Many smart business people like to pay people based on a percentage of their performance. If you make more sales, get more contracts, you get a bigger cut of the business brought in.  The number one question I have been asked over time is if I am paid though a percentage of grant funds that I obtain.

The answer is no – never. Like most other professionals, I charge a flat hourly fee. Development professionals who are members of the Association of Fundraising Professionals abide by a strict code of ethics that forbids percentage-based compensation, since it is a conflict of interest. What? Many business people work under a percentage-based model, you say. And that is correct.

But non-profit organizations are fundamentally different than for-profit organizations. The mission of a non-profit is not to make money, like their for-business counterparts, but rather to meet a community need. The business of philanthropy is to meet community needs, for which individuals get a tax write off.  If you insert a person in between your organization and Ms. Big Donor or Mr. Foundation to raise money, you want to be sure that person has your best interest in mind, not theirs.

Super in for-profit sales, but unethical for non-profit fundraising

So why is a percentage-based formula a bad idea, even unethical? For third parties to make enough commission for charities on speculation, they have to charge a high percentage rate to cover overhead, usually much more than 50% of the dollars raised.  Ms. B.D. and Mr. Foundation want to ensure that their money to be going to housing the homeless and feeding the hungry, not to a for-profit consultant. If they find out that the majority of their charitable donations are not being used for the worthy mission they thought they were supporting, you will never raise another cent from them. That’s not philanthropy, that’s a hit and run!

For proposal writers, if they received a percentage of all grant dollars obtained, very few if any would work for smaller charities, ignoring them for the large ones who had the budgets and capacities to receive and manage six-figure grants. Ethically, you need to detail what the grant funds will be used for. If you ask for proposal writing fees, good luck. It is hard enough to get general operations funded through grants these days, even if you are a soup kitchen or providing some basic human need.

Need to Develop Relationships

Whether raising money from a person or a foundation, the point is to develop a relationship with the donor for multiple, repeat (and hopefully larger) gifts over time. A person who works on a percentage basis cares about the size of a gift, not developing relationships for your non-profit. They could scare off potential donors by asking for much more than a person or a foundation’s capacity to give, and that is NOT in your best interest.

Some people think it’s fine if their nonprofit only gets 5-10% of dollars raised by someone or some organization, since it is money they wouldn’t have obtained anyway. But there is no such thing as easy money. If the Board or staff or volunteers simply asked a few friends and businesses for donations, they could obtain 100% of the gift made, and populate their donor list with names that actually could be repeat donors. Developing relationships is always good business, and the key to raising big dollars. And developing relationships takes time and effort, not easy fixes.