Some years ago, I had a client tell me that the ideal candidate for their chief development officer would be a black woman with 20 years fundraising experience, strong large-organization leadership skills, and a multi-year track record of 6-and-7 figure gifts. The client’s target salary was under $125,000. I had to explain to the client that, while that candidate existed, she was already making over $200,000 and her organization was going to pay what it takes to keep her.
This experience underscored a vexing problem for nonprofit boards and leaders: what is the right salary for a fundraising position and how do we calculate it? For that matter, what is even the right number of fundraisers for an organization?
I have spent a couple of years collecting helpful rules of thumb, and this week I decided to tie them together into a set of useful heuristics for nonprofit leaders.
Earlier this year, Front Range Source published the results of a study, “How Many Fundraising Staff Does It Take to Raise $1 Million?” They found that, on average, that it takes one full time equivalent employee (FTE) to raise $500,000 annually, so for every $1 Million an organization wants to raise, they should expect to require two FTEs.
While there is a huge amount of variation in the range of FTEs is takes to raise $1 Million, this is a helpful perspective for nonprofit boards and CEOs. However, it immediately creates another question: “how much should I be paying my fundraiser?”
When companies began recruiting me in earnest for CEO positions, I needed to figure out quickly what my salary requirements were. I found some general guidance online that has been around for years which said that, on average, CEOs (both for profit and nonprofit) are typically paid between 1% and 5% of revenues, while nonprofit CEO salary ranges should be between 1% and 2.5% of revenues. (Worth noting, CHRON.com has excellent insight into nonprofit CEO compensation packages.)
When we get into how much to pay your fundraiser, things become a little more muddled. Because we found ourselves in a number of conversations with clients about this very topic, I’ve conducted some research over the summer to create a correlation. My idea was to create a rubric that ties the chief fundraiser’s salary to a percentage of revenue using the same rules of thumb for the CEO or Executive Director’s salary.
Let’s start with the most widely available source of salary data, salary.com. As of July 28, 2021, salary.com reported the following range of salaries for nonprofit CEOs and Executive Directors nationwide.
Nonprofit Chief Executive Officers: Minimum – $92,913 | Midpoint – $174,295 | Maximum – $270,344
Nonprofit Executive Directors: Minimum – $65,592 | Midpoint – $78,253 | Maximum – $96,992
Worth noting, smaller nonprofits tend to have executive directors whilst larger nonprofits tend to have CEOs. To get some sense of how those correlate to total revenue, I divided the midpoint of each salary range by the midpoint of the compensation range. i.e., if the top executive of a nonprofit should be paid between 1% and 2.5%, then the midpoint of that range is 1.75%.
Based on that math, the CEO salary range above correlates to a midpoint revenue of $10 Million for a nonprofit, with the range being $5 Million to $15 Million in revenues. Said simply for a nonprofit of $10 Million in revenues, $174,295 is an appropriate level of compensation for the CEO. Similarly, the midpoint revenue for the executive director range above is $4.4 Million, with a total revenue range $3.7 Million to $5.5 Million.
Now, let’s turn our attention to chief development officers (CDOs). Salary.com reports the following range of salaries for nonprofit CDOs nationwide.
Chief Development Officer: Minimum – $137,500 | Midpoint – $174,300 | Maximum – $228,100
Notice anything about those numbers? At the minimum and midpoints, they tie or exceed CEO salaries. That is not as surprising as it seems. Small nonprofits in terms of revenue are probably not going to have a CDO role, opting for a Director of Development or perhaps the CEO filling that role. I’ve pulled the fundraising ranges for a variety of other fundraising positions and reproduced them in the table below.
Again, looking for correlations, I analyzed not only the salary.com data, but I looked at some 990s of nonprofit organizations that I felt were well run and representative of fair compensation strategies, including some of our favorite clients. I found a relatively consistent correlation. On average, the Chief Development Officer is compensated about 85% of what the chief executive or executive director is compensated. That correlation also seems to extend downward to smaller nonprofits as well.
So, we are recommending the following compensation strategy for nonprofits over $3 Million in annual revenues.
- Determine what the revenue expectation is for the organization and set the CEO’s compensation structure using the expectation of 1.00% for the bottom of the range, 1.75% for the midpoint and 2.50% for the top of the range.
- For the senior development role, multiply those percentages by 85%. That means the compensation structure would be set 0.85% of revenue for the bottom of the range, 1.49% for the midpoint of the range, and 2.13% of revenue for the top of the range.
What about nonprofits smaller than $3 Million? To be blunt, you are not going to hire a chief executive or a chief fundraiser below the minimum of what they are going to be able to make in the local market. In Atlanta, even an inexperienced executive director is going to be able to make $100,000 so we advise our clients that is the minimum salary in the market, regardless of revenue. This is where our friends at salary.com can help. They can narrow salary ranges to zip codes if necessary to help you identify what you are going to have to pay in a market.
Please also note: research shows that compensation is only weakly correlated to retention. A whole host of items impact retention of your key fundraising roles. I plan to address those factors in a later article.