Should we hire a fundraiser and pay him a percentage raised?

One of the most common questions I get from board members and nonprofit leaders is some variation of:

We're a small nonprofit without any fundraising program. Are there ever any conditions where it makes sense for us to hire a fundraiser that gets paid a percentage of what they raise?

It's an understandably seductive question. It seems to contain the promise of great financial gain with limited or no cost.

That itself should raise a red flag, shouldn't it?

I was asked this question twice last week, so I thought I'd address it again. (The last time I blogged about it seems to be this percentage based fundraising post in 2007!)

Here's an actual copy of my answer over the weekend to this "percentage" question. It was written on my phone so it may read a little choppy.

Great question. I know of no professional that operates that way. It is expressly against the Association of Fundraising Professionals Code of Ethics.

A fundraiser worth hiring for your nonprofit will have worked to develop a skill set and knowledge base worth investing in. Also, success in fundraising is very dependent on the leaders & board of the nonprofit actively participating. Paying on percentage can unfairly penalize a professional for the organization's lack of follow through.

There should be some money paid upfront. If there isn't, it is reasonable for the professional to question the organization's commitment to fundraising.

You may be able to hire someone with a base pay and more at agreed upon benchmarks. I don't have any experience working that way so I am unable to advise you there.

Finally, I am sure there are people that will work for a percentage. Please be careful in hiring that way if you choose to.

Marc

Do you agree?

Do you think I covered the reasoning soundly? Or am I off-base? Should nonprofits ever hire someone to solicit money and pay them a percentage of what they raise?

About Marc Pitman

Marc A. Pitman is the author of "Ask Without Fear!" and founder of FundraisingCoach.com and the weekly email service “Fundraising Kick.” Marc's expertise and enthusiasm engages audiences around the world and has caught the attention of media organizations as diverse as Al Jazeera and Fox News. Marc’s experience also includes pastoring a Vineyard church, managing a gubernatorial campaign, and teaching internet marketing and fundraising at colleges and universities. He is the husband to his best friend and the father of three amazing kids. And if you drive by him on the road, he’ll be singing 80’s tunes loud enough to embarrass his family!

Follow him on Google+, on Twitter @marcapitman, and like "Ask Without Fear!" on Facebook.

Comments

  1. Shawn Garza says:

    On a quick side note, I think I'm related to Jeanne Tanksley earlier in the posts. I think she's married to my brother-in-law. Small world.

    I am feverishly working on starting a 501c4 that focuses on policy-making for special needs children and offering resources to their families that are otherwise not available through the plethora of c3's that are out here taking in loads of cash and effectively offering little to the actual people who need help. The reason I'm starting a c4 versus a c3 is because of lobbying restrictions. My 2 sons with autism don't have a voice at the capitol, and I intend to put one there. I'm a former lobbyist who chose not to continue lobbying after my efforts were successful, because I'm pretty picky about my issues.

    All that being said, we are starting this with very little money. We are hoping to raise seed funding so that we can pursue bigger fundraising efforts. I have a friend who is very good at fundraising and is asking me to hire him on a performance-based plan, i.e., commission. He knows he can produce; he has a long history of long relationships. What I'm getting at here is that it seems somewhat presumptuous for any organization to dictate ethics to this extent. If the organization is willing to pay commission, and the fundraiser is willing to accept commission, and both act in good faith, where is there an ethics issue?

    And, frankly, folks, all fundraising is a sales job. For crying out loud, DATING is a sales job! My wife works sales on a commission basis. She sells flooring to apartment communities. They don't continue using her if she does not have a good relationship with them. Trying to say that fundraising and sales are totally different because of the repetitive, relationship-based nature of fundraising is, in my opinion, an effort in futility. Many sales are repetitive and relationship-based. They require great amounts of trust between the customer (donor), the salesperson (fundraiser) and the company (non-profit.) There is no difference other than the product.

    One other point that was made earlier in this thread that kind of grated on me was the notion that having someone fundraise on a commission basis was a way to keep the fundraiser on some second-tier or was just laziness on the part of the directors or the staff was rather insulting. My directors are people with other responsibilities in their lives besides just the non-profit. Most of them have special needs kids (which if you don't happen to have one, let me tell you, the time involvement with therapies, schools, and just life is extreme), almost all of them have regular 9 to 5 jobs, and every single one of them is involved in other organizations trying to help kids. I want to spend my time at the capitol fighting for these kids, which limits my time fundraising. Does that mean that I'm not going to do any? Of course not. But it does mean that I can hire someone on a commission basis to kickstart this organization until enough money is raised to hire someone on a salary basis.

    I think the ethics statement on this is short-sighted and ignores the small, new non-profits who are working on a shoestring.

    Thank you for the chance to express my opinion here. I found this thread captivating, and you have won a reader for life!

  2. Wow this thread has nine lives-i guess its a hot topic. As a long time fundraising consultant who does not accept commission based arrangements either for myself or my firm i'd like to add a bit more.

