The Fundraising Masterminds Podcast - Episode 78: "Commissions for Fundraisers: Are They Legitimate?"

Release Date: January 29, 2025
Hosts: Jim Dempsey and Jason Galicinski
Podcast Description: As the #1 podcast for nonprofit leaders, the Fundraising Masterminds Podcast offers practical solutions to daily fundraising and development challenges. With over 60 years of collective experience and a global track record of raising over $2 billion, hosts Jim and Jason focus on instilling the right mindset and implementing effective strategies to help nonprofits become fully funded.

Introduction

0:00 - 0:10
The episode kicks off with a brief introduction, emphasizing the podcast's mission to help nonprofit leaders fully fund their organizations.

Jim (00:45):
"We are so excited that you are joining us today because we have a really great topic for you."

Jason (00:57):
"Hi, Jason."

Topic Announcement (00:58):
Jim introduces the episode's central theme: "Commissions for Fundraisers: Are They Legitimate?" He references a previous discussion about hiring retired salespeople as development directors, sparking the idea of commission-based fundraising.

The Concept of Commission-Based Fundraising

Development of the Idea (01:10 - 02:15):
Jim explores the idea of incentivizing fundraisers through commissions, likening it to sales commissions in the business world. He suggests that fundraisers could earn more by raising more, creating a win-win scenario where both the organization and the fundraiser benefit.

Jim (02:15):
"You bring on a guy whose job is to raise funds, and the more money he raises, the more money he makes. It's a win-win."

Challenges and Concerns with Commission-Based Fundraising

Jim's Idea Meets Scrutiny (02:28 - 03:03):
Jim presents his idea enthusiastically, but Jason immediately expresses significant concerns, labeling the concept as flawed for multiple reasons.

Jason (03:02):
"It is terrific, except for a million reasons why it's wrong."

Identification of Five Violated Standards (03:22 - 03:44):
Jason outlines five standards that commission-based fundraising violates:

1. Professional Standards
2. Legal Standards
3. Missional Standards
4. Ethical Standards
5. Relational Standards

Deep Dive into the Violated Standards

1. Professional Standards

Definition and Importance (07:36 - 09:16):
Jason explains that fundraising is a professional field governed by organizations like the Association of Fundraising Professionals (AFP) and the Evangelical Council for Financial Accountability (ECFA). These bodies set ethical and professional standards to ensure fundraisers prioritize the mission over personal gain.

Jason (09:16):
"Commission-based fundraising is against industry standards."

2. Legal Standards

Regulatory Landscape (10:04 - 11:06):
While commission-based fundraising isn't universally illegal, it is subject to varying state, county, and local regulations. Managing these disparate laws would be complex and potentially unmanageable for most organizations.

Jason (10:11):
"Each state, county, local municipality, all have their own individual regulations regarding commission-based sales and commission-based nonprofit fundraising."

3. Missional Standards

Alignment with Mission (11:40 - 13:01):
Commission-based incentives can blur the primary mission of the nonprofit. Fundraisers might prioritize monetary gains over the organization's core values and goals, leading to misaligned efforts.

Jason (12:51):
"If I'm incentivized by profit, I might cut corners or manipulate harder than normal to secure funds."

4. Ethical Standards

Protection of the Giver (13:01 - 19:06):
Both AFP and ECFA explicitly prohibit compensation based on the percentage of money raised. This ethical stance prioritizes the donor's interests, ensuring that fundraisers act with integrity and transparency.

Jim (13:30):
"It is not appropriate for a nonprofit to compensate a fundraising professional based on a percentage of the money raised."

Jason (14:45):
"The bottom line is that commission-based fundraising is against industry standards."

5. Relational Standards

Trust with Partners (17:06 - 19:45):
Commission-based models can erode trust between the nonprofit and its donors or partners. If donors perceive that fundraisers are motivated by personal gain, it can damage the organization's reputation irreparably.

Jason (18:44):
"Commissions break trust with our partners. Once you lose that trust, you'll never regain it."

Alternatives to Commission-Based Fundraising

Exploring Ethical Compensation Models (19:45 - 23:09):
Jim and Jason discuss several alternatives to commission-based fundraising that align with ethical and professional standards:

1. Flat Fees or Salaries: Paying fundraisers a consistent salary or hourly rate ensures their motivation aligns with the organization's mission.

2. Volunteers: Engaging volunteers who are passionate about the cause can be a cost-effective and ethically sound approach.

3. Contractors: Hiring contractors for specific tasks, such as telemarketing or proposal writing, with compensation based on the job rather than success metrics.

4. Bonuses for Exceptional Performance: Offering bonuses for outstanding contributions, not tied directly to the amount raised, can motivate without compromising ethical standards.

Jim (21:19):
"Keep it simple, right? Pay them a flat, you know, hourly rate or use volunteers or pay a salary."

Jason (21:49):
"That's the simplest thing, even cleanest."

Conclusion and Final Thoughts

Emphasizing Ethical Standards (24:25 - 25:05):
Jim and Jason reiterate the importance of adhering to ethical standards to maintain trust and integrity. They stress that a nonprofit's reputation is paramount and cannot be compromised for financial gains.

Jason (24:25):
"We need to focus on the interests of the giver or our partner. It is just so important that we put them above everything else."

Call to Action (23:32 - 25:16):
Listeners are encouraged to engage by sharing their thoughts in the comments and subscribing to the podcast for more insights. The hosts highlight the importance of upholding ethical standards and protecting the interests of donors to ensure the long-term success and credibility of nonprofit organizations.

Jim (23:08):
"Hit that subscribe button... this podcast is definitely for you because we give weekly advice on how to grow your nonprofit."

Key Takeaways

1. Commission-Based Fundraising Conflicts with Professional and Ethical Standards: Leading industry organizations like AFP and ECFA prohibit compensating fundraisers based on the percentage of funds raised to protect donor interests and maintain trust.

2. Legal and Logistical Challenges: Varying regulations across jurisdictions make commission-based fundraising complex and potentially risky for nonprofits.

3. Misalignment with Mission: Incentivizing fundraisers with commissions can shift their focus from the organization's mission to personal financial gain, undermining the nonprofit's goals.

4. Erosion of Trust: Commission-based models can damage relationships with donors and partners, leading to reputational harm that is difficult to recover from.

5. Ethical Alternatives Exist: Nonprofits can employ ethical compensation models such as flat salaries, volunteer engagement, and performance-based bonuses unrelated to fundraising totals to motivate fundraisers effectively.

Notable Quotes

• Jason (03:02): "It is terrific, except for a million reasons why it's wrong."
• Jim (13:30): "It is not appropriate for a nonprofit to compensate a fundraising professional based on a percentage of the money raised."
• Jason (17:06): "Commission-based fundraising is against industry standards."
• Jason (18:44): "Commissions break trust with our partners. Once you lose that trust, you'll never regain it."
• Jim (21:19): "Keep it simple, right? Pay them a flat, you know, hourly rate or use volunteers or pay a salary."
• Jason (24:25): "We need to focus on the interests of the giver or our partner. It is just so important that we put them above everything else."

Final Thoughts

In this episode, Jim and Jason meticulously dissect the concept of commission-based fundraising, highlighting its shortcomings and alignment issues with established professional, legal, missional, ethical, and relational standards. They advocate for maintaining integrity and trust by adopting ethical compensation practices that prioritize the mission and the interests of donors. This comprehensive discussion serves as a crucial guide for nonprofit leaders aiming to uphold standards and foster sustainable, trust-based relationships with their supporters.