Few topics generate more heated discussion in non-profit organizations than whether development professionals (staff or consultants) should be paid a percentage of the money raised, receive commission-based compensation, or be paid a performance bonus. Perhaps because it is a practice of giving financial rewards to development professionals contingent upon the achievement of fixed money goals, we can simply refer to it as “contingent-pay.” Whatever you want to call it, two things are becoming more and more apparent.
- The practice is increasing.
- The practice is troubling the development profession.
Thinking about why we have seen more contingent-pay in recent years, I found myself reflecting on a change I have witnessed in how we development professionals describe and perhaps even think about ourselves. There is a tendency these days to describe our work as fundraising and to call ourselves fundraisers. I have always thought of the volunteers as being the true fundraisers and we development professionals as the people who develop the atmosphere for that fundraising. To some this may seem like an exercise in semantics, but I think it is a great deal more.
Many development professionals today enter into consulting agreements or are hired as staff to “raise funds.” Sometimes they even seek to be THE fundraiser for the organization they serve. The result is that these development professionals and their organizations have blurred the once clear difference between the fundraising role of development officers and that of trustees and other volunteer leaders.
Many development professionals have become the “fundraisers” for organizations. As a result, contingent-pay methods of compensation have gained acceptance. The argument being, let’s reward people for results and penalize them for poor performance. Contingent-pay becomes an inducement for development professionals to take on the tough job of fundraising and a way for boards to justify turning over to staff or consultants what is essentially a trustee responsibility.
To me, the answer to the question of why contingent-pay is so troublesome seems obvious. It is one thing for development professionals to discuss fundraising techniques and philosophies and to strenuously air disagreements. It is quite another to tell people that the way or amount they are paid is unethical.
However, the Association of Fundraising Professionals (AFP) takes a strong and unequivocal stand on contingent-pay. Their 1992 position paper developed by the ethics committee states: “Members shall work for a salary or fee, not percentage-based compensation or a commission.” The AFP cites the main consequences of contingent pay:
- Charitable mission can become secondary to self-gain.
- Donor trust can be unalterably damaged.
- There is incentive for self-dealing to prevail over donors’ best interests.
AFP, Giving Institute, AHP and other major “for-the-profession” associations tell their thousands of members and all other development professionals not to engage in contingent-pay arrangements. Despite that admonition, many development professionals are not only continuing to do so, but accelerating their acceptance of such compensation schemes. How then do these development professionals deal with the fact that the governing bodies of their profession hold them to be engaging in an unethical practice?
I believe that very few of those who work for contingent-pay are truly unethical, rather they are guilty of bad judgment. In this instance, as in so many others in our society, individuals fail to follow long-standing codes of ethics because they reject them as tenets of conduct. What were held in the past to be standards to live by, are often viewed today as mere opinions, open to interpretation and argument. This is a societal problem that we see manifesting itself in this instance in the disavowal of strictures against maximizing personal gain while in the pursuit of recognized philanthropic good. The rationalizations are there for anyone who wants to find them.
Commonly Voiced Justifications for Contingent-Pay
“Sales incentive programs used effectively in for-profit businesses will work as well in non-profit settings. It makes no difference whether you are selling light bulbs or support for symphony orchestras.”
Well, I’ve sold light bulbs and I’ve “sold” support for orchestras, and I’m here to tell you there is a difference. Incentive-driven efforts for the sale of commercial products involve an explicit selling and buying environment which customers understand and expect. When we are seeking voluntary charitable contributions we are not working in the same transactional environment. We are not selling to prospective donors; we are presenting them with an opportunity to realize their own desire to contribute to their community and concerns. We are not telling prospective donors to buy our product because it accomplishes something they need at the best value in the marketplace; we are asking them to consider making a gift to something in which they believe and that they want to support. An individual soliciting a gift is involved in a very different transaction from one selling a product. Ask someone if he or she expects salespeople to get a percentage of the price paid for a purchase; ask a donor if he or she expects the person asking for a gift to get a percentage of that gift. I’ll bet you dollars to donuts the answers are different.
“The board won’t or can’t raise the money, so we have to do it.”
