Sponsorship? Donations? A Few Things You Should Know About Giving

Just like any other industry, the nonprofit industry is full of technical language, abbreviations, acronyms, and more that can confuse new donors, professionals, or just the average onlooker. We want to look at some development terminology that is often used broadly when maybe it should not be. We also want to look at how that affects the strategies that nonprofits use. Furthermore, some of these terms have varying degrees of IRS recognition. Development is the department in nonprofit organizations that “develop” funds. Development staff are the people bringing in resources that your organization can use. This “revenue” generally breaks down into two categories that are cash or in-kind gifts. First, let’s look at why not all gifts are created equal and what that means for donors and your organization. Then we will look at the positives and negatives of each of the broad strategies outlined in this blog. 

Not All Sponsorships Are Created Equal 

A lot of different donations are called “sponsorships” in the nonprofit space. From sponsoring meals, families, animals, or events, there are many opportunities to make a donation that is labeled as a sponsorship, but not all sponsorships are considered charitable donations in the eyes of the IRS. When it comes to tax dedication for donors, the IRS governs giving that calls for an exchange for something in return with the following language…

“If you receive a benefit in exchange for the contribution such as merchandise, goods or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can only deduct the amount that exceeds the fair market value of the benefit received or expected to be received.”

Looking at fair market value versus the gifted amount can turn a simple consideration into a lengthier consideration of what is deductible. It is far easier to consider “reciprocity.” Using the test of reciprocity, donors and nonprofits alike can quickly and easily determine whether a sponsorship (or any gift) should qualify as charitable. The question to ask after giving is: did the donor request specific actions in exchange for their gift? Some examples of this are tickets, promotions, or referrals. If the nonprofit gave the donor anything more than a “thank you” and tax receipt, then the gift involved some degree of reciprocity. Now for sponsorships specifically, a general rule cannot be applied. When you sponsor a zoo animal or family, you are often giving a gift and not receiving anything in return. These gifts are more like a true donation, but because of the ongoing nature, are described as a sponsorship. Conversely, a business can be the title sponsor for an event and receive benefits in return for their gift. Because both of these circumstances exists simultaneously, it is important to be specific when dealing with donors and internal projects and using language such as “sponsorship.” 

Drawbacks and Benefits of Sponsorships and Donations 

Now that we have expanded upon the understanding of donations (non-reciprocal giving) and sponsorships (ones in which the sponsor receives reciprocity), we can examine the benefits and drawbacks of developing with each strategy. Starting with sponsorships, the tangible benefits to a sponsor are more easily realizable, and alone, these benefits can drive loyalty and engagement. Additionally, the publicity of sponsorships (most sponsors like to share what they are doing and your organization is likely highlighting the sponsor) can attract new supporters, sponsors, and donors alike. Finally, the transactional nature of these relationships often makes them easier to manage and maintain than traditional donor engagement. Despite these great benefits of using sponsorships to advance your development strategy, there are some drawbacks to consider. The first is that for many nonprofits sponsorship is tied to events that are costly, time-consuming to plan, and often only occur a few times a year. The inconsistency of these events can make sponsorship difficult to rely on as a constant source of fundraising. Next, even though the transactional and benefit-driven nature of sponsorship is often a positive, unrealistic expectations from donors can become a challenge. Occasionally, sponsors expect too much from the nonprofit and this can be the end of an ongoing sponsorship relationship. 

As with any strategy, there are considerations of positives and negatives. Now let’s look at charitable donations. The first benefit is that donors have fairly low expectations for anything in return other than a thank you and possibly information/updates on the program (even if they don’t ask, this follow-up is great). Where sponsorships are not always driven by support for your mission, charitable donations are almost always a sign that the donor believes in your work. Sponsorships require effort from your team in order to coordinate the gift and terms. Donations are often able to be given without any effort from your team or at least, at a low cost per new donation. There are, of course, a few downsides to this style of giving. The first and foremost when it comes to donors is retention and engagement. This requires consistent and active work from your team. It is not always an easy process to keep donors engaged. Sponsors can keep coming back due to the benefits whereas a donor could forget about your organization or feel like their donation went unnoticed or did not further the mission. 

Fundraising is not an easy task. It is up to your organization to convince donors why they ought to give to your cause. You must convey your mission, vision, strategies, and successes. This is easier said than done. A great first step toward achieving your fundraising goals is to establish a fundraising plan.  A fundraising plan will give your team a strategy to rely on when the pressure is on or ideas seem to have dried up. Additionally, seeking out experience and proper guidance when crafting your fundraising plan can prove incredibly beneficial for young or inexperienced nonprofits. We crafted a blog explaining how to best go about writing a fundraising RFP that will further explain how to approach this undertaking. The one thing you should take away from all of this? Make a plan and understand your strategies.

Failing to plan is a plan to fail. At NMBL Strategies, we love helping our clients plan. We take the experiences and insights our team has cultivated in the 30+ years leading nonprofits and deliver them to our clients in strategic, business, fundraising plans, and more.