Ken Goldstein, MPPA

Ken Goldstein has been working in nonprofits and local government agencies from Santa Cruz, to Sacramento, and back to Silicon Valley, since 1989. He's been staff, volunteer, board member, executive director, and, since 2003, a consultant to local nonprofit organizations. For more on Ken's background, click here. If you are interested in retaining Ken's services, you may contact him at ken at

Wednesday, December 19, 2007

Yet more on percentage-based fundraising - AFP ups the ante

Just other day I posted an email exchange I had in which my correspondent argued that, contrary to what AFP (Association of Professional Fundraisers) and others may say, there are times when when contingency or percentage-based fundraising fees may actually be more ethical than flat fee or hourly rates. The argument was essentially that small organizations (indeed, most any nonprofit) can ill afford to pay up front for grant writing or other fundraising services that may or may not result in donations or grants to the organization. The impact of such charging, according to my anonymous letter writer, was detrimental to the sector.

Well, now the AFP has upped the ante in this ongoing discussion, by trying to raise it from being an ethical question, to being a legal one. AFP has now renewed it's call on Congress to officially ban the practice of all percentage-fee based fundraising. This comes on the heals of AFP conducting a survey in which they found that the organizations with the highest fundraising costs were those that paid their fundraisers by percentage.

According to Paulette V. Maehara, CFRE, CAE, president and CEO of AFP:
These are causes that are near and dear to the hearts of all Americans, but the public's generosity is being abused. Congress needs to act to ban percentage-based fundraising so that the public can rest assured that charities and their fundraising firms are putting the needs of donors first.
Now, let me reiterate, that I have always followed the AFP code, and have never charged a contingency fee for grant writing or any other services. But let's take a look at the last few words of that paragraph: "... [put] the needs of donors first.".

Donors first, eh? Not the sustainability of the nonprofit organizations that don't have the cash-flow to pay upfront for fundraising with no guarantee of success? Not ... oh, I don't know ... the clients and communities served by the nonprofit sector?

Again, I still believe that a set fee for services is the proper way to go in most situations, but more and more I'm convinced that a compromise can be reached where nonprofits are not bankrupted by fundraising costs, and contingency fees, with set caps, may be used that meet the needs of everybody involved.

And I also firmly believe that it's about time that donors put the needs of nonprofits ahead of their own.


  1. "And I also firmly believe that it's about time that donors put the needs of nonprofits ahead of their own."

    Well said! While organizations definitely need to be accountable to its donors, we have to stop imposing arbitrary measures on what's an appropriate use of donor funds.

    Perhaps it's more effective to pay a fundraiser to do the grant-writing, and have the program staff fully dedicated to achieving the mission of the organization. There may be more fundraising costs, but the nonprofit may be able to achieve better outcomes and serve more people as a result. And isn't that more value for your buck?

  2. Most program officers would tell you that their foundations write grants. You are writing a grant proposal.

    Would you want fund raisers to devolve into lawyers who take 33% contingency fees?

    You also get people who will say anything in a proposal or become more high-pressure in their tactics with a donor to make sure they get their commission? Does the solicitor have the charity in mind or themselves?

    A big problem with commission-based fund raising right now is how political fund raising professionals accept commissions. It the norm for them. But you certainly see quite a few politicians giving back money collected by their fund raisers who accepted money illegally. The fundraisers kept the commissions - right?

    Also, you see abuse in the police/fireman telemarketing industry. Often you hear that 50-75% of the funds raised go to the telemarketing firm and not the charity.

    These instances paint a bad picture for the majority of us, ie the fundraisers who adhere to Code of Ethics and the Donor Bill of Rights. That is why Paulette, et. al., are asking for regulations.

    The smaller nonprofits who ask for fundraisers on commission need to be educated to know that they will be losing out if they go that route. Plain and simple.

  3. I can see why some people are concerned about abuse of fund raising by those who raise funds.

    However, as a leader of a small non profit, I struggle to raise funds, and can't see much difference between someone who has a highly paid development staff, a paid grant writer, or someone helping raise money on a commission basis.

