What Is Reward Based Crowdfunding?
These days, itâ€™s hard to hear much about fundraising without also hearing a thing or two about the concept of crowdfunding. Thanks to the internet, crowdfunding has opened up a whole new world of possibilities for a variety of people that might not have had the same chance to put their projects in motion on a practical basis before. These include small business owners, independent artists, charity workers, and many others.
The rising popularity of top crowdfunding sites such as Kickstarter and IndieGogo has only helped to spread the popularity of crowdfunding as a modern fundraising solution. At present, the concept on the whole has caught on to such an extent that itâ€™s gone beyond simply being a tool specifically utilized by small businesses and independent entities to get a given project off the ground. Even larger businesses are now turning to crowdfunding as a way to obtain funds to develop products and concepts the public would like to see happen.
A Look at the History of Crowdfunding
Although crowdfunding has officially reached a point where itâ€™s here to stay, itâ€™s something that rose to prominence relatively recently as far as the history of fundraising goes. Prior to 2012, it really only existed as small scale peer-to-peer lending in which isolated individuals that believed in what you were doing would help you move your project forward by lending money. The term â€ścrowdfundingâ€? itself dates back to 2006 in relation to fundraising efforts for a video blogging network launched by Michael Sullivan.
What we currently think of when we hear the term â€ścrowdfundingâ€? actually first began as a form of outsourcing known as â€ścrowdsourcingâ€?. Crowdsourcing is the practice of delegating the many tasks attached to a given project over a portion of the general public to help facilitate its speedy completion. People who choose to become involved in crowdsourced projects generally do so on a volunteer basis out of a genuine desire to be involved.
Crowdfunding operates on the same general principle, but with the addition of incentives to encourage contribution and increase amounts donated. People who choose to help crowdfund a given project do generally do support the cause behind that project and wish to be involved in helping it come to fruition. However, many also wish to obtain the incentive attached to a particular size donation. The type of incentive involved is what determines the difference between reward-based crowdfunding and equity-based crowdfunding.
How Does Reward Based Crowdfunding Work?
Reward based crowdfunding is probably the most popular and widespread of the two campaign types. After determining the amount of money that needs to be raised for a successful project, the person or company behind the campaign then sets up suggested donation amounts. Each of these will come attached to a specific reward or incentive.
For instance, if an independent filmmaker decides to use reward based crowdfunding to raise money for his next independent film, he might offer people who donate $100 to the cause a mention in the filmâ€™s credits. Those who choose to donate $500 might receive a signed film poster while people who donate $1000 might get to attend a meet-and-greet. The types of rewards that can come attached to a crowdfunding campaign can cover literally anything.
Some reward based crowdfunding campaigns require the entire target amount to be raised or exceeded in order for the business or individual to actually receive the funds. Others will simply allow them to collect whatever they manage to raise and put it toward the project in question. In cases where the sought-after benchmark needs to be met in order for any of the funds to be collected, people who donate have the added peace of mind that comes with knowing theyâ€™ll get their money back if thereâ€™s a possibility that enough wasnâ€™t raised for the project to move forward as planned.
What Are the Benefits of Choosing Reward Based Crowdfunding?
Crowdfunding in general comes attached to a variety of benefits and deciding to go with reward based options brings even more perks to the table. Letâ€™s take a closer look at some of the most noteworthy ones.
A successful crowdfunding campaign is about a lot more than simply getting the money you need to move a project forward. Going the â€śdonations onlyâ€? route is also a way to avoid many of the financial risks associated with using other avenues. For instance, you wonâ€™t have to deal with the debt, credit implications, and interest attached to standard bank loans or the restrictions associated with a government grant. You can avoid feeling indebted to friends or family as well.
If you go with traditional fundraising platforms, you could wind up paying a lot of money for the privilege of doing so. However, most of todayâ€™s online crowdfunding platforms allow you to set up your project and raise your funds for only a small percentage of the money you collect. Plus, theyâ€™re highly user friendly and simple to manage, so you save money in labor costs as well.
In the age of the internet, people like to feel a personal connection with the businesses, projects, and charities they give their money to. Reward based crowdfunding allows you or your organization to actually make that connection with those who are interested in what youâ€™re doing. People who feel connected to your cause will be more inclined to help you spread the word, helping you reduce marketing costs. Theyâ€™ll also be more interested in continuing to back you or your projects in the future.
