← The Fundraising Masterminds Podcast
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- [00:00]
A
You're listening to the number one podcast for nonprofit leaders, getting your nonprofit fully funded. This is the Fundraising Masterminds Podcast.
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B
What's the motivation behind the person doing the fundraising? Are they motivated by their mission and the vision of the organization, or are they motivated by that money that they're going to get profit? Will they do some things to push someone to give because they know it's going to benefit them? Now, any person could use the excuse that I'm only pushing someone hard so that we can give money to the mission. But bottom line, there's always that concern that what's the motivation?
- [00:45]
A
Welcome again to another episode of the Fundraising Masterminds Podcast. We are so excited that you are joining us today because we have a really great topic for you. And my name is Jason Galcinski. My co host, Jim Dempsey.
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B
Hi, Jason.
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A
We have over 60 years of collective development experience working with thousands of nonprof over the country and all over the world. So the topic on today's podcast is commissions for fundraisers. Are they legitimate?
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B
Right. Yeah.
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A
And so what's interesting about this topic, Jim, is that we recently did a podcast episode about development directors.
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B
Yeah, right.
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A
And one of the things that you had said on there was that the one of the best people to hire as a development director is a retired salesperson.
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B
Right? Sure.
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A
You know, that kind of got me thinking a little bit.
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B
Okay.
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A
Afterwards, I started thinking through this idea and I thought, well, you know, if the best person to hire as a development director is a retired salesperson, and it makes sense because we need face to face.
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B
Oh, yeah, for sure. But somebody was experienced for sales. Yeah.
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A
You know, salespeople make commission.
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B
Okay.
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A
That's, you know, I started thinking through this idea of like, well, in the business world, if you, you know, if you sell a car, you get commission. There's a lot of places where it's commission only, you know, like, in other words, if you don't do your job, you don't get paid. So there's incentive there and it kind opens up the door. Right. Like, if you want to make a lot of money as a salesperson, just sell a lot of product, you know. So can we transfer this idea over to development?
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B
Wow.
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A
You know, like, so I have this great idea, okay. You know, we bring on a guy who is job is to raise funds and the more money he raises, the more money he makes.
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B
Okay.
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A
He just makes a commission off of all the, all the donations and know, so it's a win. Win. That's what I'm thinking. It's a, it's a win win. Right. Like the better the organization does, the better he does.
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B
Right.
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A
So he basically pays for his own salary. It's a win win for him. It's a win win for the organization. I mean, is there a problem with this?
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B
Well, listen, I, I'll have to say right away that is a very creative idea of yours.
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A
Oh, thank you. I'm always good at coming up with ideas.
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B
It is terrific, except for a million reasons why it's wrong. It.
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A
I had a feeling you were gonna say that. Yeah.
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B
I'm sorry to always be the Debbie Downer of, of us, but Jason, it's a, it's a creative idea and it's been brought up to me many, many times and I, I really hate it that I have to, you know, come from the negative standpoint. But there's probably five standards that this violates.
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A
Yeah.
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B
The first is professional standards. The second is legal standards.
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A
Okay.
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B
The third is missional standards. The fourth, and I hate to say this, is ethical standards. And the fifth, and probably possibly the most important is relational standards.
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A
Okay.
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B
Yeah. So let's unpack some of these things.
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A
Yeah. And I never really thought about there being standards out there. I mean, who makes these standards? Is there some kind of non profit commission board on the government or something? Or are these governmental standards? Or are these.
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B
Yeah, that's a great question, Jason.
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A
Where do these come from?
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B
First of all, a lot of times people forget that development is a profession for us, we always think of development and fundraising as being a task and a duty, but it actually is a profession. And as a result, because it's a profession, there are professionals who set standards. And some of those, one in the broad perspective is association for Fundraising Professionals. Afp. They are probably the largest governing organization for fundraisers. But the one that probably affects us more is Evangelical Counsel for Financial Accountability. And that's the one that we really have to be careful about. Now you may be thinking, well, I'm not a member of ECFA because ECFA is a membership organization. They're an oversight.