Time and again I have found that this situation occurs because the development professionals either did not know how to present encouraging and workable fundraising plans to board members involving them as the leaders of the effort, or because the development professionals simply chose not to do so.
“If we compensate our development professional on a contingent-pay basis we will not have to pay for development efforts that fail.”
This is sheer folly. Boards that say they have nothing to lose actually lose everything. Such an attitude assumes failure.
“Contingent-pay means that both the board and the development professionals share the risk.”
Nothing could be further from the truth. They share the risk when the risk is the same: that the organization will not make its goal. Contingent-pay creates a situation where the board’s risk is that the organization will not make its goal and the development professionals’ risk is that they will not make their money.
Still Not Convinced?
While I have no problem espousing with vigor the concept that non-profit development professionals should work only for salaries or predetermined fees, I recognize that the emotional baggage that accompanies discussions of pay and ethical behavior can easily cloud the issue. Therefore, let me point out some additional pitfalls associated with contingent-pay for both the non-profit organization and the development professional.
- Abrogation of responsibility The board can be less likely to contribute its time to the fundraising effort. That can leave the development professional out on a limb and the organization with an atrophied board.
- The future be damned! The development professional will find it hard to justify expending time or effort on work that does anything other than maximize the amount of money to be raised in the identified time period. The organization therefore loses the benefit of a development professional working to build a strong base of committed volunteers for future fundraising and other projects and programs. The organization sacrifices long-term health in order to achieve short-term gain.
- The “hired-gun” syndrome The development professional sees his/her future as based upon simply the achievement of one short-term goal after another rather than the organization accomplishing its overall objectives. It therefore becomes more likely that the development professional will identify his/her professional identity with his/her track record, not with the organization.
- Whose “customers” are they? When the development professional leaves the organization, relationships established by him/her will leave also, or at the very least, the history of those relationships will disappear.
- “Raising the bar”Each time the goal is accomplished and the incentives are paid, the board will have the tendency to view itself as having been too easy on the development professional. They will feel they have been “had,” and their goal setting will evolve toward unobtainable levels in order to make sure they are getting full value. This is not how campaign goals should be set. Money is raised to meet a stated purpose and the “well” is never arbitrarily “pumped dry.”
- The lucky so and so!Should an unexpectedly large gift come in, the board will not want to give the same percentage to the development professional, creating great potential for ill will and bitterness.
- Not with my money you don’t! Some foundations, corporations, and private donors will not make a contribution if a portion of the gift is to be paid out as a commission. In some instances they will not give to a campaign that pays any commission at all. Read the fine print in any grant, and be prepared to disclose how the development professional is being paid before accepting somebody’s gift.
- No, no, no, it’s not worth that much! It is hard to pay a commission on in-kind donations. Who determines the cash value? Are you going by wholesale or retail or what? How do you figure the commission? More opportunity for ill will and bitterness.
- Promises, promises!Most of the money raised in capital and endowment campaigns comes in the form of pledges, with payments often spanning a number of years. The contingent-pay development professional will want his/her money when the pledge is made. What happens when a pledge is not fulfilled? Does the non-profit organization ask the development professional to return the commission? What happens when a multi-year pledge payment schedule is extended an additional number of years by the donor? Does the non-profit organization expect the development professional to wait for years as the payments are made?
- It was your fault! Development professionals working on a contingent-pay basis are more likely to be viewed by the organization as personally having caused the failure when a goal is not reached. The board does not accept its responsibility, and the development professional is more likely to be fired.
- No, it was your fault, you misled me! The development professional expects to earn his/her incentives. When he/she doesn’t, it creates a personal financial problem. The development professional is likely to blame the organization and move on to another job, even if he/she isn’t fired.
- Why don’t I have the chance to make more money too?Contingent-pay is out of line with other compensation practices within a non-profit organization. This can create resentment and lessen the team spirit of staff. In fact, it can create resentment and lead to a failure by other staff to support fundraising efforts.
What should the rewards be for development professionals of non-profit organizations? Simply, the best market-value compensation that can be managed in the form of annual salaries or reasonable and fair fees paid by the hour, day or for a project. As with other members of any organizations’ staff, the development professionals should be valued for their contributions to their organizations and for the cost to replace them.