    I don't have the funds to hire grant writers, and never have had much luck with paid consultants. I've not worked with anyone on a commission, but would not rule it out.

    In the end, money is needed to achieve the mission of a non profit. As the CEO of my organization, it's my job to find a way to get those resources. I'm not sure the paid fund raising professionals have this same focus on mission as much as on getting paid for their fund raising services.

  4. I disagree that the donors should put the needs of the nonprofits ahead of their own. It's the donor's money and they should do what they want with it.

    But before you jump on me...

    I think the main issue is that donor's needs don't align fully with those of nonprofits'. If the donor's end-goal is to drive social change, they should be reevaluating whether or not full-RFPs are the most effective method for separating the wheat from the chaff. Would simpler LOIs (with a lower barrier to entry) with site visits or telephone interviews by the foundation be a better measure for some situations? Maybe.

    Of course, and unfortunately, some donors' true goals are just expend their budget---and the RFP process is just to prove due diligence should anyone come asking.

  5. Tutormentorconnections, I take issue with the statement that fund raising professionals are focused on "collecting fees." Couldn't it be said that the CEO's "focus" is "collecting a paycheck"?

    Like any other professionals, most fund raisers do what they do because they believe the work is valuable AND to earn a living.

  6. Aren't nonprofit organizations, in fact, supposed to be the vehicle by which DONORS direct their resources to goals which are socially important to the DONORS? The board should be determining how the organization can serve the goals. The staff should be executing the programs that support those strategies. But, I have a huge problem with the notion of nonprofits as being a means for a handful of grandiose people to exercise their social aims with other people's money!

    That said, the immediate client of the fundraiser is the organization; the fundraiser helps the organization assure the DONORS that it is aligned with the DONORS' ultimate intentions.

  7. Thank you, Barbara, for your impassioned post, but I do respectfully disagree with your assertion that "nonprofit organizations [are] supposed to be the vehicle by which DONORS direct their resources to goals which are socially important to the DONORS."

    I'd put phrase it more like, "Nonprofit organizations are supposed to be the vehicle by which a COMMUNITY achieves the goals that are socially important to it."

    If a donor finds that particular nonprofit is doing work that he/she/they/it believes in, they should support that nonprofit.

    But when the donor becomes the focus, nonprofits drift from their missions and only chase the money. Program decisions are made, not based on what is most needed or most effective, but based on the question, "What's fundable?"

    Donors need to actually trust the professionals within nonprofits to know how to best achieve their mission. If donors don't trust nonprofits, they should simply invest their money elsewhere.

    Your notion that nonprofits are "a handful of grandiose people [exercising] their social aims with other people's money" is simply insulting and only demonstrates your incredible disdain for nonprofit staff.

  8. The case against percentage-fee fundraising has been made very clear elsewhere, and I'll just throw in here that it is compelling and difficult to refute. Rather than regurgitate the lengthy debate, I'd like to say this about nonprofits, donors, communities, and those of us who make a living in the sector: if a nonprofit can't develop the capacity to fund its ostensible mission, then whatever its mission is, however meritorious, will not succeed. As the sector becomes more interconnected and dependent on regional and national resources, we find ourselves less and less able to call a spade a spade, give up our calling and go home when the money dries up. Keeping one's job isn't enough of a justification to run a NP.

    Even if you had all the money in the world, you may someday (god forbid) fulfill the objectives of your mission. Then what? Where's your case for support? There's no timeless writ that guarantees an army of do-gooders limitless evils to fight.

    If you can't reasonably convince anyone to fight for your cause with their dollars or their sweat, maybe you've got the wrong cause. Or maybe you're bad at your job. Either way, no grantwriter working for any fee will save you.

  9. I disagree, and need you all to clarify a thought.

    Percentage based compensation drives performance if done correctly.

    An upfront fee does not drive performance, and can bust a small start-up non-profit instantly.