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A
Think about where people might be thinking, I'm not a religious nonprofit. Does that apply to me?
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B
And they could be thinking that that's exactly right. And that's where AFP comes in. AFP covers all nonprofit organizations. ECFA covers those religious organizations are following this. Now think about this, Jason. When you go to Pl something in. Into your wall socket, there's a little thing that says UL on there. We've all seen that over the years. Underwriter's Laboratory that is the oversight and governing board that really regulates all the standards for electricity or usage of electricity. And does a socket comply with the standards? And if those standards aren't met, what tends to happen with electricity? Jason?
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A
It starts to fire.
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B
It starts to fire. We get shocked, many of us get thrown, and you can ultimately die. Now, no one is saying, and I'm not implying that if we don't follow the standards of AFP or ECFA that anyone's going to die, but certainly we run the risk.
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A
So you're not saying that it's illegal to.
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B
Well, we are going to address. We'll address is one of our points, the legal aspects of this. Okay, so. But no one is going to come in and actually arrest you. But there are. By violating some of the standards of these organizations, we could be labeled and it could hurt our reputation. As an example, Charitable Navigators is an organization that essentially more and more donors are looking to really, the oversight organizations like Charity Navigators to say, is this an organization that is abiding by ethical and moral standards? And by being labeled as an organization that violates these standards, that's never good for us.
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A
Yeah, yeah. Okay. So people start to associate your organization as like a scam or possibly just like a. Doesn't handle finances very well.
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B
That's right. Mismanagement, misappropriation. And that's generally what people think, think when that happens.
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A
Right.
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So you want to conform with the, the standards that are out there.
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As a nonprofit, if we're serious about our reputation, if we, if we want people to take us seriously, I think it's really important that we abide by these standards.
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B
Right.
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A
So let's dive into each one of these and go through them all one by one. So let's start with professional standards.
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B
Yeah, with some of the professional standards. And I, and I kind of alluded to this a little bit, but the governing boards have concerns about commission based. And a lot of it really has to do. Jason, we'll drill down to these. But it really has to do with what are our motivations. And I don't necessarily mean the motivations from our side, but it's more the motivation of the person who is the fundraiser on our side. We may come in with some legitimate reasons why we want to do this. A lot of times we make up the excuse that you said is that it's good stewardship. You only pay somebody if they do the work. Well, there's ramifications of those kinds of things, but typically the standards that the governing organization look at is what's the motivation behind the person doing the fundraising? Are they motivated by their mission and the vision of the organization or are they motivated by that money that they're going to get by profit? Will they do some things to push someone to give because they know it's going to benefit them? Now, any person could use the excuse that I'm only pushing someone hard so that we can give money to the mission. But bottom line, there's always that concern that what's the motivation of where the person is? So this violates, first of all, the standards that are out there by those oversight and underwriting organizations. Well, and of course, bottom line of all this, Jason, is that commission based fundraising is against industry standards.
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A
Yeah. So, yeah, I never really thought about motivation. I guess it does make sense what you're saying, you know, if I'm just on payroll as a normal staff member.
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B
Right, right.
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A
Or I raise my own support.
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B
Right.
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I'm motivated by the mission, vision and values of the organization. So I want to do what's best for the organization.
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B
Right.
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But if I'm incentivized by profit.
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B
Right.
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A
That's basically what it is. Right. It's profit based incentivization. Then I'm going to maybe cut some corners or manipulate a little bit harder than you normally or say, you know, let me track down all the wealthy people and try to, you know, manipulate my way into their stuff. And I'm motivated by different things, you know, rather than just the mission, vision and value. So that makes a lot of sense. Thanks for explaining that.
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B
Sure.
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A
So let's move into the legal ramifications of this. Yeah, I guess my question right off the bat is, is this illegal?
