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No fundraising on commission: time to dump this regulatory relic

No fundraising on commission: time to dump this regulatory relic
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No fundraising on commission: time to dump this regulatory relic 4

Fundraising | Joe Saxton | 7 Dec 2010

The long aversion to paying fundraisers on commission has become not only outdated, but threatens to stifle entrepreneurialism in the sector.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. 

Joe Saxton is driver of ideas at nfpSynergy

Marcus Ward
Partner
Peach Consultancy
10 Dec 2010

If i had a penny for every time i've been asked whether we work on commission i'd certainly be a rich man! ;)

Are we charity fundraisers or no-win no-fee lawyers? If the latter then we would be making business choices based purely on whether the charity is a good fundraising proposition, and already has all the right documents and buttons to push etc. Failing that would we be into charging higher differential rates for poor propositions and small organisations? How would that go down with the client?

This is quite apart from the problems with certain types of fundraising, e.g. the fact that charitable trusts would not as a matter of principle accept paying commission from their grants. Do we not tell them? Whether commission or flat fee, small charities almost always face difficult problems in first funding for fundraising; getting over that first hump is usually their biggest challenge.

Howard Lake
Director
Fundraising UK Ltd
10 Dec 2010

Love it! The legacy fundraisers shall inherit the earth.

If legacy fundraising on commission were OK, then I'd be quids in. I wouldn't even have to hang around at the same charity for long. Do my 18 months, get the campaign going, knowing that legacy campaigns start to part off after about four years. Then I'll be invoicing my previous employer (or employers if I've managed to get another job in that gap) monthly for the fruits of my labour.

Indeed, the legacy stream that I will have unleashed will mean I might never need to work as a fundraiser again. (I'll conveniently ignore the work that my fellow fundraisers undertook to promote the charity and gain it further trust and respect amongst donors).

What's a good percentage on a legacy? 10%? 20%? That'll do nicely. (Actually, I'd take just 5% if you pushed me. Five per cent of a £500,000 legacy? Yes, lovely, thanks.

Meanwhile, I'll have avoided all those other pesky fundraising methods that don't bring in such big bucks (making the charity rely on fewer income streams). I'll commiserate with those suckers (sorry, fundraising colleagues) who chose to work in less remunerative areas of fundraising like trading.

---

For those that don't know me, I jest. That's not how I work or would ever work. Can you see why?

Elizabeth Loudon
Director
Prospero Partners
10 Dec 2010

When asked by clients why I do not and will not accept commission based fees I give two examples (after explaining the position of the Institute of Fundraising and of AFP in the States).

The first is of a frail and elderly donor in a position to make or increase a legacy gift. The commission-based fundraiser working with this vulnerable person would be strongly motivated to influence his or her decision in ways that might not be in the donor's best interests, let alone the family's. While street collecting agency staff may not sit at donors' metaphorical bedsides, many fundraisers and consultants who work under the same code of practice do.

The other example I give is of the pathways that lead to a real major gift. Almost all major gifts (including those starting well below £20 million) have multiple sets of fingerprints on them. Who's to decide who gets credit for the gift (and therefore the hefty commission) if five or six people have communicated with the donor? The more that charities build strong relationships with people the more these awkward issues of credit arise. Commission based fundraising would only undermine the positive and professional team-work that underpins great fundraising programmes.

I've had this conversation with countless donors here and in the States, including many who were initially highly critical of the ruling, and as best as I can tell every donor understands and accepts these reasons if they're clearly laid forth.

As far as the charities go, the ruling means that it's extra important for agencies - including small consultancies like mine that work with higher end donors and boards of trustees -- to agree in advance with clients how the charity's return on investment will be measured and how the agency will be held accountable. That's a conversation that's good to have at the beginning of any contractual relationship. It certainly keeps me on my toes.

Rarry Revan
Ranter
Rantingrules
7 Dec 2010

Err, one issue Joe. You are assuming that members and non members of the Institute actually read and/or abide by the codes.

How many small charities have you spoken to who said "we were going to try out X fundraising, but the IoF code said we ought not to pay by commission so we didn't!"?

I don't think that commission payment is a problem unless you move to the CSDM model of taking total control of creative, mailing costs and projections and then give the small charity back any amount you fancy. How perchance do the codes stop this kind of activity, hmmm?

Big hugs,

Rarry

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