    1.) Many consultants would LOVE to work on a percentage. My firm has raised several billion dollars for our clients over the years-had we been working on a percentage we'd all be well retired by now. The commission versus flat fee arrangement has absolutely nothing to do with consultants not wanting to be judged or compensated on performance and everything to do with our understanding of the fundraising dynamic and donor - organization - consultant relationships.

    A few questions for the commission advocates in this thread:

    Does the consultant get a commission on just dollars collected? or does he get a commission on a signed multi month/year pledge? If it is just dollars collected how long does the consultant get paid for? One month? six months? three years?

    If its a a new donor does the consultant get paid every time that donor makes a gift? or only on the first gift? different rates for first versus second gifts? How long does this relationship continue? Are you going to pay residuals over the lifetime of that donor? Ie. the new donor makes a $500 gift (initial commission) and then makes a $250 gift every year for X years-does your commission based consultant get paid each/every year?

    Does the consultant get a commission on a gift made by an existing donor but to a new campaign? Ie. a $500 donor to your annual fund now gives $10,000 to your capital campaign (having received a letter that the consultant wrote on behalf of the campaign) -does he get paid for this?

    How does your consultant get paid for a gift in kind? Lets say she arranges for a local lumber mill to donate $100,000 worth of product to your building project. Are you going to pay cash to your consultant to compensate him for this "in kind" non cash donation? If not-should he bother pursuing such a gift? If so-how do you measure the size of this donation to base your commission on?

    What do you tell your donors? Do you tell them that you have hired someone who gets a percentage of every dollar you donate? do you tell them the percentage?

    There are a million more questions/scenarios that could come up that i haven't even begun to explore. And many iterations of multi year giving, repeat/renewing donors that could and would generate tons of challenges. Many issues regarding tracking/auditing and accountability as well. Planned giving? Wouldn't even know how to begin thinking about accepting an estate/planned gift under a commission arrangement.

    Fundraising is sales for sure! But the relationship between donor, non profit, consultant and employees is not the same.

    Is a commission based approach doable-sure- but it would have to be short in duration (ie all cash gifts that arrive between x and y) and simple. Unfortunately that rarely is in the best interest of solid non profits and certainly isn't good fundraising-thus-most consultants worth the dollars they are paid stay away from such arrangements.

    Again-measure us on our performance (most consultants can provide extensive lists of dollars raised, dollars collected, projects completed) and compensate us on our results but do so on a fee for services, negotiated up front. Performance goals -sure- but commission benefits ONLY the consultant and in no way benefits either the donor or the organization.

    • I think we can stipulate that contracts are complicated, but if you can't understand how to read/write a contract you are likely unqualified to fund-raise or run a non-profit. Simple is easier, but it's not mandatory - just ask the IRS.

      The "we would all be billionaires" is a cop out. The issue easily solved by the capped commission. In our org the commission is capped at the level the salary would normally be paid at. Want a salary? Earn at least what you are promising us and that is what you will make.

      The a fundraiser being paid even if they bring in nothing - is a benefit to the FUNDRAISER not the business unless the business is already established and needs to be very large. Not everybody even wants to be that large. As the woman above noted, this "ethic" is a protection of profits for the fundraiser, as seen by the fact that it is mostly promoted by Professional Fundraisers.

      Does the consultant get a commission on just dollars collected?

      In our organization the contractor gets paid when the dollars are collected, no pre-payments for yet-to-be-fulfilled pledges. There are small monthly bonuses contingent on available for contractors who meet various pledge goals.

      Or does he get a commission on a signed multi month/year pledge? If it is just dollars collected how long does the consultant get paid for? One month? six months? three years?

      He continues to be paid on any pledge he personally arranged as long as he is actively contracted with the organization. "Active" is defined as having added a new donor or renewed/extended a contract by their own effort in the last 6 months. (AKA If you quit working for us, we stop paying you.) Should a situation arise where a contractor wishes to make a large and unusual arrangement with a donor where he feels this payment arrangement would be unfair, he is welcome to seek a renegotiated exception from the board who make their decisions based on the best interest of the organization.

      If its a a new donor does the consultant get paid every time that donor makes a gift? or only on the first gift? different rates for first versus second gifts? How long does this relationship continue? Are you going to pay residuals over the lifetime of that donor? Ie. the new donor makes a $500 gift (initial commission) and then makes a $250 gift every year for X years-does your commission based consultant get paid each/every year?

      Contractors only get paid as long as they are in active status with the organization (see above). If they make a 45 year contract with a donor AND the donor follows through on that contract AND they stay active that whole time then yes, we will happily pay them every year. If they leave the checks stop after 6 months.

      Does the consultant get a commission on a gift made by an existing donor but to a new campaign? Ie. a $500 donor to your annual fund now gives $10,000 to your capital campaign (having received a letter that the consultant wrote on behalf of the campaign) -does he get paid for this?

      Absolutely. He wrote the letter, we wouldn't have gotten it without the letter, he gets paid. This month he probably won't have to do a lot of work to meet his full salary. Good on him.

