Profit for Good: The Free Way to Donate

Profit for Good: The Free Way to Donate

When it comes to giving, the primary mechanism by which charitable projects are funded is through individuals and organizations that choose to donate a portion of their accumulated wealth toward a cause they favor. This method of giving can be problematic, as it often competes with the donors' personal spending on necessities and comforts. Those who wish to do good in the world will find themselves no stranger to the ethical dilemma similar to: “do I buy my daughter a new pair of sneakers or do I donate that money to Givewell?” But what if there was a way to contribute to charity without having to make such decisions? As it turns out, there is a way, and it is through buying from Profit for Good companies. PFGs are companies that donate (almost) all profits to charities rather than giving them to shareholders. Buying from PFGs is a method of giving that allows the consumer to contribute to charity through their everyday purchases. 

Brad West explains “PFGs can possibly generate more good (a.k.a. more funding for charity) than other methods of giving because of the advantage of consumer sentiment. To illustrate: a consumer who has a friend that owns a business, such as a barbershop, and the consumer chooses her friend’s barbershop out of a desire to help her friend. In that case, the consumer would be choosing on the basis of where the profit would go, without necessarily sacrificing the quality of haircut or paying more.” Additionally, West argued that PFGs ought to enjoy an advantage over normal companies because they serve a more popular master - charities - than normal companies - rich shareholders. 

One of the main contributors to the discussion around Profit for Good is the founder of BOAS, Vincent van der Holst. BOAS has been competing as a PFG company in the competitive market of sustainable products. Vincent frequently advocates for the advantages PFGs would likely enjoy because people prefer buying from and working for companies that donate profits, rather than those enriching shareholders. The discussions around PFGs also attracted some criticism. According to Vincent these are the two main concerns.

  1. You won't be able to fund this/giving your profits away will slow down growth/this can't scale.
  2. Your assumption that guiding companies have competitive advantages is wrong.

To address the first objection, Vincent appeals to the intersection between investing and philanthropy. The basic idea is that investors will invest in a business if they believe they can get the highest possible return on their investment. According to research, companies owned by foundations are six times more likely to survive over a forty-year period than conventionally owned businesses and have higher profitability and market value than privately owned companies. If this is true, Vincent argues, philanthropists who are trying to maximize their donations ought to invest in PFGs rather than trying to multiply their money through investing in for-profit companies who aren’t as good in multiplying their money.

To address the second concern, Vincent appeals to the research that shows Guiding Companies are not only more likely to survive in the current economic market but are more profitable. He argues that the reason for this is that people care, and has the facts to show it. In his experience with BOAS, Vincent has found that once consumers have a degree of awareness, they will act favorably for PFG’s in relation to normal companies. This is why it is important for Guiding Companies to properly advertise the good they do. One of the best examples of this is the comparison between Amazon and Amazon Smile. Amazon Smile, which promises to donate a portion of their profits with every purchase, has a growth rate twice as fast as Amazon, which offers an identical service without the charitability. To test this theory, Vincent has conducted a variety of surveys, tests and research including an experiment where his team ran an advertisement and swapped the headline from "100% sustainable baby products" to "100% of profits go to charity". The second non-profit ad achieved 50% more engagement than the first. 

Both Brad West and Vincent Van der Holst agree that a movement that enables everyday people to help charities without sacrificing anything personally should be much easier than one that demands people give significant things up or even mildly inconveniences people. Unlike asking someone to sacrifice 10% of his/her income or radically change his/her diet, the consumer can do good without losing money or changing habits. Companies who donate (almost) all profits  could enjoy competitive advantages because you can buy the same products, at the same price, but the profits go to charities you care about, and who doesn’t want that?