It’s Your Decision
I believe in the standards that have resulted from thousands of development professionals working to help raise billions of dollars over decades of time. For me, not everything should be a matter of personal opinion; codes of ethics are established through collective wisdom because we do need absolutes by which to live. When I see all the wrong that can befall an organization or an individual in contingent-pay schemes, I cannot imagine for the life of me why either would want to go that route.
There is a difference between the ethical selling of light bulbs and symphony orchestras. When I was selling light bulbs, I had the responsibility to make sure my customers got full value for the dollar they spent. When I was “selling” a symphony orchestra, I had the responsibility for helping to keep a community asset healthy and strong for my and succeeding generations. It’s that simple. One is about value and the other is about what we value in life.
Those are my views on the subject. What are yours? I welcome your comments and suggestions.
Thank you for this article and for all the comments with their different and varying perspectives. I am a career sales professional who is considering jumping into the nonprofit arena in the capacity of what I am often seeing referred to as a “development director”.
I have a strong desire to join an organization whose mission and goals align with my personal values. I also have a strong desire to maximize my compensation through this endeavor. I don’t see the moral or ethical quandary associated with commission-based performance. It seems like an antiquated way of thinking. The best way for me to benefit my community and the world at large is earn massive amounts of income through a purpose that I believe in whole-heartedly.
There is no product or service in this world that I could ever sell or advocate for that will maximize my personal sense of joy and fulfillment that working for an intangible cause or mission will provide. It is perfectly reasonable to create a path to prosperity through work at a non-profit.
Having bounded back and forth between the nonprofit and the for-profit sectors and having been CEO of both types of organizations I believe I can understand your viewpoint regarding commission pay for those working in fundraising. However, I think that you are failing to take into account the culture of the nonprofit world.
To begin with there is a long history of commission based fundraising abuse by some organizations in the nonprofit sector. As a result, nonprofit organizations and their boards are justifiably leery. Another concern is the way and levels of compensation for the other professionals working for a nonprofit. All of us who have worked in a nonprofit have made the active choice not to maximize our income. We have committed to placing the mission of our organization ahead of any professional consideration.
Nonprofit organizations are stewards of other people’s money. Employees of those organizations need to keep that fact in mind at all times. Part of that thinking involves continually asking oneself, “Am I doing with the funds donated what the donor believed I would?” Absolute transparency is therefore required. Organizations exist that report nonprofits administrative costs, including fundraising expense, as a percentage of both income and mission-centric expenditures. They rate the efficiency and ethics of nonprofit organizations based on those ratios. The ratings strongly impact nonprofit organizations’ ability to fundraise.
Your final sentence, “It is perfectly reasonable to create a path to prosperity through work at a non-profit,” certainly sounds sensible. But I believe it puts the cart before the horse. I would recommend that you make a determination of what prosperity means in the context of the life you want to live. Personally, I would replace the word prosperity with fulfillment.
Once you have determined the prosperity/fulfillment you wish to achive I recommend that you explore the types of nonprofit organizations that are likely to contribute most effectively to that goal with an eye toward looking at their culture and existing pay scales and processes. I also suggest that before attempting to make a career change by jumping into the nonprofit world that you become an active volunteer for a nonprofit similar to one for which you would like to work. Spend a year or so volunteering to do work that furthers its mission. Do the dirty jobs. Stand shoulder to shoulder with staff members and other volunteers, and then decide whether the nonprofit sector is for you.
A couple of final thoughts: No work I have ever done has been harder or more fulfilling that the time I have spent on the staff of nonprofits in advancement and senior management. This includes the 16-hour days of owning startup companies. I have always thought I was grossly underpaid when I worked for nonprofits, but I was at peace about that because what I was doing was fulfilling my intellect and soul. Periodically I would feel a need to make “real” money and would reenter the for-profit sector, but nonprofits continually drew me back.
commission based fundraising would work well for my situation. i am by myself with little connections and poor people skills…yet i have a non-profit nature camp for disadvantaged children that needs funding…i would greatly benefit from a professional fundraiser motivated by commission. could you please direct me to such services?..thank you.
