Crowdfunding is an increasingly popular option for any small business looking to raise funds. It’s one of the most accessible ways to finance a new idea or product. However, launching a successful crowdfunding campaign is not as easy as just setting up a page on Kickstarter or Indiegogo and waiting for the money to flow in.
Launching a Successful Crowdfunding Campaign?
What is crowdfunding? How does the crowdfunding model work? Types of crowdfunding. Benefits of crowdfunding. How to raise money for an idea. Examples of successful crowdfunding campaigns. Setting up your own web presence. Your campaign is just the beginning. FAQs about crowdfunding.
What is Crowdfunding?
Instead of seeking a large sum from a single source, such as angel investors or a bank, crowdfunding gathers small amounts from a large number of people – typically in exchange for direct rewards – who want to see a particular project succeed.
The concept of reaching a fundraising goal through crowdfunding is not new, but over the past decade or so, online platforms like Kickstarter, Indiegogo, GoFundMe, and Crowdfunder have made online fundraising for businesses, products, and charitable causes easy and accessible to everyone. Crowdfunding sites can bring a new audience to your online business and product – an audience you might not reach through other means.
These sites act as virtual intermediaries between entrepreneurs and supporters, providing the structure and space to host your campaign and the ability to accept funding.
How Does the Crowdfunding Model Work?
Crowdfunding sites provide you with a place to host your campaign, typically in exchange for a percentage of the funds raised. Supporters are awarded “rewards” based on the level of funding they provide. These rewards could include an exclusive promotional item, early access to the backed product, or a form of public recognition – the better the funding offered, the more valuable the reward is. (Some campaigns offer equity shares instead of rewards, but in this guide, we will focus on the latter model.)
Most crowdfunding platforms require you to set a financial target for your campaign, along with a timeframe in which to reach that goal, usually between 30 and 90 days. They may allow you to keep all funds raised during the campaign, regardless of whether you meet your goal. Some use an “all-or-nothing” model like Kickstarter, which refunds backers if your campaign does not meet its target.
If your campaign is successful, you will be in an excellent position to transition to a sustainable business by leveraging the audience you built through your crowdfunding efforts.
Types of Crowdfunding
Projects that rely on crowdfunding or online fundraising generally fall into one of three main categories: equity crowdfunding. Equity crowdfunding gives contributors partial ownership rights in the company in exchange for the capital they provide. Some sites only allow you to sell equity in your company to accredited investors, who are individuals that meet a certain income level. donation-based crowdfunding. Donation-based crowdfunding provides no financial rewards or incentives to backers, so it is mainly used for charitable purposes or by nonprofit organizations. The campaign organizer is not required to give anything back to the donors. rewards-based crowdfunding. As mentioned above, any type of crowdfunding campaign that incentivizes contributors with rewards (not equity in the resulting business) can be considered rewards-based. We will mainly focus on this approach in the rest of our guide.
Benefits of Crowdfunding
Crowdfunding offers several valuable benefits in addition to being a great way to raise capital for starting a business. It promotes your idea
The more
The more you learn about the target market for the product or business you plan to launch, the more you reduce financial risks, and crowdfunding can be an excellent tool for conducting market research.
Pre-selling your product through a crowdfunding campaign helps confirm your creative projects by giving you a strong answer to the question, “Will anyone buy this?” Manufacturing your product without any indication of how it will sell can cost you a significant amount of time and money if demand for your idea turns out to be weak.
Knowing that people want to buy what you are selling allows you to plan and grow your business with confidence.
Helps build a following
Having a strong audience before shipping your first product is a rare and valuable asset. When done right, crowdfunding, especially when combined with social media and press coverage, can help you build a dedicated audience that stays with you as your business grows. It is a source of flexible funding.
Securing funding can be a time-consuming and challenging task for new small business owners. Unproven ideas or new business models may not be appealing to conservative lenders like banks, and while finding private investors to help raise funds is an option, you typically need to give up a portion of ownership in return.
Managing a successful fundraising campaign can be a significant task, but for many founders, it can be easier and more rewarding than traditional methods.
