Why you should not outsource your fundraising

Tedfellow Peter Haas asks a question always worth re-examining in his post entitled Show me The Money-Disasters, Restrictions, and The Future Of The Fundraising Industry.

The question: Why shouldn’t a nonprofit organization outsource its fundraising to a professional fundraising contractor?

Peter is not talking about bringing in a consultant to train the nonprofit to do a better job raising money. He’s talking about outsourcing fundraising altogether–that is, hiring an experienced pro on a commission basis to bring in the financial resources that a nonprofit needs to do its work:

If the mission of the NGO is the service to the community, and fund raising is truly something administrative (as most donors like to classify it in costs analysis), then it should be something an NGO can easily subcontract. NGOs subcontract back end services all the time, book keeping, accounting, payroll. I don’t hire somebody to tell me how to reach into my heart and find my inner book keeper, I hire a book keeper. Why not fund raising?

To make this feasible for small nonprofits, Peter contends, it has to be done on commission:

Aside from finding the right contractor the boutique fund raising pricing is out of whack with the resources of its potential customers. Contrary to common development director and contractor beliefs, to build a truly sustainable client base they need to work just from commission or fee on delivery of gifts. The barrier to entry for customers in this industry is that most the the small, effective and compelling orgs lack the funds to pay a fee up front to hire one of these contractors.

Compelling set of arguments, these, and no doubt persuasive to many nonprofit leaders who, like Peter, do not see fundraising as either a personal strength or joy. Peter’s own question is:

Why aren’t there more fundraising contractors out there working this way?

Perhaps, he says, it may be bad advertising on their part:

Where are all the big fund raising contractors? The professional solicitors? This is an industry with thousands of professionals yet none of them has a google adword? Interestingly similar fundraising term searches with adwords had hacker SQL injection attacks in the adwords. Hackers and scammers know NGOs need money, why don’t the pros?

What I have learned from this is that either A) the companies and private practices that should be good at this are thinking way too small and a market opportunity exists for a serious player to dominate B) These companies need to hire me part time to manage their SEO because they suck at it . . .really. I might not be so great at the fund raising but honestly folks your google results are pathetic.

Or perhaps, he suggests, it may be a growth industry:

This is an industry that is waiting for its day. Small orgs need the big gift the most. I have often lamented that impact philanthropy has strangled out all the institution building big gift philanthropy of the late 80s and early 90s. Most the groups I respect in terms of impact, Partners in Health, Echoing Green, Teach For America, City Year, all started with a major million dollar or more gift in the first year. For an entrepreneur that is pretty darn useful to start an enterprise, you can staff off of that, you can build both a program execution and a fund raising team. Starting with 50-100K it’s a bit more of a challenge. You are constantly just treading water to creep upwards with your budget.

I’d suggest three other reasons why outsourcing fundraising to contract fundraisers is not more popular:

  1. It’s viewed by the largest professional fundraising society as unethical.The Association of Fundraising Professionals wrote a white paper on the subject, listing six reasons why they frown on the practice. My guess is that Peter won’t find much of their reasoning to be especially persuasive. From a pragmatic standpoint, the one that carries the most juice is the recognition of how rare it is that there is a 1:1 correspondence between a particular solicitation and a gift, or even between a particular solicitor and a gift. Big gifts especially are like fine wine; they mature with age, and their cork is best popped in the company of many.
  2. It’s a strategy whose time has come…and gone.There may have been a day when wealthy individuals were looking for places to park their dough where their hands and their checks would separate. In fact, the whole of traditional transactional fundraising is still based on that elusive hope. Increasingly, however, as we document in this blog, there is an ever-strengthening connection between people’s money and their involvement. (As we noted recently, volunteers to an organization give 50% more than non-volunteers.) This goes even beyond the point made above that a number of non-financial activities go into a donor’s decision to give. (Were that the case, we could just say to the contractor, “Tough. That’s just the cost of customer development.”) What the stat recognizes is that donors seek to interact in a certain way with an organization, and the nonprofit must be permeable and amenable to that approach. A nonprofit that outsources fundraising is unlikely to develop the kind of corporate culture in which donors and potential donors feel welcome to volunteer and participate in meaningful ways. If it did, it wouldn’t need to outsource its fundraising.
  3. Only bad fundraising is truly something administrative.It’s not like bookkeeping really, Peter. I supposed bookkeeping may in some circumstances be personally transformative. But good fundraising must be so. As Sean Stannard-Stockton notes and often laments, donors who say “I’m looking for a really good organization that’s making a significant impact that I can give a lot of money to” are as rare as unicorns. There’s just no way to take the transformation out of fundraising and have that be effective. And that transformation comes from personal participation, engagement, and ownership in the cause…not an encounter with a salesman for high end luxury goods.

What is an industry that’s waiting for its day are donor representatives who are more than financial advisors–individuals who work for givers, not organizations, and who are trained to scout out the nonprofits who want more than money and who can provide more than a good social investment.

Unfortunately, if you try to google those folks at the present time, you’ll come up empty, too.

