Question:
I want to donate a portion of my proceeds to a cause I believe in, do I need to do any legal compliance?
Answer:
Yes, at a minimum, you likely need to register with your state and you also may need to have a written agreement with the cause you want to support! TLDR version in video form at the end!
You may not know it, but “cause marketing” (or the legal term “commercial co-venture”) is the name for donating a portion of your proceeds from selling your products or services. So, what is it legally speaking? cause marketing is a joint effort between a for-profit business and a non-profit organization to sell a product (or service) for a mutual benefit.
Typically, the for-profit already sells products or services but the decision to advertise that they will donate a portion of the revenue to a charity, the marketing campaign becomes a cause marketing campaign. You probably see examples of this all the time, which, side bar: how awesome are people and companies that do this? But, a large scale and successful example of cause marketing was the NFL’s A Crucial Catch Campaign, also referred to as “NFL Pink.” This campaign was a joint effort between the NFL and the American Cancer Society to raise money for cancer research and awareness. The NFL auctions game used apparel and equipment that bears a pink ribbon logo, and sells NFL Pink merchandise. The NFL in turn donates a portion of proceeds from these auctions to the American Cancer Society. Not only does the NFL gain some positive PR (aka a boost in sales), but the American Cancer Society has received approximately $7 million dollars from the campaign. Not too shabby, right?
Obviously when a Cause Marketing campaign is successful, both the non-profit and the for-profit benefit financially and in a public relations sense. Cause Marketing, however, does require some compliance and oversight to keep it legal.
In many states, when a business engages in cause marketing, the business and nonprofit legally become a commercial co-venture, which can trigger various regulations. Marketing language that puts you in the commercial co-venture category includes:
• For each ______ sold, we will donate to _____
• Send in five __________, and we will donate $10 to __________
• A portion of our proceeds from the sale of ___________ will be donated to charity
Many states have implemented regulations on commercial co-ventures in an effort to keep consumers well informed and to ensure businesses do not merely say that proceeds go to charity, when they actually do not. Regulations and enforcement vary from state to state, which can present some difficulties and confusion for national campaigns.
Generally, the regulations and requirements include:
• Registration Requirements: A requirement for the business to register with the state by filling out a commercial co-venture registration form. Generally, annual reports must be filed with the Attorney General of each state by the for-profit making the sales.
• Contract: In some states, the business and the charity must enter into a written contract with specifically required provisions and file the contract with the state.
• Reporting by Charities: In some states the charity must file a statement prior to the campaign and include the promotion in its annual reporting.
• Accounting: A complete accounting and retention of those records is often required upon completion of the campaign.
• Disclosures: The for-profit is likely required to include language regarding the specific amount or percentage of proceeds that will be donated in all of the campaign materials.
Unfortunately, for all of you cause-marketers, states vary as to the extent of enforcing these regulations. Generally, the biggest consequence in failing to comply is bad publicity for the for-profit, but the penalties can be financial, too. For a Goliath like the NFL, bad publicity is pretty easily absorbed. For a growing business or new non-profit, on the other hand, bad publicity can be disastrous. Take for example, the case of a for-profit that was required to contribute additional money to a non-profit because the language in a campaign was ambiguous or misleading in regards to how much of the consumer’s purchase would be donated. In 1999, Yoplait was required to pay several million dollars in additional contributions to the Breast Cancer Association because of unclear promotion terms. Yikes.
Wrapping It All Up…
We believe cause marketing is a fantastic tool to expand the good your business can achieve and significantly improve fundraising for non-profits. We want to see every company doing this, we just want to ensure that in doing so the company isn’t setting itself up for a compliance headache. Because, if done right, It’s a win for everyone!