With sincere respect to you personally, and to your obvious hard work and dedication to help disadvantaged kids, were I even to know of “professional” fund-raisers or such firms, I would do you the greatest service in not telling you who they might be.
First, they do not advertise. They are not true professionals. When they do surface, and are hired by unwary non-profits, if they raise any money, the average “take” for them is about 75% of the donations. Many times much more.
Check out the website of your own state’s office of the Attorney General and look for the listing of charities and how they fared during the previous year, especially in relation to hired professional fund-raisers. I guarantee you will se how such bandits bilk non-profits out of most of any money raised.
You read my article regarding the serious consequences befalling an organization which hires a staff development person to himself or herself raise all, or most, of the funds needed by the organization—made even worse when that person works on a commission, percentage, etc., basis from the funds raised. Read again the admonitions, as they are real.
But apparently you are not talking about that sort of arrangement. It appears you want an outside person or firm to hire as professional fund-raisers. That arrangement damages even more an organization as you can read in my article:
“Asking For The Money Is The Job Of The Leadership And Friends Of A Non-Profit Organization: Never Hire Someone To Do What Is Their Responsibility”
Mike, I know is sounds easy for me to say what I am saying from such a distance, but my experience gives me credibility.
—Such hired guns will not work best for you.
—You should not be by yourself. As a founder/manager of an accredited non-profit, you should (actually legally must) have others serving as a board of directors. You make connections happen. They do not come to you.
—With the great and touching work you do, your only “people skills” needed is to let what good you do for the kids speak for you.
Have site visits by people whom you want involved. Let them meet the kids and their parents.
Will any of the working parents ask their bosses to look in to your camp?
Identify and invite for visits individual in charge of funding from area firms and corporations. Search for local charitable foundations and invite the decision makers to see the good you do.
Ideas such as that are the ways for you to move forward with the help of others.
Hiring a one-time paid solicitor, or even a staff person to raise the money, is absolutely not the way to go.
Slice it, dice it any way you want – it's selling. Here's a thought – how about selling the donors–which you claim would not want the fund raiser to receive a commission–on the same concept we all already know….they do!
It's all selling and it's all about compensation – be it salary, commissions, etc. Do you think that a donor believes a lackluster fund raiser will keep their job? Do you think a donor wants them to? Do you think a donor wants the end result of the non profit's service to be accomplished?
Do you really think there is a difference between selling the light bulb and selling the donor on how their money accompishes something for the community?
Instead of attempting to label selling and compensation as something different than it is…how about you and the ethics committee try to edeucate donors, if this is such a big deal?
To me, every argument you presented–and very articulate at that–can be made for people on salary. As a sales professional when did you stop buying into the idea that all humans are in sales? When spouses, students, employees, or salespeople stop performing or "meeting their quota/expectations" they become divorced from each other.
Maybe it's time the old ways of claiming what is ethical be transformed instead of the constant attempt to sell us on the difference between selling and…selling?
I enjoy all of your writing. Thanks for the thought-provoking discussion.
I’ve been a salesperson, a manager of sales forces, and the CEO of companies that rely heavily on spirited selling which is then rewarded by commissions that travel upward with performance. I’ve also asked for charitable donations, headed fundraising efforts, and been CEO of nonprofit organizations.
There is a difference between selling products and services and working as a development officer for a nonprofit organization. Fundraising and selling are not the same thing. Many skills and attributes are shared by development officers and salespersons, but a better comparison could be made between the development officer and the sales manager or in some cases the marketing department.
The job of a development officer in a nonprofit organization is to manage and execute some or all of the organization’s fundraising endeavors. Having paid, on-staff professionals ask donors for gifts is neither preferred nor desirable. Gifts should be asked for by a peer of the prospective donor. Peer-to-peer asks yield the largest return. The job of the professional development officer is to create the support and environment that prepares peer-group solicitors to make a strong, convincing, and compelling ask.
A donor is not a customer. Making a donation is not the same thing as buying a product or service. Making a donation is choosing to expend social capital in support of something you believe makes society better. People also make gifts because, for business or societal reasons, they want to be associated with the cause or associate with its supporters. Whether you are making a donation out of heartfelt conviction or because you want to establish relationships that can help in climbing the social or career ladder, you will want to be asked for that donation by someone you view as “important.” That someone is not a sales person. It is a peer or someone you would like have consider you as a peer.
