Financial Resource Development for Israeli Organizations: Hiring a Professional Fundraiser or Outsourcing to a Professional Firm
One of the most challenging dilemmas that Israeli non-profit organizations face when raising funds outside Israel is whether to hire a professional fundraiser or engage a professional fundraising firm. The decision is not a simple one and often depends on many variables that all have to be taken into consideration. Making the decision requires a thoughtful process to allow for the proper planning.
A number of larger Israeli non-profit organizations have established relationships with their American “Friends” groups and may have an existing body of volunteer leadership and professional staff in an office located in a major city. A director who is a seasoned fundraiser is included in the staff along with additional staff members depending on the size of the Israeli organization and the overseas office. This is certainly true of offices representing universities, hospitals, museums, and other non-profits of a particular size and scope. Occasionally, these groups may engage outside firms to consult around the structure, focus, and/or message of the campaign, but most of the fundraising is implemented by the organization’s professional staff and volunteer leadership in coordination with the Israel-based organization.
The question of whether to outsource or engage additional staff is most relevant to smaller and mid-size organizations that do not have an established operation outside of Israel. Often these non-profits are not sure about whether to invest funds and hire an additional staff member who has experience and contacts overseas. Generally, the person is engaged to follow up on present contributors and to use her connections with potential donors (and find brand new donors) who might be willing to contribute to the organization. In addition, there may also be an expectation that she will approach foundations and secure multi-year grants based on her past experiences in previous places of employment. The parameters of her position are negotiated and reflect her knowledge, skills, abilities and experience.
The professional fundraiser’s compensation is either based on a salary or on a percentage of the funds raised while she is working. The first approach is for the agency to hire a staff person to raise funds and to pay her a salary for her efforts but it does mean the organization incurs the cost of the salary and other expenses prior to realizing the fruits of the fundraising effort.
The second approach is to base the compensation agreement on a percentage of the income generated from the fundraising activity. This is very attractive because it requires a minimal outlay of money on the part of the non-profit. It is common for the fundraiser’s expenses to be covered but the actual salary is dependent upon the person’s success. It is also possible to provide a base salary and then award bonuses when the overseas fundraising campaign is successful.
Paying out a percentage of the funds raised is not always perceived as the most professional way of compensating a professional fundraiser. There are a number of ethical issues that could be discussed and perhaps a future column will focus on them. The most glaring issue is that no donor wants to know that a percentage of what he is contributing to the organization is going directly to the person who is soliciting the contribution. It is common practice to pay a salary to people who work on behalf of non-profit organizations and donors know this and do not question the compensating of salaried employees, however, most would look askance at the practice of paying a percentage of the funds raised to a professional fundraiser. No one would want to lose donors over this practice.
A second approach to fundraising overseas is the outsourcing of the services to a professional firm specializing in financial resource development (FRD). There are a number of firms providing comprehensive services for non profit organizations including planning the strategy for the campaign; developing the local leadership group; preparing the Israeli-based professionals and volunteer leaders who travel to meet with contributors overseas. In general, the firm brings a wide range of expertise and services to the table and the agency can select those which are most helpful to its fundraising efforts.
The relative advantage of the professional consulting firm is its very ability to access expertise and use its contacts throughout the overseas country. Often there is more flexibility when there is a comprehensive service, and there are greater resources available to the Israeli organization than can be provided by one individual staff member. This can often be to the advantage of the smaller agency that would otherwise not have a wide enough reach to use a number of approaches to increasing its financial resources.
However, when comparing the relative advantages and disadvantages of hiring a staff person versus engaging a consulting firm, the agency must look at the investment of its time and money. In general, the cost of engaging an individual is limited to salary and expenses. If the agreement is to provide compensation based on a percentage of the raised funds then the non-profit has limited liability. But when a firm is engaged, the agency is making an investment in building a strategic approach and this requires the willingness and ability to accept the responsibility for paying a monthly retainer up front before the contributions have been received.
A non-profit has to consider all the advantages and disadvantages of hiring a professional or contracting with a consulting firm to increase its financial resources. Much of the decision depends on whether the organization has the necessary resources and how broad they want their scope of activity to be. Of course there is also an issue of whether the agency wants to keep the fundraising “in house” as opposed to “outsourcing”. All these issues have to be considered by the professionals and lay leaders associated with the agency and thought through deliberately before making a decision. The way the agency decides to raise funds will often reflect on the public image of the organization so it must be done with care.
Stephen G. Donshik, D.S.W., is a lecturer at Hebrew University’s International Leadership and Philanthropy Program and has a consulting firm focused on strengthening non-profit organizations and their leadership for tomorrow. Stephen is a regular contributor to eJewish Philanthropy.
Although it is legal to compensate fund-raisers on a percentage-of-funds-raised basis, the standard in the fund-raising industry is fee-for-service. Percentage-based payments have the potential to place the fund-raiser’s self-interest above the donor’s.
