Measuring Organizational Return on Investment
This is the third in a series of blogs I have written about the importance and feasibility of putting an actual dollar figure on the value created by cultural experiences (find previous blogs here and here). The premise of all these pieces begins with an appreciation of the fact that cultural institutions currently have a credibility problem.
The Value of Cultural Institutions
The issue of demonstrating, let alone establishing the value that cultural institutions such as museums create has long been essential; but never more so than today. With institutions closing down due to the Covid-19 pandemic and revenues becoming harder to generate, institutional leaders and their boards of directors are scrambling to find answers.
The sector has argued that they are essential organizations, that they deliver genuine value to their communities. Despite numerous efforts aimed at making this case, recent history suggests that past approaches have not been totally persuasive. For better or worse, these days most political decisions related to value/worth ultimately revolve around, or more accurately devolve, into issues of money. Specifically, policymakers want to know whether the benefits that accrue from the existence/use of an institution are truly worth the cost required to maintain and run it. This “calculus” is typically referred to as Return on Investment.
Return on Investment (ROI)
Return on Investment, or ROI for short, is one of the most common ways investors, and policymakers and funders, evaluate the efficiency of an investment or compare the efficiency of a number of different investments to each other.1 ROI is a standardized way to measure the performance or value of something, thus allowing direct comparisons between similar or even dissimilar investments. It is determined by calculating whether the benefit (return) of something is greater than or less than what it cost to create that benefit (investment). The result is expressed as a percentage or a ratio with return always as the top number and investment as the bottom number. For example, a good, overall ROI in both the for-profit and non-profit world is about 10%, or a return of $1.10 for every $1.00 spent, with anything over 20% considered excellent.2 It is not uncommon for non-profits to have an even lower return on investment rates.3
I recently completed a pilot study involving six museums across three countries – an indoor/outdoor nature and science museum (U.S.), virtual art and cultural museum (Canada), a living history museum (U.S.), a state historical museum (U.S.), a zoo (Canada) and an interactive science museum (Finland). Two data sets were independently collected from the users of these institutions. The first data set measured the benefits, framed in terms of enhanced well-being, that museum users derived as a consequence of a recent museum experience. A second data set measured the value, in Dollars (U.S. or Canadian) or Euros that this population of users perceived these specific, enhanced well-being benefits were worth. By combining data from these two sets of data I was able to convert the well-being benefits derived from museum use into a monetary value; the financial worth of the enhanced well-being generated by use of the museum. For more information on the theory and findings from these studies please see my earlier blogs (here and here). For five of the six museums involved in this pilot research, the sample sizes were large enough to confidently calculate the museum’s ROI.
Not surprisingly, ROI varied from institution to institution, but overall the numbers for each institution were very satisfying.4 For example, the smallest museum, History Nebraska, with an annual budget of around $600,000 generated value on the order of $10,000,000. This is an eye-popping 16,667% ROI. While the largest institution, Toronto Zoo with an annual budget of $30.3 million had an even greater 18,285% ROI – this was based on the creation of a total public value in enhanced well-being of more than $550 million (U.S.). The other institutions in my sample had equally striking ROIs. For example, the ROI of Heureka, the Finnish Science Centre, with a total annual operating cost of $13.5 million, was 12,741%. Even a living history museum such as Billings Farm & Museum, with enormous overhead and thus greater relative annual operating costs than most museums, had a more than enviable ROI of 6,738%. Although only a single, relatively small sample, the investigation of just a single, one-off workshop program offered by Myseum of Toronto also provided a very useful measure of impact. This limited, 2020 virtual program cost a relatively small amount of money to produce, with the two iterations of the workshop costing Myseum a combined $2,754 to produce. Although only serving 197 people in total, Myseum’s ROI for these two workshops was a hefty 21,116%, or $211+ returned value for every dollar spent.
The use of this kind of tangible, Return on Investment type of data should make it possible for cultural institution professionals to not only speak the language of policymakers, but convincingly and directly demonstrate that the value they deliver to the community is more than equal to that of any other sector. The bottom line, at least based on this preliminary work, is that the value generated by cultural institutions, in this case, museum experiences, is truly impressive and clearly a value worth investing in. Specifically, these data show that, on average, every dollar given to a museum is likely to generate something on the order of $100 to $200 dollars in value to the community. These return figures, though, are just the tip of the iceberg since museums/cultural institutions provide value in numerous other ways beyond just the experiences they provide. However, even if one just focused on these experience values, there is more than meets the eye. The ROI numbers cited above represent average value delivered, not, as I will describe more fully in a subsequent blog, the value delivered to those most in need. Those values are even higher.
For those wishing to learn more about this work and the deeper and important research that underlays these ideas I encourage you to read my forthcoming book – The Value of Museums: Enhancing Societal Well-Being.5 Those wanting to potentially be part of further work in this area, please feel free to contact me at email@example.com .
- Weinstein, M. & Bradburd, R. (2013). The Robin Hood Rules for Smart Giving. New York: Columbia University Press.
- Peterson, R. (2018). 10 experts explain what is a good ROI and why. BarnRaisers.com https://barnraisersllc.com/2018/05/28/good-roi-experts-explain-industries/ Retrieved March 14, 2021.
- Schmidt, M. (2021). Return of Investment metric ROI measures profitability. Solution Matrix, LTD. https://www.business-case-analysis.com/return-on-investment.html Retrieved March 14, 2021.
- NOTE: Given the challenges of 2020, all ROIs, with the exception of Myseum, were calculated using 2019 cost and attendance figures.
- Falk, J.H. (2021). The Value of Museums: Enhancing Societal Well-Being. Lanham, MD: Rowman Littlefield.
Posted Apr 27, 2021