    We have contacted a couple grant writing outfits who wanted $20,000 to write grants on our behalf. The problem was there was no grants available. So how can you all say that upfront compensation is good, and percentage based is unethical?

    I'll take paying someone a percentage any day. It drives them to actually perform, rather than stealing capital from your organization on empty promises.

    It would be better in a perfect world, but with so many scam grant writing outfits, and scam fund raising outfits out there, percentage based fees are the way to go.

    So how do you defend this?

    email me at to discuss this more please. We are a small startup who has been screwed a couple times by these grant writers and fundraisers, and we are definitely liking the idea of percentage based compensation.

  10. Hi David,

    Thanks for your comments and sharing your experience. However, you ask me to defend some anonymous outfit that wants to charge you $20K upfront when "there are no grants available." I cannot defend anything like that. All I can do is, once again, go over the arguments for and against contingency fee fundraising.

    The main points for it are, as you say, motivation and certainty. Motivation, in that pay for performance should inspire better performance. Certainty, in that the nonprofit will never be out any moneys upfront without a guarantee of collection.

    One of the main points against it are that in the world of grant making, performance and success are not always linked. With the vast number of excellent and qualified programs seeking grants, the competition requires many wonderful and professional proposals to be rejected, but that doesn't decrease the value of the work that the proposal writer provided you.

    The other major point against it is simply that the very foundations to whom we are sending the proposals frown on the practice, whether rightly or wrongly. If you are honest, and include a percentage-based writing fee in the budget for the proposal, your proposal will be rejected outright. If you hide that percentage cost elsewhere in the budget you are presenting a fraudulent case to the funder, lying about your true program costs, and deserve to be rejected.

    I don't care for this situation, and I am frustrated that I cannot guarantee success to every one of my clients, but until the foundation world and the AFP (Association of Fundraising Professionals) change their minds and remove the prohibition against percentage or contingency fundraising from their codes of ethics, I will have to continue to operate that way.

    I will also have to openly question the professionalism and ethics of anybody who calls themselves a nonprofit grant writing professional and yet openly violates a major ethical tenet of the profession.

    Now, as I also said in the posting you commented on (and in many other blog posts), I find the donor-centric nature of our business to be an insult to the organizations and causes that we seek to assist. I believe the donors should be far more concerned about the missions of the organizations, and not their obedience to the funding world's whims. Many times in my posts I have "bitten the hand that feeds me."

    As to your situation, I agree that you should send packing any consultant who demands $20K upfront. When I work with a grant writing client (and, no, I'm not accepting such assignments at this time) I charge by the hour. If at any time the client is not fully satisfied with my work, they may end our contract. Never will they be able to run up such a large tab with me without having work that meets their standards already accepted.

    And, the work I do for them, belongs to them. Once I have written proposals on their behalf, they can re-use the material for new submittals as often as they like. That may not sound like much, but I believe in assisting an organization, then leaving them with the tools they need to succeed on their own.

    So, in summation, no, I cannot defend the "many scam grant writing outfits, and scam fund raising outfits out there" - All I can do is tell you to look a little harder to find the good ones, because they do exist. And just because they're willing to charge you a percentage, doesn't mean they aren't scammers ;^)

    Best of luck,

    - Ken

  11. The way in which non profits play a part in our world today is so much more than the provision of services or the way in which we pay our staff/consultants/etc... Non profits enable citizens to be a part of and express their beliefs about what their society should be. If utilizing a FFS to get money, to help your clients, and better your mission, then do it. How many times have you seen a paid staffer complain about too much work while on their um-teenth break? Calling FFS bad is like calling a gun bad because it kills. It's not the gun, it's the bullet that kills and the person loading and shooting is the killer. So FFS is not bad; the percentage to which is given is bad by the one approving the percentage. So it is up to the final decision maker to determine the outcome of this "immoral" practice you speak of. Remember: Growing a non profit to better our community is as important as growing a profit business to better our economy. FSS, incentive bonus, a cookie, whatever you need to get the end result but don't be a sucker about it. Ensure measures and readable outcomes. That is the problem with FSS not FSS itself.

