When it comes to start-up funding, it is difficult enough to decide between the various options of funding, let alone
Reward-based crowdfunding is comprised of a collective effort by a group of people (referred to as the crowd, contributors, or backers) and a project creator (referred to as a project owner or campaign manager) with the common goal of funding a specific venture. The creator of the crowdfunding campaign requests the crowd to contribute small amounts of money in order to fund his or her new concept. Most of the time, the crowd consists the project owner’s immediate social network, and the project is usually hosted on a public crowdfunding platform. In return for contributions, rewards (also known as perks) are offered to the contributors from the project itself.
While those are the basics, crowdfunding has many more aspects to it than this simplified definition. The following is a guide created with the intentions of helping you better understand the basics of crowdfunding in more detail. While this guide may not be applicable to all crowdfunding campaigns, it will serve as a general overview on how most rewards-based crowdfunding campaigns function.
It is important to note that with reward-based crowdfunding, the project owner keeps 100% ownership of his or her project and incurs no debt from the money raised. There is a platform fee and processing fee from transaction providers, however, this is only deducted if and when the project is successfully funded. With rewards-based crowdfunding, in exchange for contributors support, the project owner will give rewards/perks in return for contributions. These rewards/perks can range in a physical or digital form of your product, such as a download. They may grant early access to a product, service, event, or album. The reward/perk could even consist of an innovative piece of technology.
Many of the perks are simply pre-sales of the end product itself. These are just a few examples, but the possibilities of rewards/perks for creative projects are endless. Rewards/perks are vital because they will also typically reflect the level of contribution that backers will be willing to pledge.
Crowdfunding is often the first step in creating an increasing interest for your idea. It is an extremely effective tool that can be used to build awareness for your concept and share your vision with the world. The crowd can also be an excellent source of collective knowledge and creativity. When you involve the crowd in your project through comments, they have the opportunity to make suggestions, point out oversights, and help you improve your project, ultimately providing valuable feedback that you would otherwise not have encountered.
Crowdfunding can also be a vetting process. If a crowdfunding campaign doesn’t reach its funding goal, it could be a sign that there is not enough interest in the idea to be successful short or long term. This process can actually save entrepreneurs years of time, energy, and resources that would otherwise have been wasted. On the other hand, some projects wildly overfund showing that the public was ready and eager for the idea, which enables it to come to commerce almost immediately.
Crowdfunding permits you to raise money while simultaneously introducing your idea to a large market at very little cost. This benefit is not present in any other form of funding. While many people may view crowdfunding as simply taking an idea, loading it on a website, and letting the cash roll in, there is much more involved in the marketing process.
Preparing to Launch a Crowdfunding Campaign
If you fail to plan, plan on failing. The most successful crowdfunding campaigns spend months on preparation alone. One of the first things you will need to do is outline your idea in clear, concise terms. You will need to create a business plan, or a well thought out strategy, in order to penetrate the market you intend to enter effectively.
Having a good idea is one thing, but it’s another endeavor entirely to implement your plan and see it through to fruition. In order to succeed, it’s vital that you and your team are knowledgeable in your field and passionate about your idea for this exact reason.
The backers for your project will want to know exactly where their money is going and be able to have confidence that their funds will be spent appropriately. Because of this, you will need to create a budget and set a target for the amount of money you intend to raise. This will aid your efforts when it comes to explaining to your contributors how and where the money will be utilized.
Crafting the message is an important step in creating your campaign. It should be noted that some of the most successful crowdfunding campaigns start with a compelling “why”. “Why are you creating your idea? What is your motivation?” The ‘why’ can be even more important than what you are actually creating in some cases. The ‘why’ is what will give the crowd an emotional connection to your project. Perhaps it is best explained by Simon Sinek when he said: “People don’t buy what you do, they buy why you do it”.
It is also important not to focus on yourself. Instead, focus on what your project can do for others. A credible idea will gain people’s interest, but if you can touch the crowd on an emotional level, your campaign is almost guaranteed to be a success. Many crowdfunding campaigns that reach and surpass their goal are not offering a project as much as they are mobilizing a movement. This is one of the main reasons campaigns can overfund by large multiples and go viral.
Start Gaining Support & Building Momentum
Often overlooked, and one of the most important steps you will need to put into motion before you start your campaign is to raise awareness and gain support for your idea. This can take anywhere from 2–6 months depending on the size and scope of your project as well as your marketing abilities. If this step is missed, your project will be lost in the noise of the hundreds of other projects, giving it minimal chances of success. Studies have shown that over 90% of successful crowdfunding campaigns were 25–35% funded within the first week due to their pre-campaign support efforts.