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B
Well, technically, Jason, I'll have to say it depends right now, really, by any federal standards, I'd have to say it. There's nothing illegal about doing this. But each state, county, local municipality, all have their own individual regulations regarding things like commission based sales and commission based nonprofit fundraising. Yeah. So it's important that you look at those regulations in your own state, county and local.
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A
Well, and it might be difficult to manage that. Right. Like if you're, if you're actually seriously considering this, you know, you might have to actually look at each county of the giver.
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B
Right.
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The donor. Right. Say, well, okay, they're in Cook county, this person's in Jane County.
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B
Right.
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A
You know, I can do this here, but I can't do that there. So it might become a logistical nightmare.
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B
Well.
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To even make this happen.
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B
Yeah, exactly. Because you, you may, your organization may be based in Chicago, but you just send someone to Portland, Oregon to raise money there. So you've got to actually look at, maybe, you know, independently. If someone is, is doing fundraising for your commission based in Chicago area, you have to look at that. But if you're sending them out to Portland to talk to someone, you've got to look at the standards of what's going on in Portland.
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A
Yeah. And that just, that seems like a logistical nightmare.
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B
Yeah.
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A
So I don't think you want to go down. That's a, that's opening a can of worms. And I don't think you want to go down that road. Okay, let's talk about the third thing, which is our missional standards.
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B
Absolutely. Well, of course we have a mission, vision, values that we want to follow and we're directed towards that. What could happen is that it starts to blur what the individual person who's raising money, what they are motivated by. And we talked about motivation earlier because that's so important. We, of course, as the organization and nonprofit leaders, are motivated by our mission, vision, value. But it blurs the line. And I don't want to presume to read someone's heart when they ask you and say to you, I'm willing to help you on a commission basis, but honestly, when they ask for that compensation that way, it really blurs the line in that is their motivation really your mission and your vision. Why not just take straight compensation versus a percentage of the money that they raise? And so if they really legitimately are interested in what you're doing, then a percentage of the dollar wouldn't matter. Just you can simply just pay them straight salary.
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A
Right.
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B
And of course the bottom line on this is a commission based fundraising can lead to blurring of lines on where people's focus really is.
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A
Yeah. All right, well, let's get into the fourth standard, which is our ethical standards. And so I wanted to pull up a quote from the ECFA website. And Jim, would you mind just like reading through this? Because the way that they wrote this, I think it addresses the ethical concerns and the ethical standards. A lot of these concerns are mentioned on the AFP website and they're also mentioned on the ECFA website as well. So why don't you start with the AFP website? Could you read what they do?
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B
Yeah. So Jason, this is, this is a direct quote from Standard 21 of the AFP Code of Ethical Principles and Standards for Professional Fundraisers. And this is quoted. It is not appropriate for a nonprofit to compensate a fundraising professional based on a percentage of the Money raised. So that is directly out of the code of ethics and fundraising.
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A
Do they explain why association.
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B
Oh yes. And in fact that will go deeper into that. But that's the heading of that. And you can go ahead and go specifically in there. But it's exactly what we're talking about, Jason. It's really for the, the bottom line and actually I prefer it a little bit better out of the ECFA code, which I'll read here in a second. But the bottom line is that these overarching oversight organizations are really looking out for the benefit of the giver and not for the nonprofit organization. Because bottom line, our interests and our thoughts have to be of the giver, not of the asker.
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A
Yeah, yeah. Well, let me pull up the ECFA code of standards, this website. Jim, would you mind reading that?
