For today's edition of #ThrowbackThursday, I want to jump back to a Nugget from November 2013. In it, I gave ideas on how to use gift certificates as a reputation management tool. That idea, which is still very viable today, is to donate a gift certificate to your local charity in exchange for asking them to write an online review.
I've chosen this topic today because it ties in with this ongoing 2015 Holiday Run-up series, because the holiday season is when businesses receive the most requests for charitable contributions.
I've suggested my charity and reputation management tactic to several store owners since writing about it two years ago, and I've been quite surprised by the different reactions to it. While some store owners embrace the idea of supporting any local charity, several other have told me they would never donate to a charity unless they were an officially recognized 501(c)3. It's this point of view that I'd like to speak out against.
I certainly understand that the world is filled with scam artists that say they are raising money for something and then the money is used for something else. When I've asked store owners why they limited their contributions to 501(c)3, I've often been told that it's their way of guaranteeing the money is going to a worthy cause. But should we determine our judgments of a worthy cause based on the same list of legal criteria that the U.S. Government uses to grant a 501(c)3?
I think not. My feeling is that those who limit their donations to recognized 501(c)3 charities are quite selfish. They will give money or goods away, but only if they can get credit for that donation on their tax return.
When I Googled "charity" while writing this Nugget Google displayed a card with this definition:
charity. : (1) the act of giving money, food, or other kinds of help to people who are poor, sick, etc.; also : (2) something (such as money or food) that is given to people who are poor, sick, etc. : (3) an organization that helps people who are poor, sick, etc.
In the U.S. it's common for fundraising organizations to stand outside of grocery stores asking for spare change to help feed the poor, or help with the local fire department, or help a local school. One charity I came across in France doesn't ask for money for groceries; instead, they offer everyone a small plastic bag as they enter the grocery store. Simply fill that bag with a few items, pay for them, and return the bag back when leaving the store. That certainly prevents any misappropriation of finds.
Usage of online croudfunding websites has exploded over the last few years. Anyone can set up an account, tell their heart breaking story, and raise money to help pay a bill.
Need money to save your pet? Simply ask people on Indiegogo for help.
Get into a car accident and can't pay your medical bills? Simply ask people on GoFundMe.com for help.
I don't meant to sound harsh with those two examples, I simply want to make the point that those are two real examples where strangers are giving $20, $50, and $100 in cash to people they don't know. The heartwrenching story convinced people to give charity. Certainly the U.S. Government hasn't validated either of these so called medical funds.
Customer Cost of Acquisition
Although this topic might seem out of place initially, before we go any further you need to think about all the money you spend to attract every new customer to your store. This is not just your advertising cost, but the sum of all the money you spent to create and deliver an ad. This includes payroll, photography, agency fees, printing costs, postage, and online ad costs.
Although it might be hard to exactly identify how many new customers come in from a single ad campaign, you could use your accounting software to track all your marketing costs over a whole year and divide that total by the number of first time buyers you had during that same year. Obviously this does require some commitment for your data gathering effort.
You'll probably find that your average cost of new customer acquisition falls somewhere between $75 and $125 of out of pocket cash. All store owners should know their average customer cost of acquisition in order to realistically be on a path of growing their business. Ask your accountant for help with this if you can't figure it out yourself.
Charities for Christmas
You should expect that charities will call upon you this year like they do every year. Many charities will hold food and clothing drives, some ask for cash donations, and some ask for an item that can be used at their holiday fundraising dinner. Those items are then either auctioned off or raffled off. If you do donate food, clothes, or cash, then you can use the previous strategy I explained to ask for an online review in exchange. But don't be pushy about it.
On the other hand, when it comes to a donation of an item, you should always provide a gift card of at least $50, although a $100 gift card will be very impressive. The charity will appreciate it and the attendees of the fundraising event will take notice.
Before you start thinking that $100 is too much, let me review some of the details I've mentioned so far:
- Don't worry about who you donate to. Don't view your donations as a tax write-off, view them as an advertising expense;
- Your customer cost of acquisition is probably around $100;
- Other than replying to a letter or answering a phone call, the cost of advertising with a charity is the cost of the gift card
You have to assume that the gift card will bring in 1 new client to your store. In other words, the $100 cost of that gift card is the same as your normal customer cost of acquisition.
I can already hear the rebuttals to this idea. You might be thinking that someone will use that gift card to buy a $40 charm, and then you've lost money. But you are wrong! Money is just shifting from one column of your accounting general ledger to another, ask your accountant for to show you how this works. Normally, you would carry that $100 as an out of pocket advertising expense that you already paid to get someone in the store.
Truthfully, you're losing money on every new customer who comes in the store that spends less than $100. Think about that for a moment and reevaluate your profitability.
The bottom line is that you should freely offer gift cards to any local charity that asks for donations of items for their fundraising event.