How to Fund an Idea
Define your product or cause
There are not many restrictions on the types of products or businesses that can be funded, but successful projects often share some key attributes: A defined product. If you look at the biggest fundraising success stories, you will find that most focus on funding individual products rather than stores. There’s a reason for that: backers tend to support tangible items, not broad ideas. To increase your chances of success, seek support for your best product. You can build a store later, after you validate your initial idea. A targeted and specific audience. Create a product that meets a need or fills a gap, then find the market that craves it. Often, founders create products that solve a problem they have in their own lives, like MindJournal’s founder when he couldn’t find a daily writing tool designed for his needs. Develop a prototype that responds to these needs. Strong differentiation. To generate buzz and attract backers, your product needs to be something that can’t be found elsewhere. Do the necessary research to ensure that your product is unique.
Planning Your Campaign
The success of your campaign will be largely determined by your marketing efforts. But there are other important elements you should also plan for, including the timeline of your campaign and the fulfillment of backer rewards – in addition to transitioning to a sustainable long-term business after your campaign ends.
Funding Goal
Your funding goal should be the minimum amount you need to create your product and fulfill the rewards. Write down all your expenses, from raw materials to shipping costs, and research any significant expenses you may need to account for. Add everything together, and now you have your goal.
Timelines
Set short campaigns that establish a foundation of trust. They should be long enough for you to build interest and reach your larger potential audience, but not so long that they become background noise. Seeing a campaign that has only a few days left creates a sense of urgency for potential backers, motivating them to act now instead.
Levels
Rewards
Choosing and pricing your reward tiers is an important strategic step in the crowdfunding process. Offer a range of rewards that incentivize users to support your project or product. If purchasing the product itself is the primary reward, include some lower-priced options for those who just want to support you, and expand it to some exclusive luxury rewards for well-heeled backers. Here are some of the most common crowdfunding reward tiers:
Acknowledgements. Public recognition of supporter contributions is good as a reward for the lowest level of donation. For example, Dominion City, a Canadian brewery, published the names of all of its supporters in a full-page advertisement in a local magazine for a $5 donation.
Promotional merchandise. Supporters often like to be early adopters of the product. Offer rewards that help them showcase their pride in participating, such as special stickers, T-shirts, or shopping bags. These low-cost rewards are excellent options if the product itself is expensive.
Pre-orders for the product. One of the most common rewards is early or discounted access to the product. This is the best way to gauge demand. If most of your marketing materials focus on the benefits of the product, you may see higher conversion rates on rewards that act as pre-sales.
Creative collaborations. These rewards give supporters a role in your project or business. For instance, if you’re creating a picture book, you might offer a supporting artist’s drawing in one of the illustrations or base a character on them for a certain level of financial backing.
Unique or exclusive experiences. Supporters might be interested in rewards that provide exclusive access to your brand, such as a one-on-one consultation or an invitation to an exclusive event. These experiences will affect your working hours, so use them as higher value rewards.
Price your rewards in a way that is sustainable for your business. If you’re offering a discounted price on your product in exchange for support, make sure you understand the full cost of providing that reward to the backer, including shipping costs. If you’re offering personal time, you should set a limited quantity for that reward so it doesn’t disrupt your daily operations.
Production
Backers are often the most understanding customers because they know that crowdfunding for a product is not the same as buying one off the shelf. However, that doesn’t mean they don’t have expectations.
Before launching your campaign, you should have a strong, informed estimate of your production schedule. To build this estimate, consider the following: How many products do you plan to produce? Producing one unit is different from producing 100 units, and producing 100 units is different from producing 10,000 units. How long will production take at your ideal order volume? How long will it take to receive your products from the manufacturer? How long will it take to fulfill your campaign rewards? (Use a shipping calculator to estimate shipping times for different postal classes.)
It’s best to have your production or manufacturing process defined before starting your campaign. (Don’t forget to add some extra flexible time to account for any unexpected delays.)
Shipping and Fulfillment
Before starting your campaign and making promises to backers, ensure your manufacturer can ship to your location, especially if they have not previously delivered to your country.
You should also be prepared to ship products in bulk to your backers. If 1,000 backers pre-order the product, that means you will need to pack and ship 1,000 orders.
Can
Good planning goes a long way in creating a smooth execution process. Have you identified a carrier? Do you know your class of mail and shipping costs? Do you have a way to print addresses? Have you considered international shipping? Keep these factors in mind while determining and pricing reward levels and communicating timelines with backers.
Finance
Don’t underestimate the importance of knowing how to manage your income and expenses during and after your campaign, especially if you don’t have much experience in business finance. A good accountant can help guide you in the right direction by assisting you in optimizing your campaign’s profits and managing your taxes, expenses, and cash flow.
