Commission-Based Fundraising Is Unethical — and Here Are Three Better Ways to Pay for Your Development Program
Executive Summary
The proposal to pay a fundraiser on commission — a percentage of the revenue they raise — tends to arise from a genuine dilemma: the organization needs fundraising capacity but does not yet have the unrestricted budget to pay for it. That dilemma is real and understandable, and it deserves a practical answer before it deserves an ethical argument.
This post provides both. The three approaches that follow are the ones that actually work for organizations in exactly this position — approaches that have helped nonprofit clients move from fundraising paralysis to sustainable development programs. After those alternatives are laid out, the ethical and legal case against commission-based compensation completes the picture, giving organizational leaders and board members the full framework they need to make a sound decision.
The Dilemma Deserves an Honest Answer
Most nonprofit administrators who consider commission-based fundraising are not trying to cut corners. They are trying to solve a problem that feels unsolvable: they need a fundraiser, they cannot afford one at a full salary, and someone — often a board member with a sales or marketing background — has suggested that paying on commission aligns incentives and eliminates financial risk for the organization.
The suggestion is logical on its face and problematic in practice, for reasons that will become clear. But before addressing why commission-based fundraising fails, it is worth asking why other staff and consultants in the organization are not paid on commission. Generally they are not — the attorney, the IT contractor, the architect all receive fees for their time and expertise regardless of outcome. The fundraiser's situation is not as different from theirs as it might appear, and the same logic that makes commission-based compensation inappropriate for other professionals applies here.
The more useful question is not whether commission-based compensation can be justified but what the organization can actually do instead — and the answers are more accessible than most organizations realize. Here are three approaches that work.
Three Ways to Pay for Fundraising That Actually Work
The first and most important: build development costs into your budget.
Fundraising expenses should be treated as part of the cost of doing business — as natural and necessary as the fees paid to an IT contractor, an architect, or legal counsel. Yet most campaign and annual fund budgets I review exclude development costs entirely, treating fundraising as something that should pay for itself before it is allowed to exist. This is the central financial mistake.
When development costs are built into the organizational or campaign budget, the goal becomes correspondingly higher — and a higher goal actually helps secure larger major gifts, because donors calibrate their giving to the scale of organizational ambition. For a full treatment of how fundraising costs belong inside the goal, see the companion post on this blog: How to Set the Right Fundraising Goal — and Why Most Nonprofits Set It Too Low.
The fix is straightforward: line-item the development costs — staff, counsel, communications, prospect research, digital infrastructure — alongside every other program cost. Those costs are legitimate, they belong in the budget, and they belong in the case you make to donors and funders. For organizations that have not yet built that budget foundation, a second approach can fund the program while the structural work is underway.
The second approach: ask a funder or major donor to underwrite the fundraising plan itself.
This approach requires preparation but produces results that the first approach alone cannot always achieve quickly enough. Draft a fundraising plan — one that analyzes the organization's current fundraising capacity, identifies its future revenue goals, and specifies the development investment required to reach them. Then bring that plan to a funder or thoughtful major donor and have a direct conversation: this is our plan, this is what it will cost to execute, and we are asking you to underwrite it as a capacity-building investment.
The case is straightforward and genuinely compelling: nonprofits that invest in their fundraising programs are more sustainable than those that underinvest. Funders interested in organizational capacity building tend to engage when they see a real, specific plan rather than a general appeal for operating support. The plan is the ask — and the funder who underwrites it is making a philanthropic investment in the organization's ability to raise everything that comes after.
A useful component of this plan is a SWOT analysis of both the organization and its development program — SWOT stands for Strengths, Weaknesses, Opportunities, and Threats, and a development SWOT maps the current team's capacity against the fundraising goals the organization is reaching toward. That analysis gives the funder a clear picture of exactly what their investment will build and why it matters.
It is worth noting that the underwriting approach is a bridge strategy, not a permanent structure. As the organization matures and its fundraising program produces consistent revenue, the need for a dedicated capacity-building underwriter diminishes naturally — the development program eventually funds itself through the set-aside described below and the structural budget line established above. Most organizations that begin with a capacity-building funder graduate out of that need within three to five years, and that trajectory is itself part of the case you make to the funder: this is a defined investment with a clear endpoint, not an ongoing dependency. When that case resonates, a third approach running in parallel accelerates the timeline.
The third approach: set aside a percentage of all new funding for development costs.
As new donations and grants arrive, reserve approximately 10 percent for the fundraising program. This approach works particularly well for organizations in early growth stages — the set-aside builds gradually, it is self-reinforcing as the fundraising program produces more revenue, and it creates a development fund that grows alongside the organization rather than requiring a large upfront commitment.
The three approaches are not mutually exclusive. The strongest organizations tend to use all three in combination — building development costs into the budget structurally, seeking a capacity-building underwriter for a defined growth period, and maintaining a set-aside from ongoing revenue as the operational reserve for development expenses. Together they produce a development program that is financially self-sustaining rather than perpetually provisional — and one that never requires the compromise that commission-based compensation asks of an organization's ethics and its donor relationships.
