So, your business is approached by an organization putting on an event in the town where the both of you are located. The event will require a large sum of money for planning and operations, but it is for a great cause and aligned with the values of your company. Your company has, in fact, been looking for opportunities to help where possible, given your affinity for the neighborhood and the people in it; however, is this a philanthropic endeavor or a sponsorship?
Surprisingly, not many (on both sides of this scenario) have this discussion, because nearly 70% of organizations believe there is no difference between the two. Though similar in that both involve giving money in support of someone/something else outside of the company, there are some key factors which determine their differences, and every business and its recipients should know.
First, sponsorships are essentially a marketing opportunity. A quid pro quo relationship, in which your company is given exposure, usually on all pieces of collateral and promotional materials related to the event or organization itself. There are no tax receipts given in return, as the expectation is that you will recover the amount of your sponsorship (and more, if done properly) in new business as a direct result of being promoted.
Philanthropy, on the other hand, is done with the intent of giving back to affect the outcome of something about which the company is passionate. As such, it may involve more time and direct involvement, possibly volunteer efforts. In this instance, a tax receipt is to be expected, along with the joy of having made a difference, as opposed to recognition in the form of marketing.
Neither is better than the other. Rather, both can and do work for the parties involved. However, understanding the difference may help you determine how to direct your finances in support of outside endeavors. Furthemore, this information may help you make the distinction between giving personally or giving as a business. For example, an individual may not necessarily benefit from the marketing opportunities provided in a sponsorship, unless their business is directly tied to their personhood. As such, they usually choose to donate rather than sponsor, which is yet another difference.
At the end of the day, whether or not you choose to be involved should be precluded by a conversation about the how. Additionally, consult with those involved to find out what your choice will mean for you or your company. Likewise, determine whether the benefits received from sponsorship will be significant in a way that exposure makes sense, and more importantly, whether you’ll be getting any. The organization may actually be asking for a donation. Clarify and communicate that upfront. If it’s personal, it may not matter, but if it’s business, be sure to approach the discussion accordingly.