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B
I'd be happy to. That comes directly from the ECFA Standard 7.5, Stewardship of charitable gifts, percentage compensation for securing charitable gifts. And I think they say this very well in some of the underlying. But here is the overarching. An organization may not base compensation of outside stewardship resource consultants on its own staff, directly or indirectly on a percentage of charitable contributions raised. And what they say is the explanation of that is the underlying principle of this standard is the protection of the giver. It may be more convenient, more practical and more cost efficient for an organization to pay staff or stewardship resource consultants based on a percentage. So that kind of validates what you said earlier. Hey, this would make it so good to do. They admit that, that it may be easier and be better stewardship and make it there. But that not be. That's not why they're making their decision or not. Making decision based on what's best for us. The decision is based on what's best for the giver. And they say that even though it's better for us, these and other advantages to the organization do not protect the giver. And that is the bottom line, is that they are protecting the giver as a result. I think that sets a great standard for us. We need to protect the giver as well too.
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A
Yeah, well, that does make a lot of sense.
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B
Yeah.
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A
I think if we are serious about being above board as a non profit organization, whether we're religious or whether we're not religious, there's still ethical concerns, right? Absolutely. I think it's really important that we consider these.
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B
Right.
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A
Even though technically, you know, we might be able to get away or justify this in some way. But what's the main reason why?
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B
Well, yeah, the bottom Line, Jason, is this is a slippery slope and if we compromise here, are we going to compromise others? And if our partners, especially the, our donors, really see us compromising in something like this and they're going to see commission based compromising, what else are we willing to compromise in? So I think we've got to really.
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A
Be careful of that. All right, well, let's get into the fifth and final standard, which is our relational standards.
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B
Yeah. And Jason, to me, this actually is probably the most important because, you know, and we might say more important than legal or more important than a regulatory. I believe it is because it really impacts our relationship with our partners. If we violate the trust of our partners, we might as well forget any future gifts. And actually when we violate the trust of our partners, it will just have a ripple effect amongst our relationship with people. So we really need to be careful about doing that. And what do I mean by that? If this commission based fundraiser is talking to partners? And so often, I mean, I've had these questions, it seems like a million times myself. Jim, tell me your background with this organization. How long have you worked with this organization? How has this organization impacted you? And tell me, believe it or not, I've even had people say, jim, how are you compensated? And if the person says, well, I've only worked with this organization for a few months, I sort of have or kind of have a background and reputation with this organization. But if they come back and you have to say that I am paid based on commission, that's it.
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A
Or if you lie about it.
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B
Well, or if you lie about it. That's right. If you don't say it and they find out, you might as well forget it from a reputation standpoint. So bottom line is that commissions break trust with our partners. And once you lose that trust of your partners, you'll never regain that it.
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A
What did it for me was the motivation point that you made a while back of just your underlying motive is not for the protection of the giver or for the best interests of the organization. Right. You're motivated by selfish profit. And that's kind of a slippery slope, as you said.
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B
Right.
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A
That just opens up a can of worms that just looks really bad.
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B
Right.
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A
For the nonprofit.
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B
Well, and Jason, I once again, I said this earlier, I don't want to presume on someone's motivations. And I've had ministry leaders, I've had nonprofit leaders say to me, jim, you don't know this consultant or you don't know this person. They love our organization. They would do anything for our organization, they are really motivated by us. I am not in the business of checking the hearts or questioning the motivation of people, but it's what will be thought of by the donor. And it really doesn't smell right. If something smells rotten, it usually is. So I think that's something we need to think about.
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A
Well, Jim, this has been a great discussion, but I think we'd be remiss if we didn't discuss alternatives.
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B
Yeah. So to just say no is not the best.
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A
Yeah. So what are some alternatives to a commission based fundraising?
- [19:57]
B
Yeah, well, the first alternative, Jason, is the easy one. Just go ahead and pay someone, pay them hourly, pay them salaried, pay them a flat fee. And that just takes away all the hint of there being an improper motivation. That's an easy one, Jason. The second one I would say is just bring on volunteers. Maybe someone is willing to do that on a volunteer basis. And, you know, it's a rare exception and the consultant would do it on a volunteer basis. But you could always ask the volunteer, would you be willing to do this out of the goodness of your heart?
- [20:31]
A
Another idea is that you could hire on a contractor, and again, that's just, you know, a straight flat fee, hourly rate or whatever. But a contractor you could outsource, you know, to telemarketing or something like that.
