
What You Need to Know About Gift Fees
By Marina Shepaksov, Consultant, and Penelepe C. Hunt, Senior Consultant & Principal
Rising campaign goals, declining rates of giving, and ongoing economic instability continue to challenge the development operations of nonprofits big and small. As nonprofit leaders and fundraisers, we know that ongoing investment in a strong fundraising program fuels growth, but donors want to contribute to meaningful, mission-driven impact, not fundraising overhead.
To help address this problem, many advancement departments, in universities especially, have turned to a gift administration fee as part of their financial model. At Marts&Lundy, we’ve heard from a lot of clients who are considering adopting a gift fee. We want to answer some of those questions here.
What exactly is a gift fee?
A gift fee (also known as a gift assessment or gift administration fee) is a portion of received gifts that is captured and used for purposes other than the donor’s designation, most commonly fundraising operations. Gift fees are most often applied to major gifts (as defined by the institution) but can be extended to gifts of all levels.
How much is a typical gift fee?
Gift fees tend to range between 3% and 15% of the total donation amount. However, organizations often assign a lower percentage for gifts over a certain amount (e.g., over $1 million), or include a cap on fees (e.g., the fee is applied to the first $1 million of a gift, but not for the remainder). Some organizations exempt gifts to capital projects from gift fees.
Do donors need to know about the gift fee?
Yes! Gift fees should be disclosed to donors before, during, and after they give. During major gift discussions, the solicitor should discuss various components of the giving process (e.g., how the donor will be recognized, how the gift will be stewarded) and the terms of the gift fee should be included in these conversations. The gift fee should be documented in the gift, pledge, and fund agreements. Although gift fees do not affect the recorded amount of the gift, nor the tax deductibility, it is good practice to document the fee on receipts and acknowledgements to ensure full disclosure and donor awareness.
For direct response supporters, information should be made readily available on the website and in marketing materials. You may consider providing an option to donors of all sizes to offset a gift fee by increasing their donation. For example, if a gift assessment is 10% for a $100 gift, the donor may choose to contribute $110 to ensure the full $100 goes directly to the program they are supporting.
Where should gift fees be documented?
In addition to gift agreements, the terms of the gift fee must be written into your Gift Acceptance Policy. Some organizations also have a separate Gift Fee Policy.
If an organization requires a minimum level of gift to establish an endowed fund, or name a space, position or program, the gift fee policy should specify whether that minimum can be reached by the gross total of the gift, even when the net total after the gift fee may be below the minimum requirement.
The use of gift fees should be clearly conveyed. The most common use is to cover some of the operating expenses of the development program. It is important that the fees not be designated to specific officers’ salaries, in order to avoid the appearance that officers are raising their own salaries or receiving commission on the gifts they close. When gifts are designated to units, the policy should address whether the fee goes to the operations of that unit, or to a central budget. Many universities follow the approach they use for research grant overhead fees.
What if a donor refuses to have a gift fee taken from their donation?
Institutional donors, mainly corporations and foundations, often refuse to have a gift fee taken from their donations as a matter of policy. And some individual donors will state in their gift documentation that the gift is being made on the condition that gift fees not be taken. Determine in advance whether your organization will allow exceptions to the gift fee policy and whether it will accept gifts where donors have individually declined to have the fee applied.
Remember that if an exception can be made for one donor, similar exceptions should be considered for other donors. Donors frequently share their experiences with their friends and peers, and the perception that some donors get special treatment or exceptions can be damaging to the reputation of the institution.
How do we manage the move to a gift fee?
To implement a gift fee successfully, a strong internal and external communications strategy should be rolled out. Internally, the change begins with approval from leadership and governance and a strong endorsement of the practice from these leaders to internal constituencies such as deans and program directors. An evaluation of the effects this decision will have on current advancement operations should be undertaken across all departments to ensure all teams can successfully implement necessary changes. For example, gift processing practices need to be reviewed, gift proposals and stewardship reports will require standardized language, and gift officers will need talking points to communicate with donors.
Beyond the advancement office, ambassadors will need to understand and be comfortable advocating for the change. These ambassadors may include board members, volunteers, and major donors. Involving these community stakeholders early in the process will help ensure they see the value in investing in advancement activities and will speak positively about the impact this will have on the entire organization. Buy-in from these stakeholders can help make the case for others who may be resistant.