Why Commission-Based Fundraising Is Unethical
Kim Klein, one of the most respected voices in grassroots fundraising and author of the foundational text Fundraising for Social Change, puts the principle plainly in her article "Why Good Fundraisers Are Never Paid on Commission," published in the Grassroots Fundraising Journal: fundraising is not a transactional activity but one integrated into the organization's culture, values, and long-term donor relationships — what practitioners call building a culture of philanthropy. Commission-based compensation treats a relational profession as a transactional one, and the damage it does to organizational culture is difficult to repair. Klein's argument is not a matter of professional preference. It is the reason the sector's formal ethics standards are written the way they are.
The Association of Fundraising Professionals, whose Code of Ethical Standards governs professional practice for fundraisers worldwide, is explicit. Standard 21 states: "Members shall not accept compensation or enter into a contract that is based on a percentage of contributions; nor shall members accept finder's fees or contingent fees." Standard 24 extends this: "Members shall not pay finder's fees, commissions or percentage compensation based on contributions." Both standards were revised and affirmed by the AFP Board of Directors in December 2023, and the full code is available at afpglobal.org.
The National Council of Nonprofits affirms the same position: compensating fundraisers by paying a commission on contributions is not ethical, and placing undue pressure on prospective donors does the entire charitable nonprofit community a disservice. The Grant Professionals Association extends the prohibition explicitly to grant writing, where commission-based arrangements are similarly prohibited — a dimension many organizations overlook when they consider commission-based contracts for grant writers specifically.
AFP's position is grounded in six distinct objections, the most important of which concern the corruption of the donor relationship. A fundraiser compensated on commission has a financial incentive to close gifts regardless of whether the timing, the amount, or the designation reflects the donor's best philanthropic interests — and donors who feel that a solicitation was driven by the fundraiser's financial interest rather than genuine mission alignment tend not to return.
AFP does allow performance bonuses that are not percentage-based — bonuses tied to meeting defined organizational goals, approved by the governing body, and available across staff functions rather than limited to fundraising alone. That narrow exception is not a backdoor to commission-based pay. It is a legitimately structured performance recognition that bears no resemblance to percentage compensation — and it says nothing about the legal risk that commission-based arrangements create independently of the ethics question.
Why the IRS Also Objects
The ethical argument is reinforced by a legal one that is less widely understood but equally important. The federal intermediate sanctions rules impose excise taxes and other penalties on certain individuals who receive — and in many instances those who approve — excessive compensation paid by charitable organizations. Commission-based compensation is particularly difficult to manage in this context, because there is typically no external limit placed on the amount that can be earned, making it hard to demonstrate that the compensation is reasonable by market standards.
The IRS defines nonprofit compensation as acceptable when it is reasonable and based on skill, effort, and time expended — not on revenue or net earnings. A fundraiser whose compensation is tied to a percentage of what they raise is being compensated in a manner the IRS views as inconsistent with the charitable mission the organization exists to advance. In a worst case, this can constitute private inurement — the inappropriate transfer of organizational assets to a private individual — which carries serious consequences for the organization's tax-exempt status.
This is not a theoretical risk. It is the legal dimension that makes commission-based compensation not merely inadvisable but genuinely dangerous for the organization's governance standing — and it is the dimension most likely to surprise a board member who proposes commission-based pay as a reasonable business arrangement.
When the Argument Comes From the Board
The most common source of the commission-based compensation proposal is not organizational leadership but board members with backgrounds in sales, marketing, or business development, who reason that aligning financial incentives with fundraising results is simply good business practice.
That reasoning makes sense in a for-profit sales context, where the product is fixed and the transaction is discrete. Fundraising is neither. The fundraiser's "product" is a relationship cultivated over months or years, and the transaction — the gift — is the expression of that relationship, not its conclusion. A commission structure that rewards the transaction at the expense of the relationship is a structure that gradually depletes the organization's most valuable long-term asset.
When a board member makes the case for commission-based pay, the executive director's most effective response is not a recitation of AFP's ethical standards — though those standards are real and enforceable. It is the practical argument: here is what commission-based pay actually does to donor relationships over time, here is what the IRS says about it, and here are the three approaches we are already using — or could begin using — to fund the development program without this risk. That conversation, grounded in the alternatives rather than the prohibition alone, tends to produce a different outcome than an ethics lecture.
One further consideration deserves naming: the organizations that underfund their development programs — whether through commission-based arrangements or simply through chronically insufficient budgets — are the same organizations that lose their fundraisers fastest. The average tenure of a fundraiser in a single position is now 16 to 18 months, and underfunding is among the structural causes. A development program that is financially sound is one that can attract and retain the professionals needed to build lasting donor relationships. That is the full argument for paying for fundraising properly — not just the ethics, not just the legal risk, but the organizational sustainability that comes from treating development as the investment it actually is. For a full treatment of the fundraiser retention crisis and what causes it, see the companion post on this blog: What Makes a Great Fundraiser — and Why the Sector Keeps Losing Them.
What approach has your organization used to fund its fundraising program — and what has worked best in your experience? Share your thoughts in the comments section of the website.
A Note on Use
This post is offered freely for educational purposes. Please share it with executive directors, board members, and development staff who may find it useful — provided the author's byline remains intact: By Laurence A. Pagnoni, MPA. Reproduction in publications, training programs, or institutional materials requires attribution.