      How does your consultant get paid for a gift in kind? Lets say she arranges for a local lumber mill to donate $100,000 worth of product to your building project. Are you going to pay cash to your consultant to compensate him for this “in kind” non cash donation? If not-should he bother pursuing such a gift? If so-how do you measure the size of this donation to base your commission on?

      Our organization is not in great need of "in-kind" gifts, so we don't encourage them from our contractors. Since they are rare we deal with them on a case by case basis. In negotiations it benefits the contractor to have raised cash that month if he wants the cash to be there for the board to pay him for the in-kind donation. So far we have had no problems with this, because to be honest all of our contractors believe in our cause and have always been happy to volunteer a few hours on the side to arrange an in-kind donation if they believe it will help the cause. It is also in their interest to have an established relationship with the in-kind donor even if they don't get paid for that one thing.

      What do you tell your donors? Do you tell them that you have hired someone who gets a percentage of every dollar you donate? do you tell them the percentage?

      Hell yes. Lying to donors is a massive no-no. We also reveal the cap of course. I have yet to meet a donor who objects to a 3% total overhead (which is more than ours has ever been). I think I commented on one of your other blogs about how it actually annoys me that donors frequently give to us based only on that. The anti-commission kerfluffle is almost totally an internal thing, 98% of the donors I have explained it to have laughed at the absurdity of the idea. (I expect Marc that you may have had a different experience with donors, because you present it differently)

      There are a million more questions/scenarios that could come up that i haven’t even begun to explore. And many iterations of multi year giving, repeat/renewing donors that could and would generate tons of challenges. Many issues regarding tracking/auditing and accountability as well.

      Not even sure how to answer this because the answer is so obvious it sounds condescending to say it.
      Contracts are complicated. Life is hard. Anybody who says differently is selling something.

      Planned giving? Wouldn’t even know how to begin thinking about accepting an estate/planned gift under a commission arrangement.

      At the moment we don't have anyone experienced in planned giving to train our team (not because we don't think it is important, but because all the experienced people have been brainwashed into thinking commissions=scam and grassroots=not serious)
      However, we do have a provision in case one of our contractors wants to branch out into the area of planned giving. The contractor CAN choose to simply treat a planned gift as a pledge for commission purposes if they think they will be with the company when the gift hits our bank account OR they can choose instead to up to their percentage and/or capped salary for a limited period of time according to a calculation set forth in the contract. Because planned gifts tend to be large the available commission/cap raise and the time period it is available for is not a direct percentage of the expected gift but rather based on a "tier" system.

  3. Yes Jeanne contracts "can" be complicated. You seem quite proud of the contract that you have developed. And if it works for you and your group-fantastic. I am not entirely sure those of us who subscribe to the industry code of ethics (that is present in dozens of fundraising associations not just the AFP) object to commission based compensation as much as we agree with fee based compensation.

    As for the rest of your post-there are certainly point by point reasons to object/debate but online forum debates quickly reach a point where its less about real dialog and more about pontificating.

    If your system works and your donors understand and support it and your contractors are willing to embrace it-then that seems just swell. I (and a few others) were just posting reasons why the organization that we belong to and support have long since settled the issue.

  4. Accountant hubby points out that a fundraiser whose salary was negotiated is effectively receiving a pre-paid commission - often based on his own estimate. THAT policy is what leaves organizations open to a scams. How could an organization possibly ethically contract to pay a guaranteed commission based not even on pledges but on wishes and promises?

    Example 1:
    A fundraiser requesting a 70,000 salary based on their promise to bring in 1,000,000 per year is suggesting they are worth a 7 percent commission. 7 percent is more than we pay our contracted commission fundraisers - especially if they get up past their cap to the 1,000,000 level.

    Example 2:
    A fundraiser requesting a 70,000 salary based on their promise to bring in 100,000 per year. Nobody would agree it was ethical for an organization make this deal because we all instinctively know the fundraiser is effectively requesting a 70% commission.

    Example 3:
    The organization above agrees to pay the fundraiser a 7% commission - a rate equivalent to the fundraiser in Example 1. He makes a little less than he thought, but he still gets $6,000 working in his spare time and they keep $85,714 for their cause.

    Example 4:
    A fundraiser promises 100,000,000 and negotiates a 70,000 salary. Lets assume he is honest but deluded, and does not realize that 95% of the organizations former donor pool are now dead or unemployed due to a freak Twinkie factory explosion. He manages to raise 100,000 anyway. But the organization has to close because they can't meet the growing need for their services (so many adorable children who cant afford the surgeries to remove the twinkies embedded in their little faces!) on only $30,0000.

    Example 5:
    A fundraiser promises 100,000,000 and negotiates a 70,000 salary. His confidence seriously shaken after his experience with the Twinkie people, he only manages to raise 50,000. Now this organization not only has to close, they also have to declare bankruptcy and stiff their fundraiser and all their other employees their salaries.

    By your standard the organization in Example 4 that CLOSED after paying 70% of their income to a fundraiser and the organization in Example 5 that CLOSED and screwed over all their employees behaved more ethically and were more benefited than the organization in Example 3 that made $85,714 and fulfilled all their commitments to their employees, their fundraiser and their beneficiaries.