Some time ago, I was given the responsibility for acquiring donations from CEOs of banks and other companies. As CEO of the nonprofit in search of the donations, I could have attempted to ask for the money from these men and women. Now mind you, they either didn’t know me or were acquainted with me in only the most passing manner. I could have attempted to “sell” them on the cause and the amount. Most likely, I would have been shuffled down to a lower level contributions manager, and I would have received a smaller gift or no gift at all. Instead I chose to have current supporters of my organization who were peers of the CEOs make the ask. Every CEO made a gift and made it within the range of what we wanted to acquire from them and their companies.
That’s fundraising! And it’s not selling. It’s managing.
Yes, there are small-gift solicitation efforts that do not function on a peer-to-peer basis. I have managed such an effort that was responsible for collecting tens of millions of dollars a year, and no one who was “selling” was involved. These efforts were about marketing and technology support not sales. Think database marketing and fulfillment skills.
Do I believe that good development officers should be rewarded based on the success they achieve? You bet I do. But I do not believe in making that reward a commission. Annual review and raises are the way to go. Add to that development professionals moving from smaller to larger organizations capable of paying at a higher scale and you have a system of fundraising compensation that has worked well.
Finally, a person who is motivated entirely by money–I believe you said, “It’s all about selling and it’s all about compensation – be it salary, commissions, etc.”–is not someone well equipped to be a development officer of a nonprofit organization. When it comes to raising money for a nonprofit the most successful development officers are more committed to the mission of their organization and a belief in the value of the philanthropic sector than they are to defining themselves by how much money they earn.
I hope I haven’t sounded too pugnacious in my defense of these points. I do realize that these issues are a topic of discussion that is receiving more attention today than it did a decade or two ago. However, after considerable thought and having walked both sides of the street–and around the block for that matter–I am still convinced of the differences between selling and fundraising and the validity of separate compensation strategies.
Thanks for your response – very though-provoking. I have a question – it applies to a more specific case but still on this subject;
What if the salary-paid developer isn't able (for whatever reason) to find enough volunteers? He puts into place a monthly membership program which aligns with the non-profit's missions.
Would it be feasable/reasonable/ethical for that developer to pay/offer commissions to any paying member who beleived enough in the mission [and wanted to earn extra income] the opportunity to recruit/resale memberships to other people?
For the sake of conversation/clarity – say a non-profit gym had a free membership, and also an upgraded $30 monthly membership. Their primary means for raising funds is by allowing any upgraded member to recruit/resale memberships to others for a commission of $10 per month from each member they brought in/sold. Not an MLM but more of a direct sales force promoting the cause of the gym.
All the free members, non sales people, etc. benefit from the cause….yet all the "salespeople", in addition to benefitting also get to earn some income. In this sense, the donors are also consumers and beneficiaries of the over cause.
Or am I missing some details? If I am missing some details, is there a way to do the example and ensure it's a win/win/win, legal and ethical for everyone?
The example you give doesn't seem like fundraising to me. It seems more like recruiting a sales force to sell memberships that have a specific benefit which can be measured in terms of dollars, than asking for donations to a 501c3 nonprofit. I just don't see how this is fundraising as it is understood in the nonprofit world. The very fact that you are offering a quantfiable value exchange would not make the membership a donation. The "donor" would not be able to decare it as a charitable donation. I think the hypothetical gym you suggest would be better served by being a for-profit. I doubt that it could qualify as a 501c3 nonprofit organization.
Also, I don't understand the use of the term "developer." That makes the whole proposition sound like a business development to me.
I sent you a reply but apprantly it didn't post.
I'm confused aboiut your last reply regarding the gym membership example. Many NP have memberships and/or quatifiable amounts for services or products they offer – girlscouts, hospitals, Harvard, etc.
That being the case…with the gym example…if it were NP it sounds like you're saying that scenario wouldn't be fundraising, it would be selling/recruting? Which all sounds good to me…or am I missing some details?
I'd enjoy emailing you with my specific case which is similar to this if you're available.
