13 Nov 2014
No fundraising on commission: time to dump this regulatory relic 4
The long aversion to paying fundraisers on commission has become not only outdated, but threatens to stifle entrepreneurialism in the sector. Joe Saxton says charities deserve better.
It is perhaps one of the oldest and most-ingrained policies of the Institute of Fundraising that agencies shouldn’t be paid on commission. Even since I became a member of the Institute back in the 1980s this has been part of its key beliefs. And 25 years later the Code still says "The Institute of Fundraising opposes commission payments in principle" and that they "ought not" to be used.
And as is so often the case with dearly-held beliefs it is worth re-examining whether it still holds good. And it no longer does. I now believe that preventing fundraising on commission is bad for charities, bad for fundraisers and bad for fundraising and it is particularly bad for small charities on limited funds.
Who does the ‘no-commission’ rule protect?
Is it designed to protect charities from being fleeced by unscrupulous agencies or is it designed to protect donors from having their money spent in ways they hadn’t imagined. If it is designed to protect charities why has every single representative of a small charity I have ever discussed the rule with, been nonplussed by it.
From the point of a view of a charity which wants to raise money and doesn’t have the skills in-house, they have to take all the risk when commissioning an agency. The agency takes no risk. The charity has to pay the agency charges irrespective of whether they have raised any money. Boy that’s a great way to put small charities off using agencies.
From a donor’s point of view the current situation means that all of their donation could go into paying an agency. While if the agency was paid on commission they would know that only a fixed portion would go in agency fees.
The irony is that while we have ‘no payment on commission’ we have ‘payment by results’ and that is OK. Confused? Can’t blame you.
Street fundraising is such a success because charities large and small can pay according to the number of donors they recruit and the agencies are remunerated by the number of donors they recruit. Now why is this OK when payment on commission is not? But the real point is this that one of the reasons that street fundraising flourishes is precisely because both agency and charity share the risk. The agencies’ income is proportionate to their success. If a charity paid a fixed amount for street fundraising then it would only be affordable only by the very largest charities with the biggest financial reserves. And that wouldn’t be fair.
The only argument I have heard in support of the no-commission rule is that it stops an agency taking a slice of a massive donation that they had barely done anything to earn. So for example what if a donor gives £20m and an agency is on 10 per cent commission and then the agency gets £2m for little work. If this is the best argument in favour of ‘no-commission’ then it gives an indication of the era that the rule was created in. When money grew on trees I presume. How relevant or helpful is it today. Not at all. Not at all.
Small charities (and probably many medium and large ones too) cannot afford to take all the risk, and cannot justify paying an agency irrespective of the success of that expenditure so many of them just do nothing. We have the fundraising regulatory equivalent of saying young drivers might be more dangerous so its better if we just don’t let them drive at all. Every charity should be free to decide how it wants to pay its fundraising agencies.
So with a new CEO and a new chair at the Institute it is time to sweep away this outdated shibboleth from the past (and how I wish I had pushed for this when I was chair). Because if we do I predict we will open up all sorts of innovative and entrepreneurial fundraising activities as charities and agencies share the risks and share the rewards – if that is how they want to do business together. And goodness knows in the current climate new fundraising ideas and more innovation, particularly for small charities, is exactly what is needed.
Attending our one day courses is a highly effective way of ensuring new and existing trustees fully understand their role, responsibilities and liabilities.