Perk-based crowdfunding is giving business people, writers, artists and inventors and others opportunities that were never available in the past to pre-sell products and test out the market for new ideas without spending their own money. (See our previous crowdfunding article.) On quick consideration, the concept of offering rewards (often, but not always the product you're planning to develop) to raise money for product development sounds like it should be simple and straightforward. But, there's a lot to learn if you want your financing campaign to be successful. Here are some of the best practices for running a successful crowdfunding campaign.
Don't rush into your campaign. Successful crowdfunding campaigns usually take several days of research and planning. The first thing to consider is how much money you'll need and what the best option for raising the funds will be. Although a handful of businesses have raised a half million dollars or more through perk-based crowdfunding sites, the majority of the successful campaigns are from amounts under $10,000. So, if your plans require you to raise a significant amount of money, perk-based crowdfunding may not work for you.
Learn how to play the game. Each crowdfunding site has its own rules, and there are differences regarding what types of campaigns they accept, what fees you'll pay for raising money, and whether or not you'll collect any money if you don't reach the goal you set when you launch the campaign. You'll find this type of information in a FAQs or help section on each site.
Kickstarter.com, for instance wants "creative" projects that have a defined start and end and requires you to sign up to receive payments through Amazon Payments. If you don't reach or exceed your funding goal, you don't get any money.
Indiegogo.com accepts a wide variety of campaigns, including ongoing projects and charitable campaigns. It allows you to choose whether to get paid only if you meet or exceed your goal, or to receive what's been pledged even if the goal isn't met.
Put a lot of thought and research into your funding goal (the dollar amount you'll seek to raise.) To determine the amount on perk-based campaigns, you'll need to know what it will cost you to produce the product and to produce and deliver all the perks you plan on offering to get people to donate money.
Don't forget that part of your costs will include the fee the crowdfuding site will deduct from your donations. Kickstarter, for example, gets 5% of the money raised; Indiegogo.com gets between 4% and 9% depending on the funding option you choose and whether or not you reach your goal. On top of these fees, you'll pay a fee for credit card processing. This will be another 3% on Indiegogo and 3% to 5% for Kickstarter campaigns. So, between crowdfunding fees and credit card fees, you may actually receive 7% to 12% less than the money raised.
Another consideration in choosing a funding goal, is the likelihood of raising the money in the time frame you choose. If you don't meet the goal, you may not get any money, or the fees you have to pay for the money will increase.
Note: Any funding you receive will have to be reported on your tax returns, so be sure to keep good records of all your expenses as well as the income. And if you expect to show a profit, plan to put some of it away to pay your tax bill.
Carefully review successful, completed campaigns. Look at their videos and text. What was the amount set for the goal? What was the length of time? What was shown in the video? What was said? How long was it? Was there a call to action? Look at the promotional text on the project page. What's there to convince people to pledge money? Look at the rewards or perks that are being offered for contributions. How are they structured? How many levels are there? Use your answers to plan your own project page.
Understand all the steps in the process and the timeline you'll be working with. Campaigns have defined start and end dates. Find out what steps you'll have to take before you turn on the campaign, and how long each step will take. Kickstarter has an "awesome platform," says Tim Carter of AskTheBuilder.com. But the last two steps (getting an Amazon payments account, and getting approval for the project from Kickstarter) before you can actually launch the campaign to the public can take up to 14 days or more.
Have a great pitch, advises Indiegogo.com. Spend time creating your campaign. 73% of people that reach their goal, spend at least a day creating their campaign before they go live.
"Make sure you have a video that entertains and tells a story," suggests Jim Kukral of Funnervids.com. "The story should be about why people will participate . . . it's not about donations. It's that they want to be part of the book, the process, the community, part of piece of hardware. They want to be first in line." Carter agrees. "Video is everything! It represents 90% whether you fail or succeed."
"Plan your the reward levels and limits carefully," Tim Carter advises. "I made a huge mistake," he adds. "I had one level where you could get all the videos for $30, and I limited that to 300 backers. And then the unlimited level to get all the videos (plus some other perks) was too far away at $95. There were a lot of people who wanted the videos, so the $30 level sold out before the campaign was over. I should have called the $30 perk an "early bird" reward, and then had a $45 level for a limited amount of people, and finally a $60 level that was unlimited." Now that the campaign is over, Carter is selling the shed-building videos from his website.
Although perks aren't always offered, Indiegogo indicates that 93% of campaigns that reach their target have offered perks; 70% have 3-8 perks.
Find and reach out to an audience that cares. Indiegogo.com suggests starting with your inner circle: friends, family, social media following, email list, to fund the first 30-40% of your goal. This creates validation. Then encourage those people to spread the word further to extend your reach. Jim Kukral accomplished that by promising an additional perk to people who shared his Indiegogo campaign on social media. But depending on your project, a much larger percentage of your funding may come from your own sources. Tim Carter, for instance, raised 88% of his total from his own DIY mailing list.
Don't assume longer campaigns make more money. Most people wait until the last minute to act, unless they have some special incentive to act early. Carter found that while he got some money pledged when he first announced his Kickstarter campaign to his mailing list, most of the money came in during the last 36 hours of the campaign.
Want to learn more about how crowdfunding works? Read the first article in this series, Crowdfunding: How to raise money to produce a product or work of art