If a nonprofit organization provides benefits to donors that have material value, the value of those benefits cannot be declared as a tax deduction by the donor and the nonprofit has to declare to the donor the amount of that value and that it is not tax deductible. If your gym qualifies under IRS rules as a nonprofit, then any amount that a member would contribute over and above the value of the membership or any other quantifiable benefit would be tax deductible. All of this would depend on your gym qualifying as a nonprofit under IRS rules and the value of the gym membership that you would be awarding to donors.
As far as the whole issue about paying by commission goes, I stand by my earlier statements and arguments about what is ethical best practice for a nonprofit.
Thank you for your kind words about our exchanges. I work on this website as a gift to the nonprofit community, and the type of exchange you are suggesting is more in line with how I earn my living. This is not a project I could take on at this time. I suggest you find a consultant in your community or seek advice from those in your community working in philanthropy. A place you might start is by your local community foundation. Many communities also have chapters of professional socities for development pros.
With commission based fundraising, the benefits to a Not-For-Profit can enormous. Especially for a NFP with limited resources — and cannot afford the upfront fees associated with traditional fundraising fee structures. Lawyers have embraced this practice it for years, taking 30-40 percent on contingency — AND IS 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?
Jack, one big difference is the relatonship between a donor and the organization to which he/she makes a donation. The donor has the righful expectation that as close as possible the money given will go to support the work of the organization. Exorbitant charges such as the 30 to 40 percent you suggest would drive donor's away. Fundraising expense of that magnitude is considered unethical in the nonprofit world and is condemened by all organizations monitoring ethical fundraising.
Fundraising for nonprofit organizations is about more than getting money out of prospective donors. It is also about fulfilling a donor's charitable intent.
To my way of thinking, the biggest difference is that the lawyer is working totally on behalf of her or his client. In non-profit fund-raising, there is always a two-pronged approach: being true to the organization’s mission, and at the same time, giving donors the opportunity to give money to something in which they believe and that they want to support.
I believe that your favoring of contingent-pay is driven more by the limited, or unavailable, salary-paying resources of a non-profit, rather than by any good argument in support of what is almost always a failing practice.
You have read in my article that I have a long and unyieldingly stand against any form of contingent-pay in the non-profit sector—having an organization’s staff development officer working for compensation based on a percentage of funds raised, a bonus, or a commission.
Such arrangements, and any variations, are denounced by major “for-the-profession” associations. They go so far as to state, emphatically, that contingent-pay is unethical.
Most development professionals themselves think it’s a bad idea. But I do far more than just cite high standards and strong ethics as good reasons to have nothing at all to do with the contingent-pay practice. (Though they could stand alone.)
I let the contingent-pay principals know of the very real harm possible when working in that way. In my article on the subject I list a number of very real and damaging consequences that may befall both parties when working to such an arrangement. Read them again, and I hope you will be convinced that they far outweigh what you described as such benefits being enormous in value or quatity.
My hard stance against contingent-pay was bolstered even more by a personal experience, several years ago, when I was engaged as a fundraising consultant for a major organization. Sadly, it represents what appears to be an ever-growing issue.
During my several months serving the organization, I conceived, developed and produced fundraising plans where there had been none. Annual, endowment, capital, sponsorship, and underwriting campaigns were all fully developed and were being phased into the duties of the organization’s new and first-ever Director of Development … whom I helped hire.
The individual was hired at a straight annual salary basis while I was nearing the end of my consulting term. Soon, the Director of Development was up and running very well and I concluded my consulting engagement.
In a routine phone call some months later, just to check in to see how that individual was doing, it became readily clear that the several key development initiatives I had set out for the organization had not progressed much, if at all, except for the Annual Fund.
There were no ongoing cultivation activities. Recruitment of a volunteer fundraising team was abandoned. There was nothing in place to ensure opportunities for long-term funding. What was clear was that the Director of Development was dead set only on meeting the Annual Fund goal.
Why? Because after I left, the next salary review with management allowed the D.O.D. to work toward a bonus of $5,000, contingent upon meeting the Annual Fund goal by the end of the campaign/fiscal year.
