Linking Benefits to Resources: Can Benefits Theory Enhance Nonprofits' Financial Outcomes? Evidence From Infrastructure Organizations

ABSTRACT Nonprofit organizations rely on diverse revenue sources; yet, there is no systematic framework for structuring their income portfolios. Modern portfolio theory emphasizes diversification, but it offers little practical guidance for how nonprofits should compose their portfolios or determine appropriate levels of diversification. Young's benefits theory connects the benefits derived from a nonprofit's mission and services to its fund development strategies and suggests that a nonprofit's income portfolio should mirror the mix of benefits it provides. This study tests Young's theory by investigating three related questions: (1) Is there a relationship between an increase in benefits and a rise in corresponding revenue? (2) Is alignment between a nonprofit's revenues and the benefits it provides associated with financial efficiency? (3) Is such alignment related to overall financial health? Analyzing a unique sample of nonprofit infrastructure organizations, the findings confirm the first hypothesis that there is a positive association between the benefits delivered and the revenues accrued. The second and third hypotheses are partially supported, suggesting that while benefits alignment is linked to certain financial advantages, these relationships are not uniform. We conclude by exploring the potential mechanisms that may explain these results.