Benefits theory

Benefits theory is a conceptual construct to foster understanding of how social purpose organizations are financed. As “positive theory,†to the degree that its assumptions correspond to how SPOs actually behave, it is useful in describing how SPOs finance themselves in practice. Evidence from research suggests that the theory rings true to a substantial degree, explaining observed financing patterns (see below). Perhaps more importantly, benefits theory is also normative, offering guidance on how SPOs can most successfully finance themselves while pursuing their chosen missions. The essence of the theory is simply that by carrying out its particular mission, an SPO generates a specific mix of public and private benefits for its various beneficiary groups and that these beneficiaries, or their proxies, in turn support the SPO through alternative types of financing mechanisms. Elaboration of the theory involves fleshing out the different kinds of benefits and beneficiaries, and articulating how financing mechanisms appropriate to each can translate benefits into resource support. The concept of “exchange†is fundamental to benefits theory. Indeed, the sustenance of organizations throughout the economy can be understood in terms of exchange. Participants in, or clients of, organizations provide monetary or in-kind support in exchange for goods or services rendered. This is most obvious in the business sector where consumers receive goods or services for which they make monetary payments to vendors and where investors buy stocks and bonds or other securities or capital goods (for example, real estate) in exchange for anticipated future profits or dividends.