Just about all of the warnings I cite in my article were at work in this case. Money was being raised only for this year. There was no thinking/planning for tomorrow.
When I see all the wrong that can befall an organization, or an individual, in contingent-pay schemes, I cannot imagine for the life of me why anyone would want to go that route.
What if the 5000 bonus would have been for meeting goals in ALL the areas your developed?
We are debating about this as a NP about a specific short-term position that is soley responsible for selling marketing/promotions package as part of a fundraiser. We are looking to develop some business/corporate partners to build our respective lists while providing marketing opportunities to the wider community. We are also approaching prospects to support through their marketing budgets and not their philanthropic budgets. We would like to have a sales person in this position and incentivize through commissions. Thoughts?
PS, My first thought would be that you should consider that you are a non-profit organization, balancing what you do for the public good according to your mission, then to give considerable thought that, perhaps, the marketing focus you are debating about might take you away from that mission and cause problems with your regular support and volunteer base, and the IRS.
Foregoing philanthropy, and getting into “sales,” with a commission-based approach, can be risky, if not causing problems connected to your non-profit status, then to discourage your volunteer base and donors who could think that your money needs are being satisfied by what is a commercial endeavor.
There are IRS rules regarding percentages of income a non-profit is allowed through such means, if support from the public in the form of contributions is minimal.
If the main thrust of the plan is to offer to sell and promote the products and services of commercial businesses and vendors, and this program will take considerable time and effort, balanced to paying a commission to the staff facilitator, then I would sugges that you think about abandoning the plan.
Maybe my article, which is somewhat based on this idea, will be of use:
Should Your Organization Sell Products And Services To Raise Money?
Rodney: You have shown me all of the good reasons why you must hire a Director of Development now.
— Spectacular and well-received performances;
— Large expense budget, enough to operate a large and complex organization;
— Five years of successful operation, which means you should have a reasonably-sized, appreciative, and some moneyed audience—patrons needing to be asked in the right way for money;
— You are already paying a host of people, so adding one more—a critically important individual—must be done.
Biting the bullet now, and getting a seasoned and capable pro will help begin to have those board members know a good deal about fund-raising, and have them do something about it.
You do have income from the performances. You can have working capital from the board members and from those patrons whom you know could give major gifts.
The only way to go:
— When Should a Non-Profit Organization Hire its First Development Director?
— What’s a Good Director of Development Worth?
And when you do hire that person, remember to read again, and to discuss with your colleagues, the article above so you do not hire on a contingent-pay basis, but with an annual salary.
I am on the board of Spectacular Senior Follies, an organization that produces a variety show once a year for four performances. We are going into our fifth year of struggling to keep a very successful venture (attendancewise) afloat working with a board, the individual members of which know nothing about development or fundraising (using the distinction in your article). We have somehow managed to pay most of our bills (which runs to six figures) to date, but that's all. No one receives monetary compensation except the creative staff, i.e., the director, the musicians, the wardrobe person, the choreographer, the state crew, and the lighting and sound people. I don't see how we can keep this up much longer, despite the success of the show from an attendance standpoint. My question is very simple, if not simplistic. How do you pay the salary of a development professional when you have no income or working capital?
Thank you for any response and ideas you may have.
Let me add to Tony’s comments one more thought. Development directors and personnel of nonprofits are not in an equivalent position to sales persons. Maybe to a sales or a marketing manager. Development professionals devise and execute plans to take an organization’s fundraising needs to market–that market being donors and potential donors. With the exception of small-gifts and annual campaigns, the people “making the sale” are volunteer solicitors. That is because peer-to-peer requests yield more and larger gifts. As a development director, or even an executive director, you don’t want me asking a person with a net worth of $150 million for a gift of a million dollars. You want another person from his/her economic/business/social set making that ask. Getting back to small-gifts and annual campaigns: in them you rely strongly on tools like direct mail and the internet to generate “sales”–to bring in the donations.
Hello RW: Thank you for your welcome comment. You said in your last paragraph: “Best of all, there is no risk to the nfp. If the development agent brings in revenue, they get paid, if they do not, they will not be compensated. Their survival is tied to the health and welfare of the nfp.”
