September 23, 2014

Charity Add-on: Does it Work? Is It Real?

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I got an email over the weekend from an online retailer asking me to post about its new offer of donating “5-10% of the company’s profits to charity.” A press release explains that there’s a drop-down menu at the end of the online purchase process, offering a choice of charities including MADD, Teach for America, Doctors Without Borders, and so on.

Frankly, that’s not news. Local supermarkets and such have been doing that for years. Other websites do it.

But it interests me, so I ask you: does it work? Are you going to seek out the online retailer that does it? Is this real, or is it just a ruse, as in a cynical attempt to spin?

I’m quite cynical about giving a percent of profits. I think it’s kind of a ruse. I don’t doubt that they actually do it, but “profits” and “percent of profits” is a deceptive term. I think it’s often used to quietly trick people into thinking “percent of sales price” when it’s really just a percent of that tiny bit that’s left over after all costs and expenses are paid.

The whole illusory nature of profits comes to mind again after that annoying flap in the presidential debates. I’m sure a lot of people misunderstood how big a company has to be before it produces $250,000 of profits before tax. Profits sound like money, when they’re really just the leftovers.

In my mind, after 30 years of running my own business, profits are third priority, after cash flow as first, and growth as second. Even in good years, giving even 10 percent of profits in most businesses means less than a penny per dollar of sales price.

Furthermore, I really wonder, aside from the profits gambit, how much do people take greater good into their purchase decisions? Do you?

And, if you do, are you going to seek out retailers who offer up a percent of profits, as opposed to goods made in developing nations, or not made in sweat shops? How are you going to sort through that?

And, if you do, are you still going to be doing that these days, when you’re worried about your house value, or the threat of widespread recession hitting the sales or your own business?

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Tim Berry, Entrepreneur and Founder of Palo Alto Software, bplans.com and Borland International About the Author: Tim Berry is president and founder of Palo Alto Software, founder of bplans.com, and co-founder of Borland International. He is also the author of books and software on business planning including Business Plan Pro and The Plan-as-You-Go Business Plan; and a Stanford MBA. His blog hub is at timberry.com.

20 Comments ▼

Tim Berry


Tim Berry Tim Berry is Founder and Chairman of Palo Alto Software, Founder of Bplans, Co-Founder of Borland International, Stanford MBA, and co-founder of Have Presence. He is the author of several books and thousands of articles on business planning, small business, social media and startup business.

20 Reactions

  1. I prefer seeing businesses getting involved in their local communities even if it’s just a BBQ for the local football club once a year. Grassroots marketing is far more effective than net points of profit to a large charity. What that means to an online retailer depends entirely on whether they have a ‘local community’. In any case I doubt the ROI is worth the hassle of coding up the profit-sharing arrangement.

    Just some thoughts,

    skribe

  2. Tim,

    Good comments. The benchmark for me is a combination of value AND charity. I don’t think simply advertising that you give a percentage of profits away is sufficient to get me to walk into your store or buy online from you, if I don’t know you. I suppose it’s all in what we value. I give regularly to charity on my own, so the guilt factor plays less in my mind. I’m still focused on getting a quality product from a quality provider.

    That being said, if I have similar relationships with two providers offering the same good or service and one advertises a charity donation on the back-end, then that could be the differentiator to get my business over their competition. Wise insight on the “amount” of the donation – but in the charity world, every little bit helps.

  3. Personally, I don’t take it into account at all. I buy what I’m going to buy from whoever has it most conveniently and at the best price.

  4. Right on about profits Tim; you get the cupie doll and cigar. Given that a company also knows it’s net profit, why not post that?

    Yoplait runs a breast cancer fund raising campaign that donates 10-cents per for every pink lid that is mailed in. The $235,000 that they’ve raised to date is 1/10th of a percent of their 2006 $3 Billion US annual sales ($2.6 Billion Euros); tremendous marketing ROI. I can see Breast Cancer supporters pushing the masses to save their lids and the CMO of Yoplait cheering the low returns.

    A donation campaign has never influenced my purchases but corporate behavior as a whole does impact my decision making.

    Thanks for a great Monday morning rant!

  5. This doesn’t affect the way I shop online at all. It’s not something I seek out. On one hand, I’m with Skribe that I would respect a business more if they gave back to their local surrounding community. But it also would impress me if an online business would just post that they gave a listed amount to a specific charity each year. I don’t need to know how they came about the amount, just the fact that it was given.

  6. No, I don’t like when businesses do that and there are a few reasons. First of all, I’d rather they set a lower price on products or services and let me use the money I save to donate to the charity of my choice – because often the ones they offer don’t include those that I prefer.

    However, there are many of other ways that companies can get involved with charities without making it part of the purchasing process. Simply advertising that they sponsor a particular organization or using their visibility to promote a charity does compel me to become a customer. It’s just not something I want to have thrown at me while I’m in the checkout line.

  7. While it makes me sad to say, this doesn’t effect my choice whatsoever. I have actually never seen those before so maybe I will take a better look next time.

    Thanks for the insight.

