Cause Marketing

Cause marketing is a way of marketing your products that includes a pledge that you will donate part of your profits or an amount per sale to a charitable cause you want to support. The idea, of course, is that your customer will choose your product over another similar product because they know that their purchase will be supporting something they believe in.

When you say that you are going to donate as a result of a purchase, you are essentially raising funds for the charity. No doubt you are well intentioned and will send the funds to charity as promised. However, fundraising is often abused by bad actors – so much so that many states have regulations in place to prevent false or misleading advertising and to ensure that the pledged funds actually make it to the charity.

Legal restrictions and requirements

In most states, when a company engages in cause marketing they are considered “commercial co-venturers.” For example, California defines a “commercial co-venturer” as:

Translated into plain English, that means a person (or business) that is normally not engaged in fundraising (such as your soap & cosmetic business), but who says that the purchase or any goods or services will benefit a charitable organization (you say you’ll donate $1 per product).

And also in most states,² commercial co-ventures fall under state charitable solicitation laws which may include registration, reporting, contracts (with specific language), and possibly other requirements.

Does your cause marketing campaign qualify as a commercial co-venture?

The following questions³ can help you determine if your cause marketing could be considered a commercial co-venture:

1. Do you have a working partnership or any type of agreement (written or verbal, formal or implied) with a non-profit?
2. Do you work with a nonprofit to raise funds for a charitable cause, including linking sales of your products to donations to the nonprofit?
3. Do you use a nonprofit’s name or logo in your advertising?

If you answered “yes” to any of these questions AND you Operate, or sell products into, a state that has CCV requirements, then you probably a CCV and subject to all the rules and regulations for each state from which customers purchase the product(s) for which you will make a donation.

If your cause marketing program does, or you think it might, qualify a commercial co-venture, get competent legal assistance or find an online service to assist you – it’s probably not something you can easily do by yourself. Make sure that you are compliant with the applicable regulations. This is especially important if you have an online venture that sells to customers in different states.

Advertising Transparency

Even though a cause marketing campaign may be governed by a state for the legal requirements, it is also a form of advertising for your business. As with any advertising, you need to make sure that what you are saying is truthful and does not mislead or deceive your customers.

You should inform potential customers/donors of:

• The name, address, phone number, and purpose of the charitable organization(s) the donations are going to.
• The amount of each purchase that will benefit the charity, and how often it will be made.
• The percentage of each purchase that is tax-deductible, if any. (You’ll need to check with your attorney or accountant on that.)
• How the amount you’re going to donate to charity is being calculated.

Above all, your advertising message should be clear and truthful.

Documentation & Records

You will need to keep accurate records of the purchases which qualify for your cause marketing campaign and the resultant donations that were made. Check with your accountant to see if you need a system to segregate the funds that are supposed to go to charity so they don’t get mixed up in your operating funds.

An attorney or accountant can tell you if there are other record keeping or reporting requirements in your state.

Research & Preparation

As you can see, there are not only legal considerations but also tax and accounting ramifications that can apply if you are undertaking a cause related marketing campaign. Make sure you have done appropriate research and know how to go forward within all the requirements.

This is not a simple thing, especially if you sell online and have purchasers in multiple states. You may want to find an online service that takes care of the details and that you can incorporate into your operations.

Oops! Already in a Cause Marketing Program?

If you are already in a cause marketing program, you need to figure out how to get compliant with the applicable laws and regulations – in all the states that may apply – and as quickly as possible.

First, consider pausing your marketing campaign if you can, until you can get your ducks in a row.

If you can’t pause it for an economic or other reasons, you had best start taking steps immediately. You probably should…

• Find and contact an attorney or service that can assist – this probably isn’t something you can do on your own.
• If you haven’t already, contact the charities you support and make sure they are on board with what you are doing/promoting. They may be able to assist you in the process of getting compliant.
• Review your marketing and ensure what you say is accurate and complete.
• Check your records and make sure they are accurate and complete.
• Verify that all funds collected have been donated as pledged (and if they haven’t, make the donations!)