Grant writing and fundraising consultants that follow the ethics universally accepted by the profession do not and will not work on a commission, percentage, or bonus basis.
This standard is repeatedly stated by the major organizations that set the standards for the field, including the Association of Fundraising Professionals (AFP).
AFP’s Standards of Professional Practice include the following statements: “Members shall not accept compensation that is based on a percentage of charitable contributions; nor shall they accept finder’s fees.”
AFP holds that percentage based compensation can encourage abuses, imperils the integrity of the voluntary sector, and undermines the very philanthropic values on which the voluntary sector is based. AFP stands firm with its Standards of Professional Practice which prohibits members from working for percentage-based compensation or accepting finder’s fees.
It is my impression that the newly formed Israel Association of Professional Fundraisers will take a similar view as to AFP.
Thanks to Stephen and to Dan,
The Israeli Association, of which I am a founding member, is currently finalising the Hebrew wording of a Charter of Ethics for professional behaviour. As Dan suggests, we will also be adopting the internationally accepted standard of defining compensation up front, and not having that compensation as a direct derivative of funds brought in.
I have been fortunate enough to have experienced, first-hand, Stephen’s consulting methodology for large orgs on the subject of fundraising abroad – and I absolutely recommend his services, and his suggestions, to any org looking to grow organically to a successful presence abroad.
At the founding meeting of the IAPF in the last month of June, the issue of compensation based on a percentage of the donation was treated extensively. Two main documents were served as guides: The ethical code of the AFP and the international code of ethics. Despite that we’re still in the preliminary phase of discussions, I can take the risk to determine that the IAPF will adopt the international standards.
Personally I believe that the determination not to permit compensation based on a percentage of donations, must be accompanied by a proposal of a model that offered an alternative. It is not enough to say that we disagree. We must offer an appropriate alternative to Israelis professionals, because otherwise we are creating rules that no one will respect.
Our mission is twofold: To adopt the international and ethical standards and simultaneously,create a compensation mechanism that is adequate, relevant, and ethical and respect the content of these standards.
Another important and necessary condition for the respect and implementation of ethical standards, is the professional certification. This must be the our immediate and next step.
The issue of any fundraising firm or professional receiving compensation as a percentage of gifts has been debated for decades. While the code of ethics of AFP was cited above the code of ethics of The Giving Institute (formerly known as the American Association of Fundraising Counsel) forbids compensation by percentage of dollars raised. As a firm working with a number of Israel-based organizations, we have addressed this topic regularly and we are still surprised when the discussion develops! Percentage compensation discourages donors and clearly sets the wrong tone to encourage philanthropy. Let’s put this issue to bed once and for all!!!!!!!!!
I agree, gnug on paying a percentage of donations as fee for service. Non profits especialy in Israel need to understand the time required to arrange meetings, set up gatherings…any professional who does this should clearly be compensated. Lets remember one needs to pay in order to play!
As a profesional in and out of the Jewish community for 25 plus years there are others ways in which to do business professionally. A consultant can be paid a project fee instead of a percentage. A consultant can be paid hourly, or on a timely contract basis. But as others would agree, its unprofessional to consider a portion of a fundraiser’s time, and strengths to be contingent on the whims of donors or prospects.
Israel staff flying in and out to meet people, close gifts, then go back just plain looks bad. Worse yet, is when they contact donors and say, I am coming, can you get me appointments, to existing donors. Generally, thank yous and follow up is shallow and shabby, showing a lack of strategic thinking.
If Israel based nonprofits want to raise money in the U.S., then they should make the necessary investment, become professional, business like, and adhere to the practices well established that have made our field a respected and growing one.
My community organization training and my professional experience has shown that sooner or later the mid and small sized Israeli nonprofits will come to the conclusion that it is to the benefit of their long term growth to have an in house professional staff person dealing with resource development.
However, the advantage of starting out with an external consultanting firm is that it can develop the basic infrastructure needed (materials, elements of website relating to resource development, lists of relevant foundations, identification of potential donors, a work plan recommending which methods of fundraising will be most effective for the organization, etc), and educate the professional and lay leadership to recognize a high standard of professionalism in a field with which usually they are unfamiliar.
While I offer the service of helping organizations find the right in-house professional from the beginning, I have also had numerous clients with whom I began as the external consultant and was able to smoothly transition by helping the organization to hire the right in house professional and providing the necessary initial guidance to make sure that she (thanks Steve for the gender default choice) gets off to a running start in the right direction.
Regarding the method of compensation issue, I’m surprised at Steve’s seemingly objective review of the issue in light of the profession’s very clear stance rejecting percentage based compensation as expressed in the Code of Ethics of both the US and the European professional fundraisers organizations. One of the first items on the agenda of the newly formed Israel Association of Professional Fundraisers’s First Annual Conference, now being planned, will be the adoption of our own Code of Ethics. I assume that it will have some elements that will differ from our US and European colleagues, but not on the issue of percentage based compensation.