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FundClass Archives: How to Pay Fundraising Consultants

Edited digest of FundClass Recess discussion, May 17- 22, 2006

Facilitated by Bill Scott, BSW, MBA
WJS Consulting Inc, Vancouver, B.C., Canada

Bill Scott's Opening Question:

There is much discussion relative to how to pay fundraising consultants. Suggestions have included salary, commissions, flat fees. Umbrella organizations in both the United States (for example, the American Association of Fundraising Counsel) and Canada (for example, the Canadian Centre for Philanthropy) expressly prohibit charging commissions based on the amount of funds raised. Each organization identifies the practice of charging a commission as an unethical act. Yet, many fundraisers and social profit (non-profit to most of you) organizations see a place for commissions. In their view, they are an affordable alternative to a heavy fee with no results promised.

What do you think? Should straight commissions be ethically allowed? What about a combination of commission and fees?

Ruth S. responds:

What a good question! This is one I have wrestled with on the board of a small non-profit arts group to which I belong. Hiring a fundraiser would distort our budget (which is now on the order of $40,000), but funding our programs on a volunteer basis is becoming really difficult. We also have to think of the extra paper work (taxes) and logistics required if we start to have a staff. We have considered commission and flat fee, but so far have rejected both. I have spoken strongly against the commission idea, based on my training at the Center on Philanthropy, but many of my friends on the board find it hard to make the ethical distinction. So far we have dodged the issue by talking about a manager, or executive director, one of whose duties would be to COORDINATE the fundraising, much of which would continue to be done by volunteers.

Has anyone else tackled this issue?

Tom K. responds:

All of us are trained to build boards with "deep pockets" and most of those who have deep pockets (aside from the odd Hollywood Celebrity) are most likely business people. In the business world, if someone is offering to make you some money, then that person is expected to take some of the risk. Even consultants who charge per hour rates have to show some success at what they're doing or they don't get hired again.

In our world, everyone who's ever been laid off from a development officer job has set themselves up as a fundraising consultant or grant writer at one time or another. The ones that do well keep getting rehired and usually are able to charge a flat rate independent of the results and keep on consulting because they make money. Greedy bloodsuckers get that.

Others gradually starve until somebody hires them as a grant writer who doesn't know any better and gives them another chance to prove him or herself with a new agency.

The problem is that so many nonprofits are so mission driven that they don't think through the development part of what they do. We just want to take care of kids, the poor and old people. We don't want to suck up to rich guys in order to try and get some of their money to pay their own salaries. It seems tawdry...

There, I've said it. TAWDRY! We have to talk ourselves up constantly in order to really, really believe that we are on the side of the angels when we are snooping around people's credit ratings, Dun & Bradstreet rating or pumping their friends and relatives for information about "how much they are really worth..."

In my little town (about 250,0000) we have about 1300+ nonprofit organizations. If a group of rich citizens adopt you, you're in. If they don't get you, you're out. That's pretty much it, all development finesse aside.

Anyway, with so many nonprofits fighting for a piece of the philanthropy purse, it's no wonder harried boards offer consultants commission schemes and "write-for-a-piece of the grant" proposals. I've actually written grants for agencies just because I was a nice guy on the understanding that I would receive my reward if we received the grant. Somehow, nothing ever came of that. Out of a million dollar grant, I got a few months salary as an interim director. After that I had to raise my own salary which lasted for a few more months. I never even got a plaque or certificate of recognition or anything for spending 5 months of my life writing a woolly bear of a federal grant that only 11 out of 400 applicants got. They got busy doing the mission and I disappeared from their awareness.

Nonprofit folks are great people, but they don't like to think about where the money comes from, even though nonprofit Executive Directors (ED) are forced to do that every day in order to survive. If you do work for them, get money up front or plan to give away your services for free. It's not ethical to write for a piece of the grant in most cases (there are a few grants that do allow you to account for the cost of preparation - but those are very rare). It's not effective to hope for gratitude. AND it's not realistic to think someone's going to pay you unless you've proved you can perform and agreed on an amount ahead of time. Nor, on the nonprofit side, is it realistic to think someone's going to spend the energy and time and expense to do your grant or fundraiser unless they know a paycheck is coming.

It's a dilemma. I've been working on using a for-profit business model to generate income to fund the agency's mission. One part of the program makes money to support the other.... Unfortunately, to the greedy capitalists that seems like a for-profit business, so why should they give to that?