There is indeed great risk to the non-profit. No non-profit’s survival should ever be in the hands of any one person to bring in the revenue. It’s far more than just not being compensated when she or he does not bring in revenue. Others on staff will not be compensated as well. Worse, the dozens, hundreds, even thousands of people in need depending on the programs and services of the non-profit, are left high and dry. The job of seeing to it that the necessary funds are raised, is that of the non-profit’s Board of Trustees. Non-profits are public entities, and as such, belong the community. The operation of them is the responsibility of a volunteer board of trustees who must take on fund-raising as their duty.
I appreciate that a for-profit sales rep does as well have risk to her or his livelihood, including her or his family’s financial security, but should the rep not bring in enough revenue, the company does not go under. The product is still available in the marketplace, but for sure, not the food bank that so many people counted upon once the revenue support stream was not sufficient.
Your well-articulated countering argument is appreciated. I know it well, as you can see from my article, which juxtaposes the concepts of a commercial sales transaction to the very different non-profit solicitation of a donation. I came from nineteen years with General Electric marketing light bulbs, then on to twenty years as Director of Development for The Cleveland Orchestra. So, I know well the customer/sales and donor/gift process of each, and I have seen and worked the differences and similarities of each.
For example, take a look at the following one-page document:
Note the many similarities as you have correctly implied, but the marked and stark differences in mission and bottom-line, must be taken into account to make impossible the commission compensation arrangement to work for the non-profit fund-raising professional.
Here is an example of the real difference between the sales rep and the development officer. It’s a brief summary of what was an actual experience I had as consultant for a major organization.
During my sixteen months in service, I worked a great deal to develop and fine-tune fund-raising plans where there had been none previously. annual, endowment, capital, sponsorship, and underwriting campaigns were all fully developed and were phased into the duties of the organization’s first-ever Director of Development. He was hired on a straight salary while I was there.
Soon, he was up and running, doing well, and I concluded my engagement. In a routine phone call some months later, just to check in to see how he was doing, it became readily clear that he had not progressed much, if at all, in the development of any fund-raising campaign but the Annual Fund.
There were no cultivation activities, no building of a volunteer solicitation team led by the Board, or any effort expended for long-term funding. He was just dead set to get to the Annual Fund number goal set out for him. Why? Because after I left, the next salary review had him set to work to a bonus of $5,000 to be given to him should he meet the Annual Fund goal by the end of the campaign and Fiscal Year. Just about all of the warnings I give in my article were at work in this case, and were not heeded. All future development/cultivation plans were abandoned in favor of the immediate reward, and the need to himself bring in the revenue for this year’s ability to make a living. I rest my case.
Thanks again for your welcome interest.
Thank you for a well-thought and well written article. I must respectfully disagree.
For 24 years I have been a straight commission sales rep, working for “for-profit” companies. Early in my career I made very little and rubbed nickels together to make ends meet. The more I learned, and the more relationships I built, the more my income grew. I have grossed over $400k per year in some years, less than$100k in others. Those of us in this business ride the economic boom and bust, carving out a living and supporting our families the best we can.
What is the cost of my efforts to the company? A straight 10% of sales. I am a known quantity and my rate is built into the operating cost of goods. Whether that company has one rep or 100 reps in the field, the cost per sale is still a steady 10%. When I close a large sale, I celebrate, if I close a number of small sales, I celebrate. If I receive an order that is spread out over months or potentially years, I receive my commission upon payment. If I leave a company with receivables on the books, I continue to receive my split of commissions for those months or years, even after I leave. It is a nice bonus in my income that is paid because it was earned.
The for-profit world uses independent reps and have built a system that works. Independent Reps want these jobs because they are potentially lucrative. We stay on the job for many years because our early investment grows year over year.
Non-Profits must embrace commission development because it does provide an opportunity for those who give of their time and effort to earn a living wage. It encourages development professionals to continue to build relationships with donors and foundations. It provides a financial base for their effort to become a career, not just a summer job. Best of all, there is no risk to the nfp. If the development agent brings in revenue, they get paid, if they do not, they will not be compensated. Their survival is tied to the health and welfare of the nfp.
Thank you for allowing me to express my opinion.