How Does Program Composition Affect the Revenues of Nonprofit Organizations?: Investigating a Benefits Theory of Nonprofit Finance

Abstract

Nonprofit organizations draw financial support from multiple sources including contributions, earned income, government support, and returns on investment, but the source of variation in income portfolios is not well understood. The authors draw on a ‘‘benefits theory of nonprofit finance’’ to illuminate the relationship between the programs and services that a nonprofit provides and the sources from which it obtains income. The authors analyze detailed revenue and expenditure data from eighty-seven Jewish Community Centers, estimating models that show significant associations between expenditures on particular types of services and the sources of an organization’s revenue. Specifically, expenditures on services of a more private goods nature are associated with greater reliance on earned income while expenditures on services of a more public goods nature are associated with greater reliance on charitable sources. Results are potentially important for nonprofit management practice because they suggest closer coordination of an organization’s resource development strategy with its programming.