The one problem to this approach is that, if you do create an income generating part of the program (one that makes - insert collective gasp here - PROFITS), you have to think about the moneymaker part of the plan first and figure out a way to find the cash to fund it. That's hard. Few funders or boards get how that works even though the funders want you to be self-sustaining. They hesitate to set you up with money so you can set up a business that makes money, even though it may fund another part of your mission that is good and needed by the community. Paul Newman did that with his food company. He got how that works and fortunately had the wherewithal to do what he danged well pleased.

I think with the increasing difficulty of raising funds, we're going to need to start looking to entrepreneurs for help rather than to traditional fundraisers - at least if you're a new startup or small organization. Either that or you're going to have to do like one agency here did and fold up and restart as a for-profit.

Same mission, but it's yours and you can be a nice guy if you want and to heck with sucking up to rich people. If you just want to do a fundraiser, you can do one for some local nonprofit. Find a nonprofit partner and figure out how you can help each other. Nothing wrong with that!

Just one man's opinion.

Tom W. responds:

I've been thinking about this more over the last couple of days, and wondering about how and why this proscription against commissions/percentages came to be. Was it in reaction to public outcry against boiler room fundraising ops, where some miniscule percentage of funds raised over the phone actually goes to the charity, while the lion's share goes to the operators? Or is it based on some, more elevated philosophical concern about how our profession is viewed generally, and/or about "best practices," addressing what really works, what is effective in fundraising?

Out here in the real world, and I assume my experience is common to senior level professionals, I perform a fair amount of pro bono work for smaller emerging organizations, and even flirted with the idea of forming my own consultancy during a recent period between jobs. Some of the groups I did this pro bono work for, partly as a direct result of that work, sought to engage in serious strategic planning and/or grant proposal writing and approached me with the idea that they would pay me based on a percentage of grants received. I declined, but only partly out of any ethical concern. The truth is, I know where I stand with these groups and their missions, and I know that whether or not I was paid a flat fee as a consultant and/or based on commission/percentage, I am absolutely in solidarity with their missions and practices.

Taking a wider perspective, this class question caused me to review the Association of Fundraising Professionals (AFP) standards, having just joined the group. (I have been in the past and am now a member of local and regional professional organizations, which maintain similar standards about compensation.) I have recently been critical (by mail) of AFP's choice of Colin Powell as the keynote speaker for their recent conference because of his professional history, and I don't think their choice serves our profession well. The AFP standards, while rife with all manner of flowery committee-speak language and which purports to address ethical concerns, are alarmingly silent on issues of discrimination and diversity and whether the former is practiced by its members as consultants or as employees, or by employing organizations (I know AFP is an organization of individuals vs. organizations). To me, these issues far outweigh compensation concerns when it comes to "empowering fundraisers to serve humankind," so I can't take their "ethical" standards too seriously.

But that's just me.

Bill S. responds:

Some very provocative thoughts, Tom. As an interesting aside, in the earlier years of FundClass, we tried to have the AFP committee responsible for ethics present a class on ethics and they refused to do so. I'm not sure why. One would think that the AFP would see ethics as an important subject given that fundraising is all about relationship building and, therefore, by association, ethics.

I have another question pertaining to who and how it was decided that commissions ought not be charged. Is it possible that the impetus came from larger institutions? Let's face it, people working for hospitals, universities and the like are likely to be the most powerful and influential people in the industry. Would it not make sense that their perspective when crafting these policies would centre on what they know -- larger institutions?

Here's my bias. I've never been in favour of one size fits all solutions - particularly when alternative solutions have either not been considered or little if any research has gone into the decision making process. Can anyone tell us how these large umbrella organizations came to make their policy decisions? What thoughtful, inclusive process was used to arrive at the decision pertaining to the standards in this area? More importantly, how were differences in organizational size, means, et cetera taken into account?

My concern -- and I am not a fundraiser -- is for social profit organizations that can't compete simply because they can't afford the set fees that are charged. And while I hear you about pro bono work, my experience in my part of the world was that there were not fundraisers willing to help out in that way. In fact, there is a shortage of fundraisers in this neck of the woods relative to the demand for fundraising professionals. So the decision usually goes something like this: paying job? pro bono? paying job .... I'll leave it to your imagination which job the fundraiser chooses.

Sean H. responds:

I appreciate this discussion as the question of hiring fundraisers for a commission is something that's come up before at our organization. I've seen several comments on the cons of this practice, but I don't think I've seen anyone advocate or defend the practice of paying a professional fundraiser/grantwriter on a percentage or commission basis. Is there anyone on the list who can speak in favor of it? If not personally, could someone articulate why the pros would outweigh the cons?

Dinsmore F. responds:

I am very much opposed to commission-based fundraising. Whether one is hiring a phone-bank type organization or a consultant, I think it sets up an immediate conflict of interest, to the benefit of no one.