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B
Or story writing or foundation proposal writing. Absolutely. Yeah. You pay them per job. The. The fourth way is we just hire someone as part of our team. So we don't pay them just for the job itself, but we bring them on our team and we hire them and pay them that way. The fifth way, Jason, and this is always a good way as well, you consider paying someone a flat fee or an hourly fee, but when they bring in an exceptional gift, you pay them a bonus for that.
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A
It's that the bonus is not based on the gift.
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B
That the bonus is not based on the gift. The bonus is based on above and beyond performance.
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A
Right?
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B
That's exactly right.
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A
So just a flat fee could be like 500 or something like that. If you.
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B
That's right.
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A
Could you say, like, hey, if you get a gift of $1,000 or more, you'll get a bonus of $200, something like that. Or could you even have categories like if you bring in a 1,000 to $5,000 gift, you get this much of a bonus. If you bring in a 10,000 to $25,000, if you get this much. Well, or is that crossing the line?
- [21:49]
B
Yeah, it is. That's actually kind of crossing the line again. Just from the motivation side of things, that's all. Now I can tell you that normally HR set standards for what compensates a bonus because we have some individuals who have brought in some significant gifts to our organization. But HR has standards that increased performance and not increased this money by this much or whatever. So I think you have to be careful of that. And of course, the last area is providing additional benefits, a flexible schedule, being able to do your position remotely, maybe additional medical or other benefits that would not normally be provided. That's the. And not normally provided. That would be something that would work well.
- [22:40]
A
Yeah. To me, the most above board situation is just keep it simple, right? Pay them a flat, you know, hourly rate or use volunteers or pay a salary.
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B
Right.
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A
That's the simplest thing, even cleanest, even just some of the stuff that you said at the end of. Well, you could give them, you know, a little bit more of this or, or you could give them a bonus error. Well, that's still kind of tapping into different motivations.
- [23:02]
B
Someone gets an advantage over some other people for some reason. So.
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A
And that just. That starts to get into the icky factor, right?
- [23:09]
B
The motivation and.
- [23:10]
A
Yeah, I don't like that at all. So why don't you let us know what you think in the comments below. We'd love to hear from you. If you're watching us on YouTube, just go ahead and write on the comments. Which one of these standards kind of spoke to you. And if you think that commission based fundraising is legitimate and you didn't feel like we explained it very well of why it is legitimate, go ahead and let us know in the comments what you think.
- [23:33]
B
Yeah, and make sure that you read the standards that are out there because they make some good arguments. But you may find an answer that we didn't think of. So put that in there as well.
- [23:42]
A
Definitely let us know. While you're in there, go ahead and hit that subscribe button on YouTube as well as if you're listening to us on Spotify or Apple. Go ahead and subscribe because we have weekly podcast episodes for nonprofit leaders. So if you're an executive director, a development director or operations director, or you're involved as a board member or leadership in any way in a nonprofit, this podcast is definitely for you because we give weekly advice on how to grow your nonprofit, how to take your nonprofit to the next level. We talk about leadership and strategies for nonprofit leaders. And so this is the right place for you to be. Go ahead and hit that subscribe button. Button now. Well, Jim, any last words that you want to say regarding this topic?
- [24:25]
B
Well Jason, I would say the bottom line and, and really ECFA said it in the best way. We really need to focus in on what are the interests of the giver or our partner. It is just so important that we put them above everything else. We cannot compromise our standards. We cannot compromise our principles for money. We've got to put them first and we've got to do what's right. And for those of us who are Christian or biblically based we've got to go back to scripture and we've got to look for what is it that's going to give us the best reputation and that's, that's obeying standards.
- [25:05]
A
Yeah, our reputation is more important than money buying gold. Exactly. Well, that does it for this week's episode. Thank you so much for watching and we look forward to seeing you again next time. Time.
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B
Take care.