I notice that these words are often used interchangeably and that could land you in hot water!
Fundraising is connecting people to causes they love and wish to support with their personal (or business) donations. “No goods or a service” is the phrase that is used in the tax language on the receipts.
“Sponsorship is for the purpose of achieving commercial objectives. Philanthropy or monetary donations, on the other hand, are in support of a cause without any commercial incentives. Money is donated simply for the good of the cause with no 'strings' attached” (from nonprofnetwork.org)
Sponsorship has an expectation of some kind of commercial return, such as generating new business, brand recognition, or another measurable result. The primary piece to this relationship is access to an audience or group of people. In this type of relationship, a sponsorship “package” is offered and sold to a business, and they benefit from the reciprocal relationship. Whether its tax deductible is debatable but that is usually unlikely, because they ARE receiving goods or services at a certain value from you.
Putting a value on the sponsorship package or “deal” is when you determine how much a sponsor should pay for the activities, benefits, and the website and social media exposure they will get, all outlined in a proposal. This is not the same for every sponsor. Understanding the revenue model of the sponsor and what the motivation or benefit is for them is critical to this step. Always be sure you’re not offering something you cannot actually deliver.
This kind of relationship also requires you to provide data or statistics to show them the value they received, particularly if you’re asking for support again in the future.
Now, there are grey areas in between, for example, event sponsors.
An event sponsor is any person or company that provides something free (money, services, products) to increase the value of your event. Sponsors are key to your event because they add incentives that will draw people to your event or help you cover costs.
This could be use of a venue space, tickets or an art item for a silent auction, t-shirts for your gift baskets, or gift cards. They are freely given, they have a value, and what do they get in return? Publicity. Access to your donors, guests, and their family. So this is still a form of sponsorship and providing tax receipts and language in this case can be tricky.
I hear a lot of Parks & Recreation professionals saying that they need to get sponsors and donations. Yes. But I encourage you to take the time to get to know your donors, encourage philanthropic and big hearted gifts that are freely given because someone loves your mission and your impact in the community. These gifts and relationships are the path to the future.
Next, if you can find a business owner who will be a sponsor for an event because they strongly believe in your mission and your event, and want to support you and the audience you serve, then enter into that agreement and accept the sponsorship and happily promote their support to your audience. If you work with a business that is all about the numbers, their marketing dollars and what social media and print media exposure they expect in return, the stats and data they want to see, perhaps a request to access your mailing list or have major exposure at your events -- consider passing on those. These companies know what they need for the dollars they are investing in the sponsorships, and unless you are a well-established enterprise who can devote someone full time to “sales” – which is what sponsorship amounts to – it’s a landslide of work and can really get out of control quickly.
This is just a little blurb to get you pointed in the right direction. I encourage you to read more about the differences between sponsorships and donations, and then set up the processes and proposals that work best for you. Good luck!
PS: Refer to IRS publication 1771 for information on tax language and always talk with your tax accountant or solicitor when you are unsure how to set up or word donation and sponsorship language.