Every day during the first project, we meticulously tracked pledges and total amounts. Once the project was firmly funded, we began ordering materials and working on rewards. Valerie Shafer Franklin, Walnut Studiolo
Platform fees for fundraising should be taken into account when setting your fundraising goals. Some sites take up to 5% of total funds raised, plus payment processing fees of 3% – 5% if your product is funded. Communicating with backers
Your campaign backers are your first fans, supporters, and customers, so keep them in the loop. Ongoing communication builds trust and inspires more support, keeping them informed about any unexpected delays or issues. Most fundraising platforms have tools, like email newsletters, to help you inform backers of your progress throughout the campaign and afterward.
You might want to include some information in the newsletter, such as: News about achieving funding goals Updates on the product development process Behind-the-scenes photos New products or upcoming releases New levels or existing rewards New messages of thanks
Market and Promote Your Fundraising Campaign
Think of your fundraising campaign as a broader product launch. To make it successful, you’ll need to dedicate serious time to marketing and public relations, both before and during your campaign. Lead Generation
The secret to launching a successful fundraising campaign involves investing heavily in lead generation before the campaign starts. “Before you start your campaign, spend a significant amount on advertising to gather leads who want to know when your product launches,” explains Justin Arakaki, fundraising director at LaunchBoom.
Justin says that generating leads before launching the campaign provides two benefits: Getting a great launch day that pushes your campaign to the top of trending platform lists, bringing in more free visitors Learning how to identify the best way to market the product and future ads
When generating leads, you can perform many cheap tests and surveys to find out what potential customers love about your product and prioritize, test different features in ads and landing pages,” Justin says. “This information helps you organize the campaign and creative resources that prioritize specific selling points and achieve a better conversion rate when the campaign is live.”
Marketing
There are a few key things you’ll need to convert visitors into backers: An engaging video, fantastic product images, social proof, and compelling campaign copy.
Video
You can repurpose the campaign video across multiple platforms, making it a cornerstone of your marketing efforts. Whether you are creating the video yourself or working with a professional team, ensure that the script covers the following: Who you are. Tell potential backers about yourself and your expertise. The story of your product. Explain how you came up with your idea, the current state of your product or business, and why your product matters to you – and why it will matter to your target audience. Why you need support. Explain why you are raising funds through crowdfunding and how that money will be spent. Be sure to include a direct ask for support. Rewards offered. Provide an overview of the most exciting rewards or those you think will be most appealing to backers.
Take
Considering the short attention span – the video should not exceed two to three minutes and should get to your main points quickly.
If you are planning to create your campaign video, here’s a guide to help you get started.
Visual Resources
The quality of your product images can make a difference in a potential backer’s decision to contribute. So it’s important to ensure that your images look professional.
Here are some resources that can help you capture your own images, regardless of your budget: One picture equals a thousand sales: A DIY guide to capturing beautiful product photography A 6-step guide to natural lighting for your product photography A free course: Product photography for e-commerce
Images can show more than just your model and specs. Include other images that help backers understand your brand as a whole, such as behind-the-scenes shots of your campaign in action and images showing the progress you’ve made so far.
By giving potential backers an inside look, you’ll create a sense of connection with your team and your work.
Social Proof
Including social proof on your landing page can help build credibility for your campaign. “Fundraising is an incredibly innovative space by nature,” Justin says, “and a lot of these new products and entrepreneurs don’t have customer reviews or brand value or any proven track record showing they will deliver a great product.”
Justin found that the following are the highest creative assets for the agency: Product reviews from trusted external newsletters Campaign videos showcasing raw and authentic product tours
Marketing Copy
Well-written words are just as important to a fundraising campaign as high-quality images. You’ll need a compelling headline and a clear and persuasive project description to build a successful campaign.
Your project title – the title that will appear at the top of your campaign page – should be simple, specific, and easy to remember. Be sure to include the name of your project or product in the title. “New chew toy for dogs” is not as useful or searchable as “Bristly: The World’s Best Dog Toothbrush.”
Your campaign introduction should give backers a clear understanding of what your product is, how it solves a specific problem, how it stands out from other products on the market, and why it matters to them. Don’t make people read
Source: https://www.shopify.com/blog/crowdfunding
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