    Now to be fair there is an:

    Example 6:
    Fundraiser negotiates an uncapped 7% commission from a phenomially stupid organization and raises 900 bazillion dollars and laughs all the way to the bank.

    Example 6 is what we in the trenches of the non-profit world like to call "a high class problem", since we still have 93% of 900 bazillion dollars.
    Is it un-ethical for the fundraiser to not institute his own cap at that point? Yes.
    Is Example 6 the sort of thing that keeps me up at night? No. What keeps me up at night is trying to figure out how to get our volunteers to the base after gas reaches $5.00 a gallon.
    Was it the type of payment that was the problem in Example 6? No, the problem was an idiot at the wheel of the non-profit who hired a greedy douchbag fundraiser.

    The Four Morals of the Tale:

    1)Pay your fundraisers capped commissions - it's more complicated but almost always more beneficial to the cause and more ethical than a salary.
    2) Don't put idiots in charge of hiring.
    3) Don't hire greedy douchbags.
    4) Always protect your face from Twinkie shrapnel.

  5. Wow. I'm amazed by both how this almost 2-year old post is still really alive! And how passionate both are in articulating their positions.

    (1) Please keep this civil. "douchbag" is really the limit of language here. You may not realize this but language like that doesn't help persuade people. It puts them on the defensive. As John points out, it takes skill to actually dialogue in blog comments. But please try to. If you want to pontificate with colorful language, you have that freedom...by starting your own blog.

    (2) I think a major problem for either position is the term "ethical." As I've been mulling this over, and had a comment from a colleague in a different forum, I wonder if it wouldn't be better if there were two sides that talked to clients with reasoned explanations for their payment structure. Calling one or the other unethical seems like a nonstarter, merely making the other person defensive.

    Thanks for keeping the comments interesting and lively. But let's try to produce dialogue that might persuade others rather than op-ed style comments designed merely to preach to those already entrenched.

  6. Shawn Garza says:

    I have been very worried about Twinkie shrapnel.

    I agree that the "non-ethical" moniker is a non-starter. I think my main gripe is that an organization with the credentials AFP would actually forbid something like this by calling it "unethical." I find it horribly limiting especially when due diligence is performed and both parties agree to the arrangement and act in good faith.

  7. MariaN. says:

    Hi everyone!

    I'm a promotional copywriter and not a professional fundraiser, and this is one of the most fascinating threads I've read in a blog. I'm coming at it from an outside standpoint, that is, a direct marketing point of view. If I write copy that brings in 900 bazillion dollars in sales, I'm worth a lot a money to the company, reflected not only in a fee but, in some cases, royalties (fee + commission). The company's hope is, the next time I'll bring in 10 times as many dollars, and you can bet not only my fee but the royalty percentage will go up as well. It seems to me, in example 6 above, if a fundraiser, in fact, brings in 900 bazillion dollars to an organization, he/she is worth every bit of that 7% commission and I don't believe any organization could be called stupid in rehiring that person at an even higher, uncapped percentage. Nor would I consider a fundraiser unethical in not capping it him/herself. In business, you pay for what you get. And, there are always risks, never guarantees. The next time, sales might not work out the way you hoped; nonetheless, "the laborer deserves his wages." Why should it be different in fundraising?

    That's a real question, not a rhetorical one. Perhaps I'm missing something?

    I also admit to being bemused by how much passion fundraising arouses. By contrast, sales seems so much more straightforward.

    Thanks for the chance to participate in a really great blog!

    Maria

  8. Jack Benson says:

    With commission based fundraising, the benefits to a Not-For-Profit can enormous. Especially for a NFP with limited resources. Lawyers have embraced this practice it for years, taking 30-40 percent on contingency -- and is generally accepted. AND CONSIDERED ETHICAL. Like lawyers, if the fundraiser doesn't produce, they get nothing. If they both only make a phone call to produce big results, it's a windfall. Other times, it may take more work than the contingency/commission covers. But over time, it balances out.

    What's the difference?

  9. Lawrence Koosman says:

    (this post is in regard to a soon-to-be-completed $10 million campaign)

    Marc.

    As a volunteer I have raised modest funds on occasion for a small town's long-existing civic group since the 1990s. Two board members of that town's new non-profit organization (who also served on the board of the older civic group) asked me in April 2012 if I could figure out a way to raise $10 million for their cause. I've been a close friend of one of these board members for 15 years, and I've known the other (who is employed by an established organization that is partnering with this new group) for three years. I was asked by the latter what salary I would desire for the executive director's position, and I said $75K, which is well under the market rate in most areas of the country for non-profits with $10 million budgets, according to the Watkins Uiberall 2010 Nonprofit Compensation survey which can be found online. He said my request sounded reasonable, but noted I would have to work out my salary with the board as a whole, and that I couldn't get paid until funding began to arrive. I said those conditions were acceptable, and then he formally offered me the position, which I accepted. He congratulated me, we shook hands, and I began to strategize on the most efficient way to raise $10 million.

