Crowdfunding has empowered entrepreneurs to step away from the risk and rigidity of traditional business financing, and turn to the community for financial support. While the concept of crowdfunding can be traced back hundreds of years, the way it’s used today to grow businesses and introduce products to the market is considerably new.
What is crowdfunding?
Crowdfunding is a method of raising funds through the collective effort of individual supporters. Instead of going to a bank and requesting a lump-sum loan, an entrepreneur can raise the funds they need to start their business or develop a product by collecting a small amount from a large group of people who believe in what they are trying to achieve.
There are a few different types of crowdfunding models including equity crowdfunding and donation-based crowdfunding. This article will focus on a third model, rewards-based crowdfunding, and will dive into how it’s used and what’s required to get started.
What is rewards-based crowdfunding?
Like the other crowdfunding models, rewards-based crowdfunding aims to raise funds by collecting small monetary contributions from a large number of contributors. The key difference with rewards-based? The contributors support the entrepreneur with the understanding and expectation that they will receive a non-financial reward in return for their support— usually the item that the entrepreneur is raising funds to create.
Why run a rewards-based crowdfunding campaign?
Entrepreneurs opt into the crowdfunding model for a number of reasons:
- They need funds to start their business or develop a new product, and want to avoid or supplement traditional financing.
- They want to test the market’s interest in a product before investing time and resources into producing it.
- Marketing! Crowdfunding has become an effective means of generating a lot of interest and attention for new product launches.
Crowdfunding campaign requirements
While some entrepreneurs seem to have it down to a science, the process of planning and running a successful crowdfunding campaign is no easy feat. A campaign’s needs and requirements will vary depending on factors such as project type, how much needs to be raised, and how far along the project is in its development. With that being said, there are a few items that all entrepreneurs need to consider or have ready for their campaign before they launch:
1. Have a product/concept
This one seems obvious, but it’s important to note that where the product is in respect to its development timeline will influence aspects of the campaign like the platform it can launch on. Kickstarter requires entrepreneurs to have a prototype available to be able to launch on their platform, while Indiegogo will accept campaigns that are earlier in the development process. Prototype-ready or not, entrepreneurs need to have more than a basic idea. The product concept needs to be well-researched and thought out to the point where there is a clear action plan that is ready to be executed as soon as the funds are available.
Image source: Reevo E-Bike
Many campaigns like the Reevo E-Bike will include a detailed timeline right on their campaign page. This lets backers know when they can expect to receive the reward they pledged for.
2. Grow a community of supporters
While crowdfunding platforms like Kickstarter offer the benefit of discoverability through their huge project marketplace, successful campaigns do not rely on this traffic alone to get funded. Before launching a campaign, entrepreneurs need to invest time and marketing funds into building up a list of supporters who will back the campaign when it goes live. Research shows campaigns that lock in 30% of their funding goal in the first 1 to 2 days are more likely to succeed, making it especially important to have a community of people that believe in your project and are ready to support you on day one.
3. Ensure you have a campaign page
Entrepreneurs need a place to share information about their project and a secure way to collect funds. While there are a variety of ways to accomplish this, the most popular method in rewards-based crowdfunding is to use a platform like Kickstarter or Indiegogo.
Image source: Kickbooster
The platforms are alike in many ways with some key differences such as the funding structure and the need for a working prototype. Though few, it is important to understand the differences and select a platform that best suits the campaign objectives.
The campaign page itself also requires a few key elements. There is room for creativity in the way information is presented on the campaign page, but entrepreneurs should be sure to include the following items:
4. Include an intriguing project description
Describe the problem, explain how your project solves it, and emphasize any unique features.
Liberty+ does a great job of explaining the issues they’ve seen in wireless earbuds and how their product addresses these issues.
5. Make sure the campaign has beautiful visuals
Invest in professional product photography and/or renderings. Campaigns should also include an explanatory video and infographics to further illustrate the product features and benefits.
Peak Design always wows with their flawless photography and campaign visuals.
6. Explain the project and problem validation
Give evidence that the problem you are solving is a REAL problem. Include customer reviews, press features, and expert testimonials to further validate your project concept.
Many campaigns like ORII will include a press section on the campaign page to provide social proof.
7. Have enticing reward levels
The primary pledge tier should include the main product, with rewards and pledges getting bigger and better from there. You can offer more of your product, additional accessories, or bigger discounts.
Reward tiers should be clear and concise. Make sure it’s easy for backers to understand what they’re getting and that every tier is offering proportional value for the price.
8. Show off your unique brand personality
Backers love to feel connected to the projects they support. Don’t shy away from sharing your story and adding a personal touch by including branded content and design to the project page.
The creators of Exploding Kittens do a great job of establishing a brand identity and keeping the fun voice consistent throughout the entire campaign page.
9. Don't forget to mention the risks and challenges
Entrepreneurs need to be honest and upfront with their supporters. Backers want and deserve to know if anything can delay or prevent them from receiving their rewards. Do your research and include any information you can gather about potential plan disruptors.
Stonemaier Games does a great job of explaining the risks and then reassuring their backers that they have contingency plans in place, should things not go as expected.
10. Plan out a robust marketing plan
Crowdfunding campaign marketing should not kick off on launch day, it should begin months before during the campaign’s pre-launch phase. In fact, the success of the pre-launch marketing will be a huge determining factor for the success of the live campaign. Marketing budget should be allocated to building lists of prospective backers and, ideally, getting some form of commitment before launch. The buzz generated by the pre-launch marketing campaign will help predict the success of the campaign and will also help signal when the campaign is ready to launch. The marketing strategy will differ based on the project category and customer segment, but many campaign creators have reported great results from tools like Facebook Ads and referral marketing programs.
11. And likewise, a fulfilment plan
Success is never guaranteed, but that doesn’t mean you shouldn’t plan for it. Entrepreneurs need to conduct thorough research to understand what’s involved in fulfilling their rewards, and how much it will cost. Without this step, it’s impossible to know how much they’ll actually need to raise to deliver on their promise. Entrepreneurs should have an idea of how much their rewards will cost to manufacture and ship, where they can feasibly ship to, how long it will take to produce and distribute, and more before going live.
- It pays to prepare. Make a plan, set milestones, and be prepared for success before you go live.
- Do your research. Understand all of the costs of fulfilling your project and how long it will actually take to deliver.
- Invest in marketing. Know your audience and get them excited about the project before you launch.
- Build a community. Assemble an army of brand advocates who love your project so much that they can’t wait to tell everyone about it.
Crowdfunding can be a great way to raise funds for a business or launch a new product. If you’re considering crowdfunding for your business, check out Kickbooster’s Pre-Launch Guide for more tips on preparing for the big launch.
Shelby Olson is a marketing strategist at Kickbooster, which provides software solutions for crowdfunding. Learn more about their products here.