    Consulting with sarcasm

  12. There is potential for abuse no matter the fee structure. But I don't think banning the use of commissions is fair or in the best interest of all organizations and even donors.

    Consider these two scenarios: 1) You are a contract grant writer who will be paid $100 per hour no matter if the propsal you write is excellent or sucks, gets approved or not. 2) You are a contract grant writer who receives a commission on the amount of an approved grant only; therefore, you are motivated to research the most promising foundations and write the best proposal possible. Which scenario best serves the organization?

    I personally would rather pay someone a little more money on the back end for only successful work than on the front end for work that is not guaranteed.

    Of course protecting organizations and donors' funds is paramount. However, I think this goal can be accomplished through legislated limits on commission rates, not on the banning of a practice that has practical use for many organizations. Many smaller nonprofits simply can't afford to pay a grant writer any other way. Would a ban be fair to them?

  13. Late to the party, couldn't read it all, either, but the govt needs to keep its nose the EFF out of our lives. Remember BUYER BEWARE? Well, we call these "donations" but if they are going to start talking about "DONORS NEEDS" then they are clearly defining the donor as a CONSUMER, a BUYER with WANTS and NEEDS. If so, then it is incumbent upon each BUYER/DONOR to research their organization of choice and find which one handles their money in a manner that is acceptable.

    As far as the govt forcing orgs to do x, y, or z, they can, and will, ALWAYS find workarounds... workarounds which will, ultimately, make their practices even more obscure, and put DONORS/BUYERS even further outside the loop.

    Eventually, such laws will only result in ARRESTS and no significant benefit to the BUYERS who should do their due diligence before buying. Screw the nanny state.

    Btw, it's 3 yrs after this post was made, anyone link to an update please? Thx Sam

  14. It is mid-2018 and I am reading your blog post for the first time. The AFP is full of you-know-what. I have read and re-read their laundry list of fake issues associated with contingency payments, and their opposition is a bunch of elitist, snobby junk based mostly on "feelings." Feelings have zero place in an American culture that is based on work-risk-reward. When you hire someone to fix your bathroom, they either do it right and get paid, or they do it wrong and do not get paid. The same principle holds true for fundraising. As much as AFP wants to elevate their do-gooder work to some holy status, the simple fact is that most non-profits cannot afford to pay up front, they cannot afford to pay for work that does not at least pay for itself, and they cannot afford to take risks without a clear view to compensation. Lawyers work on contingency fees, fundraisers can, too. Enough with this elitist nonsense. Go raise us some money!

  15. Where possible, it is best to pay fundraisers a set fee or salary. However, if you look to the example of legal contingency fees, it takes a number of important considerations into a balancing act. Legal contingency fees are only allowed under certain circumstances. Legal contingency fees allow for a situation where...for example, someone has been harmed but does not have the money to hire a lawyer. Without a contingency fee arrangement, this person would have no access to a legal remedy...and the person/company who caused the harm to not be held responsible. With the contingency fee arrangement, a lawyer can evaluate the case, see if it is strong, and decide to take it on (knowing that he/she will only be paid if the lawsuit is successful). The provides a valuable resource to people who cannot afford legal representation.

    I believe that the fundraising community could learn a lesson from the legal community and allow for exceptions where a contingency fee or commission with cap is acceptable and deemed ethical. I believe that the AFP should include exceptions that state that contingency fees are ethical up to a set cap where the nonprofit is unable to pay for the fundraiser otherwise. For example, contingency fees could be allowed where the nonprofits previous year's revenue or contributions were under a set figure (say $200,000) or where the nonprofit is less than 5 years old. Just like a lawyer, the fundraiser could evaluate the strength of the nonprofit's story and programs and decide to take on the project on contingency if he/she believes that his/her fundraising work has a high chance of success. The IRS could then have such nonprofits include this information on their 990s with a section to explain why the nonprofit chose to use a contingency fee arrangement. This would balance the interests and needs of nonprofits, donors, and fundraisers.