    Within three weeks I identified and recruited a professional fundraiser who worked in the 1990s for the new organization's founder, who is world famous. Due to his admiration of our founder, the fundraiser said he would be honored to conduct the campaign pro bono. I spent the next 10 months assisting our campaign leader by proposing and researching potential members for our steering committee.

    Then this past February the two board members who I met with in April 2012 came to my home and said "the fact of the matter" was that I wasn't the executive director after all, but that I could apply for the position, and if I didn't get it, then "maybe" they could get me "some contract work." I was stunned, especially considering one of the board members has been an old family friend. She called me three weeks after this meeting to say that she and the other board member only said in April 2012 that they would "recommend" me for the E.D. position if my efforts were successful. That simply wasn't true. After I let the shock subside for a few days, I contacted the board chairman and briefed her on the unpleasant recent meeting. She immediately expressed her displeasure of her board members arranging to meet with me without her knowledge. I told the board chairman that I didn't request a written agreement at the outset because I thought it might be perceived as an affront to the organization's founder -- I didn't want to elicit a "What, don't you trust us?" reaction, which is the last thing I wanted to do. Besides, I said, I'd been a friend of the town and most of the board members for 15 years.

    I then spoke of the April 2012 meeting, which astounded her -- she said the two board members never conveyed to the rest of the board that I'd been offered the E.D. position. Of course, the fact that no one else on the board had been told by the two board members that I'd been offered the job almost a year earlier in turn astonished me. I then e-mailed the chairman a draft of a solicitation letter that I'd sent to my good friend on the board upon her request about two weeks after my hiring, which included my name and title at the bottom. She never replied with a "Oh, no, there's been a big misunderstanding" or words to that effect in regards to my title -- in fact, she never replied at all. As I see it, her silence implied her agreement that I held the title, and put her on notice that I was under the impression that I was the E.D. She and the other board member let me continue to work under the belief for the next 10 months that I was indeed the E.D. of the organization.

    The board chairman said it seemed apparent the the two board members had offered me the E.D. title prematurely, which they evidently came to realize. I gathered from the chairman that the organization's founder wanted all board members and the E.D. to live in or nearby the small town in which they all reside (I live two hours away). It was hard for me to fathom that proximity to the non-profit's office would trump all else -- you'd think figuring out a way to raise $10 million, within three weeks of being given that task, would have commended me for the position.

    I said if I'd been told that I wasn't eligible for the E.D. job to begin with, then I would have only undertaken the assignment as a consultant. I said I was a team player, and that if the board wanted someone local to serve as E.D., I'd be supportive. However, I made it clear that I felt it would only be fair for me to be compensated as a consultant. I drafted a proposal and sent it to the chairman within about six weeks of my calling her with my grievance.

    1. I opened the proposal by re-stating the first sentence in the previous paragraph. I also said, I think it is reasonable to conclude that this organization, just like any new or low-budget, non-profit that asked someone to devise a way for them to raise $10 million, would have readily approved a consultant's proposal in which the organization would retain 90% of the funding raised directly or indirectly by the consultant.

    2. Since I don't agree with receiving strict commission-based compensation from a non-profit, I submitted a compensation plan based upon the attainment of benchmarks, $250,000 for every $2.5 million raised by the professional I recruited.

    3. I said would not consider asking for a lump sum. I noted that I believed the consultant should not earn as much as the E.D., so I requested a capped annual salary of $50,000. For example, if the fundraiser's campaign yielded $5 million, I said I would seek an agreement using the above-mentioned benchmarks for 10 years at $50,000 annually; or if his campaign raised $7.5 million, I would request an agreement for 15 years at $50,000 annually.

    4. I said I'd would also agree to cap my total earnings at $750,000, paid over a 15-year period. In other words, all proceeds raised by the fundraiser over $7.5 million would be retained by the organization.

    5. I said If desired, I would be honored to pursue one or two six-figure fundraising events per year, on a volunteer basis, if the organization desired these events, for as long as the famous founder was open to attending them.

    6. I concluded by saying I felt this proposed framework is more than fair, given: a) that I was approached by two board members of the organization and asked to figure out a way to raise $10 million for their mission; b) the retracted job offer that occurred nearly a year after (and despite) my key achievement of identifying and recruiting the professional fundraiser; c) my desire to have the board retain the E.D. of its choice; d) my willingness to cap my annual earnings at $50K, which is one-third less than I would have earned as the E.D.; and e) my offer to have the organization retain all funding over $7.5 million.

