The success of fundraising campaigns on crowdfunding platforms such as GoFundMe, Kickstarter, and Indiegogo has reached an increasing number of startups and small businesses trying to raise money via these sites. However, crowdfunding is not suitable for all businesses. Let’s see how crowdfunding sites work and what startups should know before launching a crowdfunding campaign.
How It Works
A company can create a fundraiser on a crowdfunding site for many reasons, like building a new facility, launching a new product or expanding its operation. Sites typically require the business to establish a donation goal within a specified period. Everyone can go to the startup’s crowdfunding page and donate money to the goal. When the campaign reaches its target on time, the site collects donations for the company from anyone who promises money.
The sites also deduct a small percentage of the earnings. Kickstarter, for instance, charges 5% of total funds raised for all successful funding projects, along with a 3%–5% percent payment-processing fee on all donation pledges. It collects no fees if the project doesn’t meet its goals. GoFundMe also takes a 5% cut of all raised funds and obtains an additional 2.9% processing fee. Currently, crowdfunding sites only allow businesses to receive cash donations from their sponsors, often in exchange for gifts (such as free merchandise) if the campaign is funded successfully.
A Few Strategies for Successful Campaigns
People who are willing to invest in corporate crowdfunding when they are excited about a new project, so take time to put up a compelling story about your idea. To do so, add to your campaign page photos, videos, and descriptions of what you plan to use the money to do.
Many businesses that are successful at raising funds this way often create social media campaigns and videos to get the word out about the campaign and boost donations. Attracting attention from the local or national press can help generate enthusiasm among donators. Good advertising practice includes a media page on your campaign site, directing journalists to learn more about your project.
It’s a good idea to focus on potential donors rather than covering your funding request to provide as many e-mail addresses as possible; to do this, organize your social networks in small groups and adjust the message return request separately for each group.
Using Crowdfunding Campaign as a Marketing Tool
In addition to the primary purpose of raising capital, creating a campaign can be a good way to attract customers and generate momentum for a project. Companies that can maximize the marketing benefits of a crowdfunding campaign are generally good.
FUZ designs raised $652,000 to provide a lock that can be opened and closed on a nearby Bluetooth device. Founders Cameron Gibb and David Gengler not only drew attention to the product of technology blogs and media. But also received offers from people who help with the production, design, and distribution of the product.
Is Crowdfunding Really Right for Your Business?
Not every startup business is a good fit for crowdfunding — and many businesses that attempt to raise money through crowdfunding sites are unsuccessful.
According to Kickstarter, for example, only 38% of funding projects on the site are successful at reaching their fundraising goal. Before you begin a crowdfunding campaign, honestly judge its chance of success.
- How many resources and time can you dedicate to the campaign?
- How have campaigns with similar products prospered?
- What is the realistic goal of fundraising?
- Is it better spending my time working on a campaign that generates this success?
It’s good if, when answering these questions, you realize that crowdfunding isn’t the best fundraising technique for your business. There are several other ways for companies to raise capital. Turning to other methods, like equity investors or bank loans, may even offer benefits that crowdfunding cannot offer, such as the potential for making business connections and accessing valuable information.
Until next time,
To Your Growth & Profits
William De Temple, CEO Antirion LLC
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