Should advertising be viewed differently in the nonprofit sector?
Last week one of our blog readers requested to find out more information regarding advertising in the nonprofit sector. His exact question was, "How can a nonprofit effectively market without advertising?". I began to generate this list:
- Public Service Announcements
- Direct Mail and Email
- Word of Mouth
- Promotional Items
- Online Advertising
- Social Media
Although great avenues for spreading cause awareness, these tools could be limiting. An illustration of these possible limitations can be found on the website TED in Dan Pallotta’s video titled, 'the way we think about charity is dead wrong'. Dan Pallotta is best known for creating the multi-day charitable event industry with the long distance Breast Cancer 3-day walks, AIDS Rides bicycle journeys, and Out of the Darkness suicide prevention night walks. The video 'the way we think about charity is dead wrong' went viral as Dan described how nonprofits are rewarded for how little they spend and he asks us to start rewarding charities for their big goals and accomplishments, even if that comes with increased expenses. In the video Dan was quoted as saying,
"Charitable giving has remained stuck in the US at 2% of GDP ever since we started measuring it in the 1970s, that is an important fact because that tells us that in 40 years the nonprofit sector has not been able to wrestle any market share from the forprofit sector and if you think about it how could one sector take market share from another sector if it's not really allowed to market"
The problem, he explained, is that we have a different set of rules for charities that puts them at a competitive disadvantage in 5 areas:
- Compensation - Because of the stark, mutually exclusive choice offered to prospective leaders between doing very well for yourself and your family and doing good for the world, the nonprofit sector is not able to attract or keep the best talent.
- Advertising and marketing - Because nonprofits are punished for advertising or marketing like for-profits, the nonprofit sector has not been able to increase its market share relative to the for-profit sector with respect to GDP.
- Taking risk on new revenue ideas - Because of the public relations nightmare that would result from an innovative but unsuccessful fundraising endeavor, nonprofits cannot implement daring new ideas needed to exponentially grow the necessary revenues to tackle the big social problems.
- Time - Because the public and funders have little patience for nonprofits that fail to immediately, effectively and efficiently create a measurable social impact (unlike for-profit start-ups that are allowed by their investors to take years to return a profit), nonprofits are forced to adopt conservative strategies that do not allow them to patiently invest in building scale.
- Profit to attract risk capital - Because nonprofits cannot promise profits to investors in order to attract capital to fund new and innovative ideas, nonprofits are starved for growth and risk and idea capital.
501(c)(3) organizations are certainly allowed to advertise and market, but the "punishment" Dan is referring to is the public's view on donations being spent on advertising. This view leads to an underinvestment in advertising. Below is a chart taken from the Nonprofit Quarterly of the nine largest nonprofits ranked by Forbes and the percentage of advertising recorded as overhead.
As you can see more than half of the organizations treat less than 15% of their advertising as overhead. YMCA and Goodwill has not recorded any advertising as overhead because they classify it as program expenses. Presumably, treating advertising as overhead is not correct. According to accouting rules, if an organization's mission is to raise awareness about an issue, associated costs are classified as program expenses, not overhead.
Nonprofits can market without advertising effectively, but would increasing advertising be beneficial? That depends on a multitude of factors and is really up to the organization and stakeholders to decide.
We would love to know your thoughts on advertising in the nonprofit sector. Would you feel comfortable knowing .90 cents of your dollar donated went to the funding of an advertising campaign?
Thanks for reading!