  8. I own an online retail store that gives 1% of sales (that’s all incoming revenue, not just profit) to charity. We believe that giving 1% of profits isn’t enough because that number can so easily be manipulated.

    We do this to potentially add value in the eyes of the customer and because we believe that success is meant to be shared. We attempt to engage our customer and charities by asking non profit nominations and allowing customers to guide our giving. (We’re actually accepting nominations now, if anyone wants to wander over to http://bayinghound.blogspot.com/2008/11/nominate-your-favorite-charity-for-1.html)

    As a micro-business, supporting nonprofits through community leadership or volunteer hours is something I aspire to, but can’t do yet. I just don’t have the time, manpower, or physical resources to donate. As our business grows, I see potential for supporting charities in these ways.

    Measuring the ROI of our charity donations is difficult, but I don’t necessarily need to know that number. I operate my business like I operate my life, which is to give back as much and as often as I can.

  9. It does not actually matter to me whether or not a store gives a percentage of their profit to a certain charity. Whether they’d like it or not, I go for the best deal. Satisfying product or service and a just price for it. :)

  10. Today’s blog lifts conversation to consider what defines “best deal”. With current financial and governmental shifts, have an opportunity to renovate business mores so that transparency and respect for more than the bottom line actually makes it into the mainstream again. Business has never been perfect, but has worked more authentically without detriment to success. And can again if we are willing to think and listen, act with larger vision.

  11. As a general comment, “cause related marketing” as these programs are known are successful in increasing sales. It ioss a sales promotion tool, used for a short period of time. The most famous of these was the American Express campaign that donated all of 1% to the Statue of Liberty restoration project, headed by Lee Iacocca. Card use and new card applications jumped.

    Used as a routine business practice probably won’t increase sales per se. It may attract a small set of consumers when given a choice of where to buy, and it may be a good corporate image tool, all valuable. As with any marketing technique, there is one, and only one, question: what are you trying to accomplish here?

  12. I don’t think it is MEANT to affect buyers’ behavior, Tim. I think it’s obvious it does not, but companies still do it. It is a legitimate way (one of many) of allocating part of profit to charity, letting customers to decide what causes they want to support.

    Perhaps you are right and 10% of net profit is too little. But still, it is a lot more than many other cash-flow rich, fast-growing and profitable companies donate to good causes.

    What do you think is the net effect of you (with your track record) criticizing companies who do good, but not enough (according to your subjective criteria) – will you cause them (and your readers) to be more charitable? Or …

  13. Unfortunately I find myself somewhat cynical about ‘charity add-ons’. I’d rather the business not tell me, but do something. I was talking to a business owner I’ve known for years and we somehow got on the subject of ‘giving-back’. He told me about how his company had adopted a town in Africa and was helping that town become self-sufficient (business plan, small business loans, etc.). The point was I’d known him for years, they’d been involved in this for 6 years and rather than talking about it, they were simply doing it. That I can respect.

  14. I agree Marek. But of course, somehow this charity add-on tactics sometimes do affect others buying attitude.

  15. This is a very interesting conversation to me. I run a small business in a highly competitive field, and have been considering for some time doing a charity add-on (percentage of sales price, not profits, as it’s just so much easier to understand). The nature of my business is such that I cannot compete on price with the big players, so my niche is personalized service and being easy to work with.

    Many of the questions brought up here – percentages, choice of charity, what motivates someone to choose one provider over another, are ones I’ve been looking at myself. While I have indeed done “real life” volunteering and nonprofit work, I’m not at a point in my life where that is how I choose to give.

    My motivation is partly marketing, and partly personal. Like Rachel, I want part of my business to be about giving back. And you know what? I’d like to attract the kind of customers who care about giving back as well. People who like giving in one way or another are often just nice people. Having nice customers does indeed improve the quality of my life. :)

  16. My motivation is partly marketing, and partly personal. – This must be it Dixie.

  17. Does it encourage consumers to bring their business to companies? Probably not. Does it foster good will towards a company when they find out that part of the “profits” are going to charity when they check out? Maybe. Can this “profit” figure be manipulated and misleading? Of course.

    However, I think it’s a bit much to portray Yoplait in a negative light because of their Pink Lid campaign. Frankly, people don’t buy Yoplait because of the pink lids. They buy Yoplait because it’s darn good yogurt and they have that Whips! stuff that is nearly addictive.

    What Yoplait has done with their pink lids campaign runs much deeper than a cost-effective marketing campaign. Rather, it gives consumers a sense of ownership in the charity process–they see each of those lids as their own contribution to the cause and take responsibility for collecting and sending them in. I don’t know one person who would go out of their way to buy an extra supply of a perishable food item so that they could support breast cancer. And I don’t know any that would stop buying Yoplait if they quit doing the pink lids, either.

    True, the campaign has reflected positively on Yoplait in the eyes of the general grocery-buying public. And yes, it is a small percent of their annual sales. But when’s the last time any of the nay-sayers wrote a $235,000 check to their charity of choice, raised a cause’s awareness on a national scale, and gave their customers a large chunk of ownership/responsibility in the success of the fundraising? If you consider that poor corporate behavior, then a lot of us are in BIG trouble.

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