Non-Profit Marketing vs. for Profit Marketing: Is there a difference?

Today I had the pleasure of interviewing Mr. Brian Eddy, MBA Binghamton University – Business Development & Marketing, for The Rehabilitation Center, large nonprofit in Olean, New York (south of Buffalo) (bio attached below). Mr. Eddy is a Subject Matter Expert in nonprofit marketing with over 17 years of experience within the sector.   He was kind enough to provide us an overview of some of the rather major differences in the nonprofit world, an idea of the looming shakeout in this space and some ideas on what nonprofits need to be aware of in order to succeed.

The following blog post is part one of a two part interview with Mr. Eddy.

DB:  Thanks for taking the time to join us today Mr. Eddy.

BE: Pleased to be here David and looking forward to this interview.

DB: When I think of nonprofits, marketing and sales don’t immediately spring to mind, but with the economic downturn I would guess that funding for nonprofits is down and many need to consider things they perhaps would never have done previously?

BE: You’re right David.  There has been an unprecedented change in this space and there is going to be a big shakeout in the near future between those that are willing to change / be proactive and those that just try to ride things out. Many factors, including the economy are driving what experts are calling Convergence. Basically, the three sectors, Government (Federal, State, Local), Nonprofits, and Businesses creating new, innovative business models, that go well beyond just doing a RFP & outsourcing services.

DB: What do you think is the greatest difference between nonprofit marketing and for profit marketing today?

BE: Nonprofits are governed by their structure and tax reporting mechanisms which have a big say in the marketing of them and how they are run.  In addition, nonprofits have several gatekeepers: (constituents) boards of directors, customers, and the CEO (marketing) has to report to.  Often a nonprofit has multiple boards that have to be reported to.  This makes the marketing much more challenging because you have to please multiple boards, getting approvals from many different internal gate keepers.  This is prior to going after your customers, and getting a buy-in from these folks. You add all the compliance and transparency regulations from funders, it’s a true wonder programs actually run and deliver services effectively with the reality of actual overhead costs not fully reimbursed.

DB: For some reason I never thought there would be multiple boards?  In most businesses there is only one that I’m aware of.  How does that affect a nonprofit?

BE: For the marketing director it creates quite the quagmire.  Who am I reporting to, what do I need to accomplish?  99% of the battle is keeping the internal constituents happy rather than outbound marketing planning, which you would think would be the base for all plans. Mission-based organizations tend to seek satisfaction from the people they serve, as these internal customers drive what programs & services offerings are based on what they want.

DB:  Interesting.  So it sounds like the duality of mission vs. profits is just the start and that pleasing the multiple boards, constituents and trying to figure out what you can market is down the track, rather than on the front burner with most for profits?

BE: Yes, you’re right.  There is always an ongoing internal battle of where is the line between mission and profits?  A nonprofit must have revenue of some sort in order to keep the nonprofit afloat. No money=No mission, no services provided, no reason for being. Thus, the word nonprofit is really an inaccurate or subjective term these days.

DB: That makes sense but why do nonprofits struggle with all their tax advantages vs. for profit companies?

BE: Since 1970, only 114 nonprofits have exceeded the $50 million revenue mark vs. 46,136 for profit for profit entities.  Scale is one of the biggest issues for marketing because nonprofits just do not have scale in most regards.  The larger the company the more likely marketing will play a bigger role, influence revenue and the ability to do more.  Thus, it is very hard to get ROI on a very small scale of many of these marketing rollouts.

Another part of the puzzle is that building capacity is an issue dependent on the resources involved (for example if you’re using disabled people to do the work there is a limited pool to draw on in your local nonprofit constituency) since you can only scale to the size of the workforce.  Thus, constraining marketing’s ability to bring in new business.  You can only sell as much capacity as you’re capable of delivering vs. for profit, which just goes out and hires more people.

DB: Interesting.  I don’t think most people would have that perspective.  What other issues besides scale do marketing directors face?

BE: I think one of the best ways to elucidate the answer to that question would be by using some thoughts from Dan Pallotta’s (Harvard Business School) book “Uncharitable” which states that there are economic “apartheid” issues that nonprofits face.  In his opinion the top 5 are:

1. Constraints on compensation

You can’t get the best and brightest with lower salaries, which limits you’re ability to scale and be a top organization.

2. Culture rewards timidity

Risk taking is not an inherent part of a non-profit whereas in a “for profit” company it is the best way to differentiate and quickly grow.

3. Discouragement of a long term vision

Given the constraints of the 990 IRS tax reporting – you have to dispose of most of what you make the same year or re-allocate.  Large nonprofits like Harvard have “foundation” dollars which allows them to get around this.  Small nonprofits do not have the financial wherewithal nor access to savvy tax planners to legally accomplish this.

4. Discouragement of paid advertising or marketing vehicles that could stimulate demand for services in the market place.

The driver here for most nonprofits is that they think that any dollars not spent on programs are wasted dollars.  They are often challenged to understand that you need to spend some money in order to get more money in for their programs and contribute to the overall social good they aspire to.

DB:  Does this come back to the nonprofit idea, or mentality that they should be able to get money for free without any outbound effort or a half way effort?

BE: Sort of.  99% of these nonprofits were set up to fill an unmet social service gap that the fed, state or county did not meet.  The whole structure was setup as a service delivery model – it was cheaper than doing it via the Fed or state.  This got around the Fed/State “Cadillac / very expensive employee fed benefits packages” allowing the same service to be delivered significantly cheaper.  Everyone benefited as it cost fewer tax dollars but provided the same or more benefit.

5. Prohibition of investment return

The UBIT – unrelated business and income tax returns.  You can’t have a disproportion amount of revenues not related to your sole mission and charter.  All these things are systemic structural issues that tie marketing’s hands behind their backs.  The nonprofit marketing paradigm is one that needs to be understood, addressed and worked around.

DB: So how do you make things happen from a marketing perspective with these enormous constraints?

BE: To start with very few nonprofits have integrated marketing and sales with the rest of the organization.  Peter Drucker states: In order for a nonprofit to be effective, marketing must be built into the total design.

DB:  (laughing)  I often see this in the “for profit” world.  Sales is on one side of the street and marketing is on the other.  Often they treat each as pariah – they don’t talk.  I have always seen this as a big issue.  If the marketing guys aren’t in the field with sales how do they know what the clients are saying / objections they are facing.  If sales  doesn’t work closely with marketing they often aren’t provided with the right tools.

DB: In part two, the interview will delve into what Mr. Eddy does for his clients, the key change drivers within the Convergence movement and where he thinks the nonprofit space is headed / what needs to happen in this industry.

Bio: Brian Eddy is the Director of Sales and Marketing at SubCon Industries, a division of The Rehabilitation Center in Olean, NY.  This nonprofit organization provides employment opportunities for people with disabilities.

With over 15 years of marketing experience within many industries and market channels, Brian works as a unique, social mission 3PSP (Third Party Service Provider), marketing both products, and value-added reverse logistics service solutions.  They provide companies with a social business value proposition that delivers solutions for added process capacity, customized service offerings, dedicated product return operations, and valid, transparent programs to fulfill CSR goals.

Prior to joining SubCon Industries, Brian was employed as a consultant at Universal Scheduling Co., a leading operations consulting firm.  He worked on projects at Delta Faucet and PPG Industries, focused on delivering results in productivity, quality measures, inventory planning and improving customer service levels.

Brian holds a MBA in Marketing from Binghamton University.


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