While many people do enjoy simply donating money to a cause for its own sake, reward based crowdfunding is as popular as it is because it appeals to just about everyone. Taking the time to choose rewards people really want is a great way to make them an offer they canâ€™t refuse. Itâ€™s also a super way to appeal to benefactors from all walks of life and ultimately raise more money. A hundred small donations, after all, can be just as effective as one or two big ones.
Even though crowdfunding is still a relatively new way to raise money for a project, itâ€™s already become incredibly trendy. At this point, people are used to hearing about people who are raising money this way and many already regularly contribute to campaigns they find worthy or interesting. Plus, supporting indie artists, small businesses, and other independent entities is an incredibly popular thing to do right now. That said, one of the bigger challenges left for someone looking to raise money this way lies in making a strong enough connection with an audience to make them want to get involved.
The Importance of Choosing the Right Rewards
Whether or not your reward based crowdfunding campaign succeeds or fails depends a lot on the rewards you choose. However, itâ€™s one thing to know you need truly tempting incentives in your corner working for you and quite another to actually accomplish it. Here are some guidelines to remember when putting your list of rewards together.
Understand the costs of each reward.
Many people focus so much on coming up with a collection of rewards that will encourage people to donate that they forget to accurately calculate what each will cost them in not only money, but time. The idea is to come out ahead of the game in the end, not behind.
That said, the ideal rewards are going to be items that are naturally generated by the act of moving forward with your project and that can be transferred to benefactors at little to no cost. Terrific examples include signed copies of a book thatâ€™s being funded, free tickets to an event youâ€™re raising money for, or acknowledgements on your website in exchange for helping. People who have a fan base to tap into also sometimes offer incentives like personal Skype chats or other unique experiences.
Limit premium rewards.
If you decide it would be beneficial to offer a few premium rewards that will cost you a little extra in time or effort, then you may want to put some limitations on how many are available. Otherwise, you may wind up having to fill more requests than you can handle. Attach premium rewards to higher donation levels and specify that there are a limited number of them available. Not only will better, more exclusive rewards encourage more people to at least consider donating more money, but it will help you keep costs in check to boot.
Have a plan.
Itâ€™s always a good idea to have a plan in place as far as how youâ€™re going to manage your campaign. Not only does this mean keeping costs associated with rewards under control, but it also means knowing in advance how youâ€™re going to handle getting the word out about what youâ€™re offering to enough people. Make sure you have an accurate idea of the amount of work itâ€™s going to take to make your campaign a success and see to it that you have enough people on board helping you from the get-go.
The Benefits of Hiring Professional Reward Based Crowdfunding Marketers
After the actual rewards involved, the most important factor involved in making a reward based crowdfunding campaign a success is the marketing plan attached to it. Youâ€™ll need to be efficient at getting the details of your campaign in front of as many relevant pairs of eyes as possible. Itâ€™s also important to realize that this is about more than just getting your fundraiser seen. Your success depends on getting it seen by as many people with an interest in what youâ€™re doing as possible.
Thatâ€™s exactly why many people choose to enlist the aid of professional marketing firms to help them spread the word about a given fundraiser. The benefits include the following.
Help your campaign reach the right people.
A professional marketing firm that specializes in working with reward based crowdfunding campaigns will have a full understanding of who your target audience is and how best to get in touch with them via social media and other avenues. Theyâ€™ll also be able to find exactly the right words to use in order to help convince those people that your cause is worth supporting and theyâ€™ll fully optimize any content related to your campaign to help interested individuals find it.
Last but not least, theyâ€™ll know how to help you meet your goals within your established time frame thanks to experience and ironclad professional know-how. Theyâ€™ll know and understand all the ins and outs of marking a crowdfunding campaign that you may not unless you have tons of experience in the field.
Save a fortune in time.
Marketing your reward based crowdfunding campaign takes a lot of time and effort in order to do it right. You can expect to spend hours of your time personally promoting it across multiple channels and trying to forge a connection with people in order to make sure they donate to your cause. For that reason, a lot of people decide after weighing the costs that it would be more effective to simply leave the marketing to the professionals so that their own time can be spent on other aspects of project development.
Generate a buzz.
One of the keys to successfully marketing a reward based crowdfunding campaign is to get a really infectious buzz going around the associated project and thereâ€™s definitely a fine art to doing this that the professionals will have mastered. The more people talking about your project, the more word will get around and the more visible your campaign will become, increasing your chances of earning all of the money needed to make your goals a reality.
If you do decide to hire outside help to assist with marketing your reward based crowdfunding campaign, then make sure you go with a company with plenty of experience, solid references, and a reputation for success. When it comes to connecting with a target audience, professionalism and expertise go a long way.