee from a hospitality background has had a substantial input into the development of their wildly successful café. 

Mathematics and measurement

There are some simple mathematical ways of ensuring data are more robust, relevant and usable. We use them in our Cause4 Arts & Culture Fundraising Benchmark (as well as in our forthcoming Heritage Compass Benchmark) so that organisations can compare themselves to others. These include:  

•    Aggregating data and creating averages – You need enough data to be robust. If you draw on 20-30 organisations when looking at average income from x or average spend on y, you’ll get a more reliable reference point than if you only look at one or two organisations. The smaller your sample or reference group, the greater the risk that it’s not representative.  

•    Measure what matters – By setting up a small number of key metrics you can avoid being bamboozled by more data than are useful. Building familiarity in your team with those metrics, tracking regularly and understanding the implications, will give you a useful compass to steer by. Your board will also be able to review the business more effectively with a simple, clear, up-to-date dashboard.

•    Percentages, not pounds – You should compare typical spending on activities – such as building maintenance - as a percentage of turnover rather than an figure in pounds. This will allow you to compare between organisations of different sizes, showing how spend changes as you grow. Data analysis using pounds makes it harder to spot patterns.

Is your management information fit for purpose?

In a rapidly changing environment with rising costs, now is the time to examine your management information and ask if it is robust enough to support your organisation in future planning. That can start with data and might be as simple as asking whether they are good enough to allow you to manage costs.

You can then move onto conversations about how data can help improve your performance, and finally to interrogating the external environment in which you (and any benchmarks) are operating - such as population levels, inward investment, or Office for National Statistics data on rural vs urban locations. 

The challenge for any organisation is how to connect external data sources to other pieces of analysis. Together with the financial benchmarking company, MyCake, we are addressing this by finding ways to connect the Cause4 Arts & Culture Fundraising Benchmark data to external data bringing all the key metrics into one online environment. 

You can read the report and engage with the latest dashboard here or contact us to discuss the type of data you would find useful and how it might be incorporated into future iterations. 
 
David Johnson is Director of Strategy and Programmes at Cause4.
Sarah Thelwall is Director at MyCake.

 artsfundraising.org.uk | mycake.org/
 @artsfundraising | @MyCakeFinance

This article is part of a series on the theme Fundraising for the Future, contributed by Arts Fundraising & Philanthropy.