How to Pay for Fundraising, and Why Commission-Based Fundraising Is Unethical

By Laurence A. Pagnoni, MPA

Paying a fundraiser based on the revenue return you potentially will receive exposes you to pay a much higher fee than you should. It’s an unwise business proposition.

The Association for Fundraising Professionals (AFP) even deems it unethical. In AFP’s position paper, they describe six specific reasons why. AFP believes that individuals serving a charity for compensation must first accept the principle that charitable purpose, not self-gain, is paramount: “It is our view that if, by definition, private financial benefit cannot inure to the charity, it should not inure to the worker. By law, compensation based on skill, effort, and time expended, remunerated by salary or fee, does not constitute personal inurement. Conversely, AFP believes that a commission or percentage-based compensation or a finder’s fee breaches the no-inurement principle and is, therefore, a violation of its Standards for six specific reasons.” AFP does allow success bonuses that are capped and set in accord with specific pre-set revenue-raising goals.

The iconic fundraiser Kim Klein puts forth six of her own reasons in her seminal article “Why Good Fundraisers Are Never Paid on Commission.” In brief, Kim explains what a fundraiser actually does for nonprofits and how our work is not transactional but is integrated into the very fabric of your organizational culture. This is what we mean when we say fundraisers aim to build “a culture of philanthropy.”

I Get Your Dilemma, but…

I am empathetic to the dilemma that many nonprofit administrators are trying to address—the fact that you need funds but don’t have enough unrestricted support to pay for a fundraiser and/or fundraising infrastructure.

I also know that many institutional funders don’t want to pay for fundraising costs, though that has shifted a tad bit since CV19.

Can you think of other staff or consultants in your organization paid on commission? Generally not, so why ask this of fundraisers? I suspect that because the fundraiser purportedly knows how to raise funds, then they should be able to raise their own compensation, too, right? Wrong. It’s not related to the fundraiser’s abilities but because donors and funders give revenue for programs, better client impacts, capital improvements, and endowments. Paying for the costs related to the fundraiser does not constitute the vibrant case for support you want.

Three Top Ways to Pay for Fundraising Costs

I have used these three top ways hundreds of times to help LAPA’s nonprofit clients break through to the next level of their advancement program.

The number one way to cover the costs related to fundraising is to build the development costs into your project or organizational budget. They should be seen as part of the cost of doing business just like the fees related to an IT contractor, architect, or attorney. Yet most of the capital campaign or annual fund drive budgets that I review for LAPA’s clients exclude development costs. This is an easy fix. When you build the fundraising expenses into your cost of doing business, your goal will be higher, and that helps you secure larger major gifts.

A second way to pay for fundraising is to draft a fundraising plan, show the plan to a funder or thoughtful major donor, and have a conversation about why this is a tipping-point investment for them to make. The goal is to ask the funder or donor to underwrite the plan. Explain to them that nonprofits who invest in their fundraising programs are more sustainable than those that underinvest in or ignore it. Most development plans first analyze an organization’s current fundraising capacity and then explore its future fundraising goals and what development capacity is required to succeed. I often conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) of both the organization and its development program and then assess the current development team and their ability to meet the organization’s fundraising needs. I have found that many funders who are interested in capacity building get engaged when they see a real plan.

A third way is to set aside a portion of any new funding or donations you receive for fundraising costs. I generally strive for a 10% set aside. Those set-aside funds build up fast. This method is successful for incremental growth. I have used it alongside the two ways mentioned above, and in fact, I recommend that you consider using all three in sync together.

We welcome your comments about this post on the LAPA blog.

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