    Marc, the question I have for you and your readers is whether I submitted a fair proposal. This has been a awful experience for me...being asked to work as the catalyst for a $10 million campaign, and then putting the wheels in motion within three weeks...only to have my close friend deny along with her fellow board member that I was even offered the E.D. position, despite my written proof to the contrary, in order to keep from being called on the carpet themselves...and then allowing me to work for 10 months with them knowing that I was under the assumption I was the E.D...in addition to them never telling the board the true nature of my involvement, that this wasn't a volunteer activity on my part, but expressly tied to eventual compensation. I rightly thought I'd landed a stable position (upon the completion of the fundraiser's 18-month campaign). And now I've been out of communication with the organization for nearly two months, which is when I last her from the board chairman. She's never even acknowledged receipt of my proposal. That could be tied to the board meeting as a whole every two or three months, but still, I think I deserve the courtesy of some type of reply. As friendly as she was in our two-hour call in which I explained everyting to her, my guess is that she forwarded my proposal to the organization's famous founder and he told her to not even reply to it. Which would be a terrible disappointment to me, given my long rapport with him.

    During our long phone discussion, she suggested a possible solution would be to at least see that I was paid for a year's work. I said if I'd been asked to devise a way to raise $1 million, then I thought $50-75K would be appropriate. But not for engineering a $10 million campaign. By that logic, if I'd been asked to figure out a way to raise $500 million, I still would've been offered the same relatively modest one-year salary. I think that's absurd. And it's not as if I was asked to construct a PR campaign or given some other ancillary project not connected to raising meaningful revenue. I can see accepting a $50-75K salary had I executed some non-revenue related assignment. The task given to me, though, was all about funding. So I feel a capped benchmark arrangement is emminently fair, seeing that the E.D. job was offered to me without authorization and eventually retracted, after I'd been allowed to work for nearly a year while believing I was the E.D.

    I feel strongly that the benchmark arrangement cited above, if presented by a consultant to 10 new non-profits who are seeking $10 million, would be readily accepted by all 10 entities, which I would then argue indicates fair market value. I think I'm bending over backwards to be fair, especially in offering to cap the annual salary and total earnings. The idea of having to consider going the legal route is anathema to me, but if I don't receive a response to a follow-up e-mail I plan on sending next week, I don't know what else to do. I think the botched job offer is now almost besides the point. The bottom line question appears to be what is the fair market value for someone who is approached and asked to figure out a way to execute a $10 million campaign, and for his then identifying and recruiting a professional fundraiser to undertake the campaign pro bono -- as opposed to raising the money myself. Can you or your readers tell me what would be a fair level of compensation, especially under the circumstances, for my professional services in this effort? If pushed, I would consent to a benchmark of $125,000 for every $2.5 million raised, which is half of what I proposed in my letter to the chairman. I saw your earlier post that in which I believe you said you had no experience with benchmark-related compensation, so I realize you may be unable to advise. I greatly appreciate you and your readers taking the time to read this unintended lengthy summary.

    • Wow. Lawrence, I'm so sorry for your experience. You have been treated very poorly be the very people who should be most thankful.

      As for "value," that is an open question. I like that you cite objective standards and rationale. But I'm not going to "approve" minimums. I know a guy that gets paid 4-5 times what I get to speak. Both are "fair" in the eyes of the respective clients.

      Value in service industries like ours is such a mix of tactical skills, experience overtime, marketing, and whatever issues or desires the client has that I'm not sure it can be boiled down to a commodity like the price of a light bulb.

      I think the way you laid this out is logical. Since you were so trusting in your comment, I'll value that trust enough to be frank. While I agree that your project is much more important than a one-off PR campaign, I don't think I've ever met a nonprofit board that will pay out over time, especially over 15 years.

      I sincerely hope you at least are able to find some sort of email or other scrap of something in writing to be able to defend yourself should this go to court.

      Thank you for this cautionary tale.

  10. Lawrence Koosman says:

    Marc,

    I greatly appreciate your candid reply, especially since I'm in need of objective perspectives to counter my biased viewpoints. Would you mind elaborating on specifically what you were referring to in my post when you mentioned not approving minimums? (apologies for my denseness on that one).

    I proposed the 15-year payment plan thinking that it would be less onerous for the organization to pay $50K a year over that span than it would be to have the fee paid in one or two large annual sums. No one would need to twist my arm to pay me in that latter fashion, if the goal was to get me off the books ASAP. What I didn't mention in my first post is that I recruited a different fundraiser three years ago to raise $1 million for the small civic group that was the predecessor of this new organization. And the civic group agreed to her terms -- 10% -- except it took three weeks for them to meet and relay their answer to me, by which time she received a much more lucrative offer elsewhere, and I was never able to capture her interest again. So there is a precedent here in terms of knowing what the board members of the new organization consider reasonable, in that they mostly comprised the board of the civic group.

    There is one other e-mail of relevance that I have, though I'm not exactly sure of its significance. A few hours after I received the job offer last April, I received an e-mail from the board member who made the offer, in which he said the organization's founder "directed" that I contact an old friend of the founder who I'd suggested about five years ago would be a possible candidate to serve as a VIP fundraiser for the civic group. My guess is that board member, after meeting with me earlier that day, told the founder I was willing to help, without mentioning the job offer. Although, if the founder thought I was simply volunteering to help figure out a way to raise his organization raise $10 million, you might think he would have "asked" that I contact his friend, rather than "direct" that I do so, which would be a more appropriate command for someone in the organization's employ. But that's neither here nor there, since I'm certain the founder didn't know of the formal offer I'd received earlier that day.

