What is crowdfunding?
How does crowdfunding work?
What are the benefits of crowdfunding?
I’ve been asked these questions and more countless times over the past year, particularly during and after my two successful crowdfunding campaigns where I raised over $37,000 upfront for sustainability projects in my business.
There are many benefits of crowdfunding. From securing funding upfront, to catapulting your profile, to testing if a business concept will fly, more and more entrepreneurs and business owners are turning to crowdfunding over traditional forms of finance. In fact, in 2015, an estimated US$34 billion worldwide was raised via crowdfunding!
In this post I’ll explain what crowdfunding is and how it works. I’ll also share five benefits of crowdfunding (hint: only one is financial!) and why you should consider it as an option to not just raise capital, but to grow your business.
Podcast: Play in new Window
What Is Crowdfunding?
Crowdfunding is the action of raising capital for a project or venture upfront by receiving monetary contributions from a large number of people. The supporters “pledge” their monetary support for the campaign in exchange for a reward. Rewards can be a product or service, or even just a public acknowledgement of thanks.
How Does Crowdfunding Work?
To set up a crowdfunding campaign, you upload the story of your project and where you’ll invest the funds into an online crowdfunding platform like Kickstarter, Pozible or Indiegogo. Different tangible rewards are specified for different amounts of monetary pledges.
There are two types of crowdfunding campaigns – an “all or nothing” campaign (where you only receive the funds if you reach your campaign target) or a “receive everything” campaign (where you receive all funds regardless if you reach the target). Naturally, there are advantages and disadvantages for each campaign type.
The platform will prompt you to specify a period for the crowdfunding campaign and once you hit publish, you’re on your way!
Despite what many people believe, running a crowdfunding campaign is not a set and forget exercise. Once you’ve hit publish you’ll need to drive as much traffic as you can to your campaign to ensure you trend high in the platform and receive the financial pledges you need. Sharing your campaign in social media, traditional media, email marketing and other methods will all increase the potential of your campaign reaching, or exceeding, your target.
How Soon After the Crowdfunding Campaign Ends Are Funds Received?
In an all or nothing campaign, pledges are processed when the target is reached. If the supporter has paid by PayPal, you’ll receive individual transactions directly into your PayPal account when you reach this milestone. Credit card payments are usually processed by the platform at the end of the campaign and transferred into your bank account 7-10 days after a successful campaign, minus fees.
Crowdfunding platforms usually take around 5% of the campaign total in fees, and payment gateways another 3% in exchange for the services provided. It pays to keep these fees in mind when setting your target prior to launching your campaign. You don’t want to short change yourself!
What Are The Benefits Of Crowdfunding?
If the time and effort required, and public nature of crowdfunding deters you from considering it over a traditional business loan I’d encourage you to reconsider. The benefits of crowdfunding extend far beyond the financial reward and include the following advantages:
- Raised Profile / Media Exposure – due to the high volumes of traffic crowdfunding platforms receive and the likelihood of many friends and supporters sharing your campaign in social media, crowdfunding is one of the best and fastest methods to increase exposure and boost your profile. Following my two successful crowdfunding campaigns where I raised over $37,500 for sustainability projects, my story was picked up by online and traditional media keen for a good news story. My social media and email followers also grew considerably during and after the campaign.
- Market Research – not keen if your idea will fly? Crowdfunding will quickly give you that answer. While many people fear a failed crowdfunding campaign, the astute business owner knows it’s a much better alternative to investing thousands of dollars of money, and months or years of time, into a business or project upfront, only to have the venture fail. A successful campaign gives you the confidence that there’s a market for your product or service BEFORE you run off and create it.
- Loyal Customers – the people who pledge on your crowdfunding campaign become your most loyal customers. They’ve personally invested in your idea and want you to grow and succeed. There’s no better feeling than delivering these customers their rewards in thanks for their support.
- No interest or ongoing fees – unlike traditional business lending, once you hit your crowdfunding target, and the platform and transaction fees are deducted, that’s it where money is concerned. There are no ongoing fees and definitely no interest rates. Now that’s a bonus!
- Accountability – for those who need extra motivation to keep on track when implementing a project, there’s nothing like a large group of pre-paid customers who are waiting for their product or service to keep you on track. In my experience, a successful crowdfunding campaign is the perfect way to get public accountability and propel you to deliver on your promises.
How to Crowdfund?
To say that crowdfunding has been a game changer in my business (and life!) would be a massive understatement. It’s enabled me to build my Self Sufficiency in the Suburbs membership program and secure my Homeward Bound ship berth to Antarctica. But most importantly it’s enabled me to continue to build a business I love and make a positive impact in the world.
Through running two successful campaigns, and closely watching (and pledging on) many others, I’ve discovered exactly what makes a crowdfunding campaign exceed its target. Armed with this knowledge and runs on the board I’ve created a FREE Crowdfunding Checklist that outlines the exact steps you need to take to create a successful crowdfunding campaign.