How do Museums Operate?

The overwhelming majority of museums in the US are either non-profit or are operated by government agencies.

The Smithsonian Institution is directly supported by you, the taxpayer, as are visitor centers and museums operated by NASA, the National Park Service and other national, state, and local agencies. Many local history museums are funded by or operated by their cities, counties, or states.

Aside from these, most museums are non-profit organizations that fall under the IRS code 501.c3. At some point in your museum career you will need to understand what this code says – to show that you’re part of the fraternity. However you will find great, almost universal, misunderstanding amongst museum professionals about the tax code that governs donations to nonprofits. Being non-profit organizations gives museums a few advantages: they can receive tax-deductible gifts; they often get better and more supportive media coverage; they have a higher standing within the community; and they can at least ask for financial help from their governments.

Although some museums survive almost entirely on donations or earnings from past donations – these are the offspring of wealthy individuals, companies, or groups – most depend on a mix of fees for services and gifts. The mix between the two determines the museum’s culture, services, and working conditions.

Walk into any museum and you can quickly determine where their funding comes from. Museums that depend on visitors and members to fund the organization are more entrepreneurial and focused on customer service.
They have flyers and brochures to take home, active programs, and gift shops to capture more of your money. You can quickly tell from the ambience of a museum who they cater to – you or some else who pays the bills.

Museums generate revenues from admissions, membership fees, educational programs, gift shop and other sales. Museums that are working hard to bring in visitors will draw around 20% of their catchment population (defined by the reach of their newspapers, TV and radio stations). Zoos tend to be higher; history and art museums lower. They operate membership programs to create a following in the community – a group of people who visit often and help spread information about the museum’s programs to their friends and relatives. Educational programs can bring in substantial net revenues, but most museums either loose money on these or just break even.

Only in large and heavily trafficked museums do gift shops warrant a paid staff. In the other museums, a volunteer or group of museum volunteers operates the shop. Add up all these revenue streams and you get somewhere between 40 and 70% of a museum’s operating budget (not counting museums that are fully funded like the Smithsonian). The rest comes from endowment (old money generating a few percent income each year), donations, and grants. The Development Director is charged with recruiting new donors and keeping the existing ones happy and usually has responsibility for the museum membership program.

To compete with all the entertainment available and other educational programming in a community, museums rely heavily on public relations: press releases, public service announcements, etc. Rarely can they afford to pay for advertising – spending a few thousand dollars to generate admissions of $10 per person doesn’t make good sense. The local media in most communities gladly support museums as they make good stories.

But the single most unifying principle of museum operation is that they are all different.

The other common feature of museum operations is that few people understand how they work. Most staff and most board members are clueless. Their interests lie elsewhere. To get good information on a particular museum ask for a copy of their annual report and annual financial report. Some may have this information available at their web site. Others may not have one and may not be anxious to provide the information. You can look up tax reports on-line at services such as GuideStar (www2.guidestar.org).

You can also request a meeting with the director or development director. It helps if you are a member or donor. They should be able to supply you with the information immediately.

Museums may have huge collections worth millions of dollars that give them a huge asset base. These assets are not liquid. They can’t sell part of the collections to pay current expenses. The items in collections were given to the museum to hold, conserve, and use in exhibitions or programs for future generations.

People contribute money for museum endowments, often with the provision that only a percentage of the income can be spent. The idea is to create an ever-growing fund that can help pay museum expenses for decades. So here again a museum may have large assets with no ability to convert them into ready cash. Museums can borrow against these assets, but since board members may be personally liable they don’t let the museum take loans.

To raise money the museum has to increase its earned income (admissions, membership fees, program registrations) or ask for grants and donations. In the current economy, with people spending less and donors giving less, museums are having difficult times staying afloat.