As one who has been a consultant as well as a non-profit board member and a non-profit employee, I can understand why the idea of a commission-based consultant might have an appeal to an agency - no cash outlay, lots of 'incentive' for the consultant, etc. However, one of the things we've been discussing here is the art and practice of relationship building - which is what development is all about, after all - which takes TIME. Time is all a consultant has to sell, just like a doctor, dentist, lawyer, or any other professional. Results achieved by the consultant are going to depend on how well either the consultant trains board members and staff of the agency and how well they follow through or how well those folks have already cultivated their donor base. I submit that neither of those things are particularly susceptible to a 'commission' fee structure. I've heard that some agencies are using yearly bonus payments as incentives for those who meet or exceed their goals. Again, while this might have some appeal for the agency, I'm not sure that I think much of it.

Bill S. responds:

Thanks for your contributions Ruth and Dinsmore. I think Ruth raises an important issue -- what are small social profits to do? And Dinsmore eloquently covers the matters that the aforementioned fundraising associations point to when this issue comes up for discussion.

Now imagine this scenario. A social profit organization decides that it must find revenue streams to support its need for a new facility. The organization has adequate resources for its operations (it would like more and don't we all) and it doesn't have the money necessary to relocate. So it decides to engage the services of a fundraising firm which operates under the principle of a flat fee for service. In other words, the firm receives payment whether it achieves results or not.

The social profit does its due diligence and selects a firm. The campaign is a bust. The firm raises some funds, but the economy is tough and there are many competitors and the firm doesn't do as well as it would have hoped. Angry members of the social profit organization contact the media. They tell the media about the ill-fated attempt to raise funds through the capital campaign. For weeks, the local paper and radio stations follow the story. The focus is: How could stewards of community resources spend the money so poorly?

What impact does this scenario have on the social profit's ability to move forward? How do they mitigate the risks associated with bad publicity?

Tom W. responds:

Yikes! You woke me up better than any coffee! Just yesterday our board of directors unanimously endorsed our US$2 million capital campaign.

The subject agency seems in so many ways to be insulated from its wide spectrum of stakeholders that it amazes me they were able to perform their mission at all, let alone undertake such a prodigious task as the one you describe. This was a train wreck waiting to happen, with the capital campaign as a "presenting issue." And the board of directors was.......where?

There are obviously many missing details here, but I would vote for folding the tent and passing the torch to one of their "many competitors," hopefully one which is more responsive and progressive. Likely, their mission performance will be superior anyhow. Shades of Darwin......

Mary C. responds:

Here's another twist: telefunding/marketing staff.

While I would be rather horrified at the idea of a development professional working for a percentage, my experience has been that in-house telemarketing operations often pay a commission on top of salary, based strictly on how much money is raised or how many subscriptions have been sold.

Does this straddle the ethical line? Or is it just an effective way to provide necessary incentives for a less than highly sought after position?

I have to say that our best and most successful callers were also invariably the ones who were good at relationship building. They developed strong year after year relationships with donors. We even used a few for a campaign, and one secured a $15,000 gift over the phone -- from a prospect that the development staff had never anticipated getting that sort of gift!

Dinsmore F. responds:

I'd love to hear from others, too. But here's my take - The role of a consulting firm in a capital campaign is NOT to raise the money, it's to work with the social profit so that THEY can raise the money. A major part of the project is/should a feasibility study to determine whether or not the 'market' is there for the social profit's 'product' (their campaign). If the stakeholders in the social profit haven't bought in, it's not going to happen. If the consulting firm didn't recognize this and recommend postponing the campaign (never mind the econ and competitive climate), shame on them. If the social profit ignored their consultant, or expected the consulting firm to do all the work for them, shame on them!

In any event, adding regrettable media makes for a nasty mess. Whether the complainers were initially angry with the consulting firm or the social profit group, the result is a social profit with a problem. (This, by the way, is one of the risk factors a feasibility study should assess).

If the social profit still wishes to move forward instead of throwing in the towel, there are a couple of options: 1) to take advice from a good PR firm about how to turn the tide of criticism and/or 2) for the social profit to lay low for a period of time, meanwhile examining their navels very carefully.

Angela asks:

We are all pretty new to this at our organisation, so I am thankful for all your replies and comments. We are in the position of needing to hire a new Development Director (DD). We are a non-profit and cannot pay what a really good DD requires and deserves. Last time we hired a wonderful person without a proven track record, but she did not write any grants or bring in new money. We are in the same positon again. We are thinking of hiring someone for a salary but with an added bonus, if they perform well. i.e. bring in the extra money. What are your thought and experience on this?

