Margin for error

I can’t be the only arts manager currently looking at the business plan carefully constructed for the next three years with a set of new parameters following the NPO decisions. So I thought I might write about something that fundamentally underpins our business model, which is margin. As a charity talking about ‘profit’ (though allowed at the end of year by the Charity Commissioners as ‘Surplus’) at an individual project or programme level is very difficult. It would be a brave applicant indeed who used the word ‘profit’ to the National Lottery, ACE or a charitable foundation.

So what we exercise ourselves about is ‘margin’. Very simply, margin is what is left from a project once you have spent the direct costs associated with its delivery: whether performers, mileage or equipment hire. Margin is what pays for all the things that aren’t direct project costs: offices, utilities, broadband and above all, salaries. If you have margin left over at the end of the year after you’ve paid for all your direct delivery costs and what are often called ‘core’ costs then you may even have a surplus. You can have had a great year in winning funding, and delivered some great work, but without retaining enough margin you can’t pay the rent.

Margin is particularly important to an organisation like B arts as we do not directly charge participants or audiences to take part in our work. We have no cash income from, for example, ticket sales. Cash is yours to do what you like with, providing you’ve given the audience what they’ve paid for. If we are contracted to do a piece of work at a fixed overall price, then providing we fulfil the terms of the contract and the client is happy we can retain all the margin that’s left. Efficiency pays.

Grants are altogether trickier beasts. Margin in most cases has to be declared upfront as part of the bid (for example as a ten percent contribution to overheads) and the grant is usually ‘restricted income’: meaning that you have to spend the income on what you say you will. Efficiency in delivery can make no difference. Different funders have very different ideas on what acceptable ‘margin’ might be as a percentage of a project, and as many have ‘additionality’ as a criteria there can be very specific exclusions. Many EU funds, for example, will not allow any staff time to be costed into a project.

For years we have juggled high-margin projects that pay for core costs with projects that offer much less margin but which are strategically important to the company’s development (for example as R and D). As we look at revising our business plan for the next three years, and think about developing a programme that we can be proud of, we are thinking about how we can become even smarter about margin.