    Value can be described as the best guess as to the worth of a service and the return on the investment. There isn't a crystal ball that can guarantee how much a speaker's knowledge and advice will add to a client's bottom line -- and with the mix of skills, experience, etc. being so subjective, it's no wonder that one speaker will earn X while another earns 5X. Conversely, I know in this case how much my consulting services, via the professional fundraiser working pro bono, will likely add to this organization's bottom line -- $10M+. No guess work there. Which I would think would make it much easier for the organization to determine a fair level of compensation for me in lieu of the retracted job offer.

    You're right, value in service industries like ours can't be boiled down to a commodity like the price of a light bulb. However, I think the most precious commodity on Wall Street, in a sense, is the item called certainty, which I've indirectly delivered to this organization. They know roughly how much they're going to receive. And as I said in my first post, there's little doubt that 10 out of 10 new organizations, if asked beforehand, would have readily agreed to a benchmark arrangment with a consultant who proposed that they retain at least 90% of the funding raised in a $10 million campaign. If there's virtually unanimous agreement from multiple non-profits on the terms of a proposal, I think that's one way to derive fair value. What may be more obvious is recognizing unfair value when it's proposed. such as the chairman's first thought that one year's salary, i.e. $75K, would be a fair agreement. In this instance, I think it would be tantamount to someone offering a 75-cent reward for information leading to the return of a $100 bill. A cheap reward can hardly be considered a fair one.

    Many thanks again for your time and insights, Marc.

  11. Lawrence Koosman says:

    ...and Happy Father's Day if it applies.

    • Lawrence,

      Thanks. Father's Day does apply. :)

      I think your plan sounds reasonable. As with any negotiation, I would ask for the best but have 2 acceptable-to-you fall back options.

      I'm really uncomfortable giving this level of specific, and possibly legal, advice without a contract. As you know, blogs stay up forever.

      There are 70+ comments on this thread alone. Comments that suggest ideas for percentage and non-percentage based compensation. Your thinking seems solid, although as you'll see from comments above, some very smart people will disagree.

      • Lawrence Koosman says:

        Thanks for your positive feedback, Marc. Having the opportunity to take part in this thread helped clarify my reasoning, as opposed to just churning it over repeatedly in my head. Fall backs options are in place. I'll try to remain optimistic that reasonable people can arrive at a fair agreement.

  12. Timothy Barksdale says:

    Mr. Koosman,

    Over 40 years ago, in a similar manner/situation I was offered a position by one who did not have the full authority to do so. My sympathy to you. I only labored a few weeks before the situation was revealed, so my losses in time and effort were in no way comparable to yours.

    Board members it seems feel powerful enough to over step their boundaries when boundaries are not clearly defined. Some years later, as Director of Development for an NPO, I became responsible for training board members on how a non-profit should run and balance the staff, board and volunteers.

    Peter Drucker's outstanding book on managing the non profit became my "bible".

    I am trying to put numbers and fund-raising into a different situation now - but when you hand the product to a national organization for free, then it seems to return to a non-profit model.

    Mr Benson- who in the world- in this day and age- would find an attorney "ethical". And 30-40 % may be standard- but I would question the use of the term "ethical" in that application and in any association with attorneys.

    I strongly disagree with Ms. Tanksley's suggestions. Henry Russo was one of my mentors in fund-raising and I am very proud to have him in my lineage.

  13. Hi Marc:

    Any offering/insight/wisdom that you would have in response would be greatly appreciated!

    As a general performance based business consultant, I charged and earned $225.00 per hour, I am using that same amount as my current rate associated with raising funds for a new start 501 3c. I actually conceived and have done all the required work associated with creating the organization including building a 7-member board of respected individuals from the community that will host the organization. The project focuses on helping children attending the community’s public schools with extremely limited resources with supplemental resources specific to STEM.

    The base hourly rate will be used to calculate the amount owed to me up to the date that the actually fundraising activities begin so there is “back-pay” due when donations are received. But, I will not be paid any additional hourly rate for work following the start of the fundraising segment of the process. Going forward and in addition to the 1,100 hours back-pay associated with the last 18 months of work, I will also receive a bonus of $200, 000.00 per every $10,000,000.00 that I am able to secure in contributors. From the bonus money that I will receive if successful, I will also be responsible for most expenses that will account for approximately 20% to 25% of my bonus payments. The result will be 91% to 93% of every dollar contributed will go towards the project- less that 7% to 9% in total expenses will occur. I assert that I am being under-paid as a result of my own doing but I think it is fair considering that I too want the effort to be successful and as much as possible be directed to making the project produce meaningful results that will positively impact these underserved children.

    Based on this information and my expectations to be successful in reaching the goal, am I aligned with reality from a financial recovery perspective? Thanks for your anticipated insight!!

  14. Clarification appears appropriate. The total expenses will not exceed 7% to 9% with the remaining 91% to 93% going toward the project. Sorry for any confusion, thanks!