You should be envisioning your project off as well as online. Develop your audience and involve the crowd from the beginning if possible. You want to get your network excited about your project and encourage them to spread the word through their own networks. Let them know all the great rewards they will receive in exchange for their contributions. A great way to gain additional support outside of your network is to do some research in groups that may have a common interest in your projects completion, and try to leverage their influence.
Crowdfunding, in its essence, is an exchange of goods and services. However, it’s not a charity. Don’t be shy, and feel free to be creative when seeking support for your business. This time should also be used to discuss your idea with your friends and family in and out of your social media network. This is where you can potentially receive valuable feedback that will help you refine your concept and address any miscalculations you may have missed before you go live.
Make an Awesome Presentation
Your presentation to the crowd can make a huge difference in your results. Include as much visual imagery and information in order to illustrate what your project is about and how you will achieve your goal. By putting forth the best presentation possible, you will demonstrate your professionalism and seriousness towards your vision. If you have any ability to create your new product, show it. If you have prior projects or experiences, show them as well. People will need to trust and believe that you can do what you say you are capable of. You will also want to get the crowd excited to be a part of your project, and a great way to do that is through a strong presentation.
Rewards/perks are the core component of rewards-based crowdfunding, and you will be required to deliver these items to your contributors at the conclusion of the campaign. The expenses for these items should be accounted for in your initial marketing budget. This is how you will thank your contributors for having faith in you and supporting your project. It’s important that you offer creative, exciting rewards in return for contributions. Providing images of the rewards you will be offering, if possible, is an effective method of enticing potential backers. This gives your contributors a visual of what they will be receiving when they support your campaign.
Many people confuse crowdfunding with charity. While this may be true in some instances, it’s generally not the sole motivation for people to contribute to creative campaigns. In most cases, the success of your campaign will have a direct correlation with the rewards that are offered in exchange for contributions. Therefore, it is very important to make the rewards desirable and to choose perks with realistic price points.
Making a Video
You will want to make a short video that represents you, your team, and your idea. Projects without videos have a far lower chance of success. The video is a way to personalize your project for the crowd. Your video does not need to be of the highest production value, it just has to effectively convey you and your idea to potential backers. With that in mind, your video is an important representation of your project, so it should reflect that time and consideration was put into creating it. Keep in mind, we live in an age of videos, and this may be the only part of your presentation that many people will ever see. Be creative and have fun when making it. We also recommended that your video length is five minutes or less. Keeping it short and sweet ensures that the video is more likely to holds the audience’s attention, and therefore be passed on to others.
Choose a Platform
After completing the steps laid out above, you’re ready to submit your project. However, the work doesn’t end there. Managing a crowdfunding campaign requires time and effort. With the proper attitude, it can be a fun and exciting process as well. Before you submit your project, do some research on various crowdfunding platforms to determine which site will best fit your needs. After choosing the platform, you will submit your project for review. Depending on the platforms policies, there may be a waiting period of a few days before your campaign is approved to go live, so be sure to factor this into your marketing time.
Ready to Launch
Prepare for launch! This is your chance to share your unique vision with the world! Once you launch the campaign, you must dedicate time and energy every day that the project is live. Launching your project is one of the last things to be done after all the pre-campaign preparations. The crowd should be viewed as partners in your new endeavor. Make sure to involve them in every step of the process. Include them in all your updates, read their comments, and interact with them as much as possible during this phase. Ultimately the crowd will decide whether you are trustworthy and if your idea is one they wish to support. So put your best foot forward, and be honest and transparent in order to gain their trust. Do whatever you can to get them excited to be a part of your project and support your vision.
Final Note on Crowdfunding
Although crowdfunding in its current form is a new phenomenon, the concept itself is not new at all. Many artists have funded their works through similar methods in the past including Mark Twain, Beethoven, and Mozart just to name a few. Even the Statue of Liberty was crowdfunded into completion over one hundred years ago! Now that we have the power of technology and the ability to reach a global audience through tools such as social media and the internet, we are able to bring crowdfunding to a whole new level.
Crowdfunding is a way to unleash our creativity. It allows anyone to discover new and exciting concepts while empowering the public to fund the most innovative and worthy ideas as they see fit. As we move forward, crowdfunding will give people many more options about what they wish to choose to include in all aspects of our lives. So profound is the idea that there is really no limit to what we could crowdfund into existence. Considering all of the brilliant ideas and creative minds in this world, we are surely in the process of entering an exciting time of limitless innovation.
Pre-launch crowdfunding checklist — click here.