Published By Janet Gershen-Siegel at January 1st, 2018
Crowdfunding has become all the rage and it’s not surprising. It’s (generally) free money which you do not have to repay. And you can get these funds without needing to give up any ownership or control over your small business. Additionally it can help you to determine the popularity of an idea or a prototype or invention. Because there is no sense in continuing if there is no interest in your design.
You will need to make a lot of choices before you even launch a startup crowdfunding campaign.
Your very first decision should be: just how much do I need to crowdfund? If you need $1 million, you are going to need to crowdfund more than that. Why? Because that is how crowdfunding platforms make their money– they take a percentage of any money you can raise. Thus, you will need to take that into consideration. Crowdfunding percent charges vary from 4% to 10%.
Another decision has to do with how successful you think your campaign will be. If you are extremely confident that you will be 100% funded at the end of your campaign, then traditional funding is for you. If you are not sure, then try GoFundMe’s flexible funding. With flexible funding, you, the campaign runner, can keep your donations even if your campaign falls short. However, for this benefit, you will have to pay a higher fee to GoFundMe. Other crowdfunding platforms like Kickstarter don’t offer this option.
Yes, you will have to offer perks to your donors. Perks can take many forms– buttons, tees, book marks – every one of those are possible tangible perks. Consider a perk format which can sync with your business. If you sell homemade jam, then perhaps create a unique 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 complimentary lesson or a postcard with a favorite horse’s image on it, or something like that. Does your startup flip houses? Then consider offering a coupon to a neighborhood 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 stand out. However, you also have to ship physical perks. International shipping is extremely expensive, even for small items. So if you offer physical perks, specify whether you will allow international donor addresses. Even if everything has to be shipped in the US, you are still left with working with a data base of names and addresses (a few of which might have misprints or be incomplete) and usually a range of available perks. Did Jane want the stuffed teddy bear or the book mark? Did Alan want the pennant or the tee shirt? Do Jane and Alan live at the same address so perhaps you could mail their perks out together? What if a perk is lost or broken in the mail?
Because of this, if you can do it, try for digital perks. For a house flipping startup, you might record video footage about home design or repair. For a pastry shop, you could offer downloads of recipes. And for a health club, maybe offer digital coupons for a free month of membership.
Your campaign’s success is far from assured. However, you can capitalize on a few proven approaches. First off consider these four feelings that you need to engender in donors. Use one or more of them as the focal point of your campaign as a starting point.
The first two and last two days of a crowdfunding campaign are pretty much always the days with the biggest payoffs. Often, lengthening the campaign doesn’t make you significantly more money. So why not open a campaign for only a week? Don’t let donors feel they can contribute any old time they feel like it.
If you have thousands of something or other to supply as a perk, it will not be as desirable. If you only have a few copies of a specific perk, that will instill a feeling in some potential donors that they just have to have it. Do this with your larger donation levels only. Therefore, you might want to establish a perk/donation level system similar to this:
|Donation Level||Number of Perks|
|Second lowest||500 (reward also incorporates lowest level reward)|
|Second highest||50 (reward also includes two lower level rewards)|
|Highest||10 (reward also incorporates all other levels’ rewards)|
Remember: a lot of variety in physical perks will make fulfillment a lot harder, so don’t work with greater than maybe five separate varieties of physical perks– and even that is pushing it.
If you are offering the identical thing as a thousand other places, no one will want to make a donation. Your widget needs to be lighter, hotter, cheaper, or more resilient. Your food should be reduced in calories or higher in nutrition or better-tasting. Or your professional services need to be delivered better or quicker, by friendlier and more skilled employees, and with a money back guarantee your competition don’t provide.
Is your product a work of art? Is it a new, gadget-like innovation? Then it may have a coolness aspect which you can construct your campaign around. But don’t be discouraged if it isn’t! These days, some of the most unforgettable advertising campaigns are based around a product the majority of people found uninspiring not ten years ago– insurance.
A few words on strategy:
Finally, if your small business crowdfunding campaign succeeds, think about donating a few dollars to others’ campaigns, or at the very least to charity. Because your business goodwill and a good reputation are priceless.