Sean H. responds:

Since nobody else has weighed in on this I'll give you my two cents. In my experience, you get what you pay for.

Are you hoping with the bonus idea to attract good talent who will work for less until the bonus comes in? Or are you hoping to get someone less qualified and have the bonus serve as a carrot for the person to put in a bunch of extra hours to learn how to do their job well?

In either case, how about a review and the potential for a raise after a certain amount of time? You could, for example, set goals for the new DD and then after a 12 month progress review (it'll take at least that long to get grants in), if the goals have been met you give the person a raise.

Have you tried the smell test? That is, what does your board say about the proposal? How about consulting with a few major or prospective supporters? If your proposal flies with them, one might ask if do you really need to worry what anyone else thinks.

Alternately....

Who currently is raising the money for your organization and what kind of money is it (grants, individual gifts, events-related, etc)?

If you don't have the money for a DD right now, what if you hired an administrative assistant (which costs less) for that person (Executive Director, perhaps?) so that she/he could focus more time on fundraising?

Alternately, if you have the time, you might be able to meet your budget by finding someone who is committed to your organization and mission, and has the potential to become a good DD, but doesn't have the experience yet. As that person learns the ropes and earns her keep, her salary can rise to recognize it as the organization's capacity to pay.

PS, the silence on my posting and yours, thus far, suggests to me that if we have any people on this list who support anything but straight salary for fundraisers, they are probably in a minority and definitely keeping quiet for some reason. Maybe its just a coincidence or maybe it reflects our profession as a whole.

Tom W. responds:

I think Sean's ideas and perspective on this are great, very creative. You DO get what you pay for.

It would be helpful to know more about your agency and city. For example, here in Portland we have some pretty good channels for seeking someone like this: a professional group with both online and mailed job announcements, plus a huge listserv for the nonprofit community, etc., in addition to the usual newspaper ads.

You might also check around with peer agencies to see if they have done similar hiring and came across people who weren't right for them but might click for you.

It sounds like you will be seeking a person with a special balance between a passion for your mission (which for some folks will substitute in part for a larger paycheck, at least for awhile), an experience level in keeping with your ability to pay, and a willingness to stick around for awhile until they basically raise their own salary.

One potential problem would be that the person might use your organization as a learning opp, then head for greener pastures as other things came up.

Jesse W.-U. responds:

I am somewhat new to the Development world and was not acquainted with this debate over compensation ethics until quite recently; and to be honest, I found the argument made against percentage-based compensation a tad unconvincing. Here's why:

Development Consultants, while presumably of charitable dispositions, are also inherently self-serving. I say this because by establishing a consultancy one lessens their connections each client organization - and while I or you may stand in complete solidarity with the missions of all of them, our fundraising efforts could not possibly be as "mission-led" as those of the boards, EDs and staff. I've noticed a general tendency to sentimentalize nonprofit work as a profession and claim that because it is for social good, and because the available compensation packages are smaller, that "self-gain" could not possibly be a motivation for entering into it. From the exorbitant rates I have seen charged by development consultants, I find that extremely difficult to believe. At what point does a consultant - or a staff member, for that matter - cross that monetary line so hailed to distinguish the greedy from the giving? It seems the concern should extend not just to how one is paid, but how much they charge, and the ways in which both scenarios may transgress ethical boundaries in the philanthropic world.

I sympathize with the claim that much of a consultant's duty is to build a strong base of volunteers and engage in more cultivation-oriented activities versus rote fundraising, and that tending to these ostensibly peripheral areas can result in greater long-term organizational health. But the question arises: in order to secure grants and loyal donors, wouldn't these activities have to already be completed? Aren't they necessary steps in achieving one's monetary goal? Imagine a consultant who had the option of charging a flat rate, or receiving 5% of whatever grants they successfully bring in (the latter being more lucrative). Choosing the first they may work steadily on all areas of the organization, but not quite as vigorously. Choosing the second, they may focus more on grantwriting and less on staff/board training, but we all know they'd expend immensely more effort on getting the grant. Supposing more effort = more grants, is there anything inherently wrong with this model, especially given that a hefty amount will be spent on the consultancy one way or another? If we admit that making money at least partially factors into becoming a consultant in the first place as well as how one will perform, it may be wiser to employ a structure that capitalizes on that. It doesn't mean consultants can't also like the work your organization does or find additional motivation therein, and meanwhile it'll generate more gifts for your org and your community; it's hard to find fault in that.

Just some thoughts. I'm still on the fence about all this, but appreciate everyone's insights.


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