The challenge of maintaining a unified constituent experience with multiple systems that essentially serve the same purpose
To stay financially sustainable, many traditional nonprofits (including hospitals, think tanks, and affordable housing organizations) have spun up sidecar organizations to promote advocacy, facilitate political lobbying that advances their nonprofit missions – and in the case of social impact investing – to make a profit. These organizations can accept anonymous donations as of 2021, and the dollars are indeed rolling in (even if these donations are not tax-deductible); However, the IRS demands that these subsidiaries’ efforts be kept purposefully separate from the nonprofit’s activities – and this is where those pesky “501c*” tax classifications come into play:
- 501(c)(3) organizations are subject to stricter rules regarding political activity and lobbying than 501(c)(4) organizations.
- 501(c)(3) organizations are “generally prohibited” from engaging in political campaign activity or lobbying.
- In comparison, 501(c)(4) organizations are permitted to engage in a certain amount of lobbying and political activity as long as it is not their primary purpose.
An organization can lose its tax-exempt status if it is found to have violated these rules.
For this reason, it’s natural that many organizations spin up separate teams, individual websites, email marketing systems with exclusive lists, multiple CRMs, and even duplicate social channels for their various units—even though most audience members, when polled, would prefer a streamlined, coordinated experience across channels.
- Does it matter to an advocate or a donor that one division of your brand takes public (government) and private funding?
- Is maintaining multiple websites, different CRMs and multiple email outreach platforms for your brand necessary just because one business unit’s tax status differs from the other?
- Are the multiple systems of truth creating headaches for brand consistency and storytelling?
- Do these numerous systems of truth complicate good reporting?
- Do they encourage poor, manual practices prone to human error, leading to data integrity issues down the road?
Do your constituents care or understand why there’s so much effort put into maintaining these separate entities, or are these delineations really only valuable to lawyers and tax professionals?
It’s a balancing act, for sure! There have been only a few cases where litigation was brought against nonprofit organizations for breaching this c3 vs. c4 delineation. Purposefully maintaining multiple, exclusive systems serves the narrow goal of demonstrating to regulators that you’re serious about decoupling lines of operations that aren’t meant to blend. Yet there are unintended, fatiguing side effects:
- Organizations waste money maintaining multiple systems that do the same essential tasks.
- List management, personalization and targeted messaging becomes onerous and unwieldy.
- When there’s no holistic, single source of truth for data on audience members, fundraisers and marketing teams need help to quickly and reliably access the data they need for their work. Reporting can be a nightmare!
- Outreach operations grow bulky and inefficient, with teams duplicating core functions.
- Content teams within these organizations must maintain a complicated playbook of what to post and where – and what not to send to whom. (We’ve even seen website pages with different legal disclaimers depending on whether the content targets the C4 audiences vs. the c3 audiences.)
Every nonprofit organization has its legal balancing act to maneuver. Yet we’ve found it’s possible to keep different “501c*” streams of operations pure—and keep the lawyers happy—without negatively impacting the audience experience.
When you prudently consolidate, you enable a more unified view of audience members across your portfolio’s various programs and initiatives, giving your organization a much more comprehensive view of its constituents and stakeholders.
For example, ensuring that your contact model is respectful of your tax status and meets legal requirements is vital in setting up a nonprofit CRM.
In addition, you may need to consider:
- Setting up intentional campaigns, segments and suppression lists for different outreach efforts.
- Creating unique data fields for tracking various activities, relationships and attributes.
- Using roles and permissions judiciously to allow access only to internal teams that require it. (In many cases, a gate is more functional from a marketing/fundraising operations perspective than a fence or a firewall…)
- An organizational taxonomy that branches out programs, offerings and capabilities using succinct, easy-to-understand labels, naming conventions and hierarchies that make sense to staff and constituents.
With thoughtful planning, all modern CRMs can be set up with gates between nonprofit programs and other business units.
A properly configured system can easily capture when a donor invests in a profit-making venture (and expects a financial return on their investment) and when this same person donates to an unrelated charitable project without expecting a return. A devoted supporter like this is too important to irritate with unnecessary, duplicate marketing emails out of two different systems or donation prompts from systems that aren’t linked to take advantage of thoughtful segmentation and suppression.
It can help to have an outside partner to support you on this journey, identifying money-saving opportunities while limiting technical debt, reducing tool fatigue and keeping the big picture (and the legal considerations) in mind. Much of the cost of managing separate c3 and c4 infrastructure stems from uncertainty around the definition and division of audiences, goals, and services between those units—your c3/c4 tech problem is first and foremost a strategy problem, so working with a team that can follow this thread from top to bottom (strategy to implementation) will help you address the risk more confidently, with a more unified approach, and a better overall audience experience.