The Nonprofit FAQ

Practical Issues about Percentage Fees (5/31/96)

Bill Kreuger wrote 26 May 1996: Someone asked in soc.org.nonprofit: > I am proposing to work as a fundraising consultant for a > small non-profit, and they've agreed in principle to pay > me a commission on the funds I raise. I'm not sure > exactly what percentage I should ask for. > Does anyone have any ideas? Reply by email and I will keep your > information confidential, if you wish. While the ethical arguments already posted are academically interesting, I want to try some real life reasons why this "percentage compensation" (PC) arrangement is probably a bad idea. 1. Is PC based off of net or gross revenue? If net, then consider the cost of donor acquisition for a small group. It is not uncommon to spend $1 to raise $1 from a first time donor - and 100% of $0net is still $0. If it off of gross revenue, then what is to keep a fund raiser from spending a lot of money to generate a lot (but netting little for the charity), yet the fund raiser, since paid off of the gross, gets a lot of personal income. 2. Who pays for fund raising expenses? The charity? - then why not spend lots of money on great brochures etc. just to up the gross revenue so the PC is highest for the fund raiser? If the charity doesn't pay the "upfront" fund raising costs and that is to come from the PC consultant - does the consultant have the resources or motivation to produce first-class materials? 3 Finally, a PC arrangement creates a big problem. The "campaign" is "owned" by the consultant not the group. Exactly what motivation does the board and leaders have to help (and their help is critical, especially with small organizations). After all, it is "the consultant's" campaign and well, if he fails, it really didn't cost the group anything? Right? I can also easily hear the following from a board member - "Of course you want me to make that appointment with my rich friend to ask for money - after all you only get paid if I open that door, right?. Hey, you're going to make the money - you open the damn door!" Of course, you can't open it because you don't know the guy and even if you did know him, how many times could you go back to the rich guy to ask for money? The point here is that everyone can have and defend their ethical positions till the cows come home, but unless you can succeed as a fund raiser (which obviously means raise money), the compensation issue or the ethics really aren't that significant. Would it be anymore "ethical" of me to charge a client $5,000 or $10,000 or more to conduct a "study" knowing full good and well that the group had very little or no chance to actually succeed in a campaign? Yet under NSFRE standards, I would be "ethical". "Ethics" and "Honesty" are not synonomous - neither is "unethical" and "dishonest". Don - my unsolicited advice is - ALWAYS do that which is in the best interest of the charity - disclose everything - be totally honest - work your butt off for them - and, most importantly, succeed in raising money for them. If you do that, the compensation issues and the ethics will work themselves out. William Krueger [email protected]