    Gee

  15. Lawrence Koosman says:

    Mr. Barksdale,

    My belated thanks for your insights. How I wish you could have trained the board members of the organization I referred to at length in my posts from this past June.

    Marc: It took until mid-August for the board to meet and another three weeks before the chairman replied to my proposal that I submitted back in April. In short, the chairman thanked me for my great "help," and didn't even acknowledge my compensation proposal. To review my situation, in April of 2012, at the solicitation of the board's representative, I attended a meeting with that rep and was asked by him to devise a way to put a $10 million campaign in motion, in whch he offered me the executive director's job as incentive in a handshake agreement.

    Within a month I performed the transformational achievement for the organization: I recruited a fundraiser, who is an old friend of the organization's founder, and he graciously agreed to spearhead the campaign pro bono out of affection for the founder. This was tantamount to me finding a needle in a haystack. I then worked with the fundraiser for nine months for no pay in identifying and researching prospective donors of $250K and up.

    And at the end of the nine months I was told by the organization's rep who hired me that I wasn't the E.D. after all, but could still apply for the postition, and if I didn't get it, then "maybe" I could receive "some" contract work. I soon deduced he offered me the position in April 2012 without clearing it first with the organization's founder. After recovering from the shock of this news, I sent a letter to the board chairman stating I was a team player, and wanted the board to hire whoever they desired, but that I would obviously need to be compensated as a nonprofit consultant.

    After waiting nearly five months, the board said I I knew couldn't have received an official job offer because the organization's bylaws state that only the full board shall employ the E.D. And as I said, my consulting proposal was totally ignored. The board actually believes a nonprofit professional who is approached by their own representative to put a $10 million campaign in motion doesn't need to be compensated after he carries out the assignment given to him and works for another nine months on the project at no pay. I can't begin to describe the devasting effect this has had on myself and my family. The retraction of a much-needed full-time position was bad enough, but to be offered nothing at all for leading the organization to $10 million seems unconscionable. Thank you for allowing me to vent.

    Best regards,

    Lawrence

  16. I totally agree!! Well said. Sales is sales. And it seems as though whoever came up with the notion that commission based fundraising is unethical probably has a huge budget and doesn't want to see the playing field leveled.

  17. I bumped into this online and thought I would make a couple of comments. BTW I own a professional fundraising company.

    1. I turn down at least 10 requests by non-profits to come work for them for every group I do go work for.

    2. In most cases I end up finding the groups to work for myself because most groups don't have a strong enough pull (it is too narrow or specialized to hire a fundraiser)

    3. The value of the professional fundraiser is not the calls or the percentages or the commissions paid. In fact even if I received 100% of the proceeds I would lose money calling for a single group. The professional fundraiser has client base that is interested in giving to the right cause. That is their main value to the efforts of the cause. The percentages are very high to the fundraiser not because they are greedy capitalists trying to take advantage of people but because the costs are so high.

    4. How many charities would actually survive if the government cut them off of their grants?

  18. Gary, very interesting and instructive! Not to dispute anything you said, but could you clarify what costs you're actually talking about?

    • Well in our case we conduct telemarketing fundraising programs. On the average we pay approximately 45% of the money we raise to payroll for the TSR's and managers, that number would include payroll taxes. That number would include cold calling, warm calling, and renewals. On cold calling we actually lose money. But it is a necessity to continue to do it to build the customer list. In addition to those costs you have your overhead which would includes mail expenses, bonding, management of and the cost of running automated dialing systems, bookkeeping, rent etc...

      • Really good information. Thank you! Just so you know, I write sales copy, so I'm not looking for proprietary information. I'm just wondering where you get the initial lists to call. Do you rent them?

        • By initial list do you mean a cold list? That can be purchased from multiple sources. You can purchase a good cold list for around 2-5k for a state based on its size. Once you purchase a cold list you own it. Over time it becomes less effective because of disconnects. Typically a cold list is good for one to two years. If you mean non cold it is self generated by internal sales. Trying to purchase lists of "Warm Leads" is not effective. Even if they perform above initial cold calling they will not "Pay" at a typical rate because they are sold to multiple company's.

          Also I wanted to ad this point. Hiring a professional fundraiser can be effective. Especially for smaller groups of volunteer organizations. We do very well for regional groups such as animal charities. Many of these groups are filled with people with full time jobs and don't have the proper time and infrastructure to raise effective monies on their own. I work for 5 animal charities. My largest received over $25,000 in net proceeds at no cost or investment of their own money. This type of organization is my favorite to work for. No executive directors taking big salaries.

  19. Hi everyone,

    This thread sure has brought about discussion! In the 2 1/2 years since I posted it, we've seen 88 comments. Some for. Some against. Passion on all sides. We've seen what I meant (major gift fundraisers) and what others do (direct mail, telephone, etc.)

    I am now closing comments on this thread. I appreciate everyone taking the time to share their point of view. It'll provide interesting reading for a long time!

    Here's to a great 2014!