About Pastor Foley

The Reverend Dr. Eric Foley is CEO and Co-Founder, with his wife Dr. Hyun Sook Foley, of Voice of the Martyrs Korea, supporting the work of persecuted Christians in North Korea and around the world and spreading their discipleship practices worldwide. He is also the International Ambassador for the International Christian Association, the global fellowship of Voice of the Martyrs sister ministries. Pastor Foley is a much sought after speaker, analyst, and project consultant on the North Korean underground church, North Korean defectors, and underground church discipleship. He and Dr. Foley oversee a far-flung staff across Asia that is working to help North Koreans and Christians everywhere grow to fullness in Christ. He earned the Doctor of Management at Case Western Reserve University's Weatherhead School of Management in Cleveland, Ohio.
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7 Responses to Why you should not outsource your fundraising

  1. bob hartsook says:

    Hartsook Companies has a strong “outsourcing” practice, but it is a flat fee compensation. The linking of outsourcing and pricing is what is the fatal flaw in this analysis, you don’t have to do commission fundraising to offer outsource products. The Hartsook Insitute for Fundraising and the Hartsook Chair at Indiana University would argue that a lack of talent is the reason for most failures in fundraising–the talent of the staff who are ill prepared by traditional methods and the organization (CEO) that doesn’t understand how to manage fundraisiers and treats them as bookkeepers. We discussed this with Gene Tempel at Inidiana in 2003 as answer to the philanthropy challenge in America. Thank you for raising the point again, but remove the commission piece and you have an acceptable, desireable and marketable practice.

    • EFoley says:

      Good to have your perspective, Bob–you add an important voice to the discussion. My own sense is that there is more here than the compensation question. There’s a purpose question that relates to the nonprofit. Are we professional providers of services, to be supported by the public? Or are we platforms for action? If the former, outsourcing fundraising should suffice, provided the contract is not objectionable, as you note. But if the latter, then outsourcing by definition becomes problematic, as I’ve attempted to discuss above.

  2. As you point out, transformational gifts are motivated by a high level of trust in senior management and key volunteers. Those powerful relationships often cannot be outsourced. Steps in the process that lead to those relationships, however, present opportunities for solid outsourcing partnerships. Internal development staff must often focus on a very narrow band of top prospects. Discovering and establishing relationships with new donors is something that can be outsourced in a way that can feed new prospects into the pipeline.

    The difficulty of finding and maintaining good major gift talent leads to consideration of outsourcing. Others see it as a way to supplement limited resources. There are flat-fee options in the marketplace that can more adequately address some cultivation steps and help organization personally interact with more key donors.

    • EFoley says:

      Good thoughts, Tony. It would be interesting to examine the time being spent on development by Executive Directors and volunteers in outsourcing situations. My suspicion is that the numbers would be much lower than would be conducive to fostering and maintaining an organizational culture that is especially permeable to large-scale donor/volunteer involvement. But weirder things have happened than my suspicions being wrong, you know.

  3. Mazarine says:

    Let’s talk about Save the Children.

    Did you know how much they made in donations in 2008?

    $455 MILLION DOLLARS.

    Do you know how many fundraising outsourcing firms they have?

    OVER FIVE.

    There is something to this.

    Major gifts are one thing you should build a relationship around. But direct mail? e-mail blasts? how much of this could be automated by a firm with far better resources than your little nonprofit? How many hours could you save your development director by outsourcing these things? Then she could get on with the task of researching and building relationships with major givers.

    Sincerely,

    Mazarine
    http://mazarinetreyz.com

    • EFoley says:

      Good to have you post up, Mazarine–and I enjoyed visiting your site and your blog. Yes, this present discussion is more focused on the outsourcing of major donor work rather than the outsourcing of mass fundraising, which as you note is a much more commonly accepted (and generally more profitable) practice. That being the case, I am far less inclined these days than I used to be to recommend outsourcing of the components of what we used to call mass fundraising, as I believe the future belongs to nonprofits with much, much smaller constituencies who are more intimately involved in both the organization and the cause than what has typified fundraising in the past, and I think the distinction between what we used to call major donors and regular donors is no longer tenable in this networked age. That’s the subject which generally preoccupies me on my little corner of the blogosphere here, and I hope you’ll visit again and feel free to share your thoughts and insights further. Great to have you in the neighborhood!

  4. Crusher says:

    Let’s talk more about Save the Children.

    Do you know how much they made in donations in 2009?

    $197 MILLION DOLLARS! – this is according to their annual report (http://www.savethechildren.org/publications/annual-reports/stc-annual-report-2009.pdf) and includes gifts, grants and contracts.

    They picked up most of the rest of their $445M for 2009 from the US government ($138M).

    SO, did the donations actually drop from $455M to $197M in one year? Do the outsourced fundraisers care about that or just their piece of the $26M they picked up.

    Or are the facts just a bit misrepresented – that they raised $455M through donations – and we really need to more carefully consider that Save the Children’s annual reports don’t indicate an outstanding model to follow?

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