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Crowdfunding Terms You Should Know, Part 1

Published By Janet Gershen-Siegel at November 16th, 2017

By Janet Gershen-Siegel

We’ve Got All the Crowdfunding Terms You Need to Know

Crowdfunding terms can seem to be a bit of a mystery. There are a lot of crowdfunding terms thrown around all the time and they can sometimes get confusing. So consider this your primer on some basic crowdfunding terminology.

Crowdfunding Terms to Know: Project

A project is what you are asking for money for. Projects can take a few months or even years. The more complicated your project, then (usually) the longer it will take. In general, we call the person starting the project the project runner or the project creator.

We call the people who donate to the project donors (or, sometimes, contributors).

And we call the act of requesting money on a crowdfunding platform a campaign.

Crowdfunding Terms to Know: Donor Levels

In general, donor levels refer to the amount of rewards (I’ll get to rewards in a moment) which you offer for a particular-sized donation. Your donor levels might look something like this:

  • $10 fountain pen (100 available)
  • $20 includes $10 level plus a tee shirt (50 available)
  • $50 includes $20 level plus a framed picture (30 available)
  • $100 includes $50 level plus dinner with the project runner (10 available)
  • $500 includes all other perk levels plus a new car (2 available)

The limits on donor levels are your imagination and your capacity for handling complexity. After all, five separate donor levels mean you are keeping five separate lists. If you are well-organized, then this is possible although it’s not easy. Five separate donor levels are plenty, particularly for people running their first campaigns.

Crowdfunding Terms to Know: Rewards (AKA Perks)

One basic about crowdfunding for creative projects (crowdfunding to help someone with their medical expenses is a different animal) is that you will need to provide incentives for your donors to open up their wallet. This is where perks come in.

Your rewards can be nearly anything although it can quite literally pay to have them relate directly to your project. For example, if you are crowdfunding to get enough money to back your new smart phone invention, then your rewards probably shouldn’t be your grandmother’s blueberry muffin recipe, no matter how wonderful it may be.

Instead, you could base your rewards around your invention, with everything from offering a case to an extra battery or charger, or even an app which only your donors can download.

A Word to the Wise About Rewards

Rewards are a very real part of crowdfunding and they can often be a part which project creators don’t take into consideration. If you think it will take a year to get your product to market, but you need to fulfill perk promises to 10,000 people, you will likely find you need to do one of any of these things:

  • Delay your product launch
  • Hire someone to do fulfillment for you
  • Offer alternative perks (if you can)

Reneging is not an option, and it can get you on the wrong end of a lawsuit if you’re not careful.

Why does it take so long? Consider the degree of complexity. Let’s go with an easy number: 100. Let’s say you have 10 separate perk levels and they each have 10 slots. Once an eleventh person wants a certain perk level, they just plain can’t have it, as it’s gone. Are you with me so far?

Your ten separate perk styles may be of differing weights, which means they will have different shipping costs. If any of your 100 donors are outside your country, then you’ll have to pay more to ship to them as well. Plus of course you have to make sure addresses are complete and correct.

It becomes even more complex when your perks don’t fit into such neat little buckets, where you have, say, eight perks, anywhere from 12 to 1,000 people who should be getting them. Also, maybe some people have given twice and are waiting for two separate perks.

Solving the Perk Problem

The easiest way to get around these issues is to offer intangible perks. In our smart phone example, the exclusive app would fit the bill nicely. Your best bet is to make the intangible perk good for the largest number of donors possible.

Hence if your lowest level is $10, and you have 100 of those slots, then just giving 100 people a download code is a lot faster than figuring out postage for all of those donors. Plus, with an intangible perk, technically the number of perks is effectively infinite.

For the tangible perks, leave them for far smaller groups, such as the 25 people who are at your two top donor levels. Mailing to 25 people is far easier, even if the mailings are complex, than it is to mail to 10,000 people.

And There’s More Next Time

In Part 2, we’ll talk about types of crowdfunding and types of platforms. Your business can get credit cards and financing, if you know where to look. Learn more here and get started toward understanding crowdfunding terms.

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