How to fund your business with crowdfunding, Part 1

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How to fund your business with crowdfunding, Part 1

Published By Janet Gershen-Siegel at September 18, 2017

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Crowdfunding has become all the rage and there’s no wonder. It’s (usually) free money which you do not have to pay back. And you can get these funds without having to give up any ownership or control over your small business. Plus it can help you to gauge the popularity of an idea or a prototype or invention. Because there is no sense in continuing if there is no interest in your handiwork.

Decisions, Decisions

You will have to make a lot of choices before you even start a business crowdfunding campaign.

How much?

Your first decision should be: how much do I need to crowdfund? If you need $1 million, you are going to have to crowdfund more than that. Why? Because that is how crowdfunding platforms make their money – they take a percentage of whatever money you can raise. Therefore, you will need to take that into consideration. Crowdfunding percentage charges range from 4% to 10%.

Will I succeed?

Another decision is about how successful you believe your campaign is going to be. If you are super confident that you will be 100% funded at the end of your campaign, then traditional funding is for you. If you aren’t sure, then try GoFundMe’s flexible funding. With flexible funding, you, the campaign runner, can keep your donations even if your campaign fails. However, for this privilege, you will have to pay a higher fee to GoFundMe. Other crowdfunding platforms like Kickstarter don’t offer this option.

What should I offer for perks?

Yes, you will have to offer perks to your donors. Perks can take several forms – buttons, tee shirts, book marks – all of those are possible physical perks. Consider a perk format which can dovetail with your business. If you sell homemade jam, then maybe create a special flavor just for the campaign, and offer bigger and bigger-sized jars depending on donation amount. If you are a horseback riding stable, offer a free lesson or a postcard with a favorite horse’s picture on it, or the like. Does your business flip houses? Then consider offering a coupon to a local home supply company (work with them beforehand, of course) or the like.

Pro tip: physical perks are a pain! A lot of people love them, and they will attract attention. However, physical perks also need to be shipped. International shipping is extremely expensive, even for small items. So if you offer physical perks, specify if you will allow international donor addresses. And even if everything has to be shipped in America, you are still left with dealing with a database of names and addresses (some of which might have typos or be incomplete) and often a variety of available perks. Did Jane want the stuffed teddy bear or the bookmark? Did Alan want the pennant or the tee shirt? Do Jane and Alan live at the same address so maybe their perks can be combined? What happens if a perk is lost or damaged in the mail?

Therefore, if you can do it, try for virtual perks. For a house flipping company, you might record videos about home decorating or repairs. For a bakery, you could offer downloads of recipes. And for a health club, maybe offer electronic coupons for a free month of membership.

Your Campaign

Your campaign’s success is far from guaranteed. However, you can take advantage of a few known strategies. First of all consider these four feelings that you want to engender in donors. Use one or more of them as the centerpiece of your campaign as a starting point. We’ll start with two today and the other two next time.

Urgency

The first two and last two days of a crowdfunding campaign are nearly always the days with the biggest payoffs. Often, dragging out the campaign doesn’t make you significantly more money. So why not open a campaign for just a week? Don’t let donors think they can contribute any old time they feel like it.

Scarcity

If you have thousands of something or other to offer as a perk, it won’t be as desirable. If you only have one or two of a particular perk, that will create a feeling in some people that they just have to have it. Do this with your higher donation levels only. Therefore, you might want to set up a perk/donation level scheme something like this:

Donation Level Number of Perks
Lowest 1,000
Second lowest 500 (reward also includes lowest level reward)
Second highest 50 (reward also includes two lower level rewards)
Highest 10 (reward also includes all other levels’ rewards)

Remember: a lot of variation in physical perks will make fulfillment a lot harder, so don’t work with more than maybe five separate types of physical perks – and even that is pushing it.

In part 2, I’ll reveal the other two of the four feelings you want your donors to have.

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