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In-kind donations for nonprofits

By closely managing corporate partnerships, nonprofit organizations can ensure that they receive the goods and services they need.

The McKinsey Quarterly, 2003 Number 4

Corporations are usually more willing to donate products and services than hard cash to nonprofit organizations. Nonprofits, however, are generally less keen to receive their donations in kind, because they fear getting the wrong products at the wrong times (Exhibit 1). Yet our research suggests that carefully managed in-kind donations can do a lot to help nonprofits—especially international relief organizations—narrow the gap between their aims and their resources. The trick is to create long-term partnerships between nonprofits and donor companies and to make the benefits for both sides explicit. This approach gives nonprofits more control over what they receive and when they receive it—in effect, allowing them to look a gift horse in the mouth.

An in-kind gift’s market value can be more than double the value of a cash donation from the same donor, since the gift’s cost to the donor is only the product’s marginal cost, which might be only half of its market price. Moreover, many corporations have spare capacity that they could put to use for nonprofits at a negligible extra cost to themselves; for example, transportation or shipping companies may have spare container space; IT consultancies, temporarily underutilized communications engineers.

Why should a corporation use its resources in these ways to benefit a nonprofit? Is it possible to change the basic fact that the recipient of a gift usually isn’t in a position to discuss, let alone dictate, the terms of the donation? To build a more equal and businesslike partnership in which donors assume the role of suppliers and nonprofits the role of customers, nonprofits must offer the donors something valuable in return. One important benefit that corporations can derive from their in-kind gifts is the ability to meet—and be seen to meet—their corporate social responsibilities: donations in kind can easily (and more creatively than cash) be communicated externally for the purposes of public relations. Companies can also benefit internally because employees take satisfaction in working for good causes.

The first step in creating mutual value of this kind is to determine the benefits of an in-kind donation for the nonprofit and the corporate donor. A timber company, for example, might at the same time support both a social and an environmental cause by providing construction materials to help repatriated or resettled refugees build new homes for themselves and by donating timber grown outside the area of settlement to ensure that scarce local vegetation wasn’t cleared. The donor’s reward might be positive publicity triggered by press releases from the nonprofit organization. Similarly, an automotive company could gain valuable exposure for a new product line by donating vehicles to a relief agency working under the media spotlight.

But nonprofit organizations must solve the problems associated with in-kind donations. In some cases, companies use nonprofits to dump inadequate, second-rate products—say, a shipment of tents that couldn’t withstand high humidity in a refugee camp. Sometimes the cost of transporting and maintaining in-kind donations is too high. What’s more, the timing and size of the donations are often hard to control; if donated field kitchens, for example, don’t arrive on time, the relief organization must spend hard cash to buy substitutes.

For in-kind donations to work, a nonprofit organization must adopt an integrated approach involving not only its donations and fund-raising unit but also the departments that oversee its operations and manage its resources (Exhibit 2). First, the operations unit needs to specify its requirements for the products and services it needs. Next, the resource-management and fund-raising units should together break down the operational budget into categories suitable for in-kind donations and provide minimum product specifications and the like. These units should then rank potential target companies, which ought to be approached with a business idea that spells out exactly what benefits the nonprofit organization has to offer them. (Local information about human-rights and business issues could help a company act in a socially responsible way, for instance, or the nonprofit might offer courses in handling problems that arise when the company’s people work in unfamiliar cultures. It could also help get the media interested in the joint project.)

In one example of the kind of partnership we recommend, a telecom company provides equipment and expertise for an international aid organization’s field operations; among other things, the company installs telecom equipment in emergency warehouses. For the aid organization, the value is substantial, since telecommunications invariably presents a problem in such conditions. For the telecom company, the project helps to keep up the spirits of employees in an economic downturn.

It is important to draw up a business contract, which should include details about the resources required and what both parties are expected to deliver. The nonprofit’s resource-management unit should estimate the total cost of using the donation—administration, transport, maintenance, and repairs—to see if it is truly worthwhile for the organization (Exhibit 3), as well as coordinate the logistics and procure any needed items that are not being donated. Finally, most donors understandably want feedback on the progress of a project and their involvement in it. Such information—provided, for example, through field visits—must be delivered in cooperation with the people who run operations.