Need money to start a business? Crowdfunding could be just what you need to get your startup off the ground.
Over the last few years, we’ve heard ad nauseum about small businesses struggling with accessing capital for growth. But, even harder hit than your typical Main Street business have been those companies that have yet to open their doors — startup companies.
Startups have always struggled at getting capital before launching their businesses. They have no revenue, no real prospects, no assets, and no brand name. Thus, acquiring funds from traditional lenders or investors often proves difficult.
Still, some 600,000+ new businesses are started each year, according to the U.S. Small Business Administration. These businesses have to get funding somewhere. The question becomes, where?
Crowdfunding is giving business people, writers, artists, inventors, and countless other entrepreneurial hopefuls opportunities that were never available in the past to pre-sell products and test out the market for their new ideas. On quick consideration, the concept of offering rewards (often, but not always the product you’re planning to develop) to raise money for product development sounds like it should be simple and straightforward. But, there’s a lot to learn if you want your financing campaign to be successful.
How can you make your crowdfunding campaign a success? Use these 11 tips from people who have run successful funding campaigns to help you reach or exceed your goals.
1. Don’t rush into your campaign
Successful crowdfunding campaigns usually take lots of research and planning. The first thing to consider is how much money you’ll need and what the best option for raising the funds will be.
Although a handful of businesses have raised a half-million dollars or more through perk-based crowdfunding sites, the average raised by successful campaigns is over $29,907, according to The Crowdfunding Center. While that might sound like enough money if your project doesn’t require a lot of cash, the other fact to keep in mind is that only 22.6% of projects wind up fully funded.
So, if your plans require you to raise a significant amount of money, perk-based crowdfunding may not work for you.
2. Learn how to play the game
Each crowdfunding site has its own rules, and there are differences regarding what types of campaigns they accept, what fees you’ll pay for raising money, and whether or not you’ll collect any money if you don’t reach the goal you set when you launch the campaign. You’ll find this type of information in the FAQs or help section on each site.
Kickstarter.com, for instance, wants “creative” projects that have a defined start and end, and requires you to sign up to receive payments through Amazon Payments. If you don’t reach or exceed your funding goal, you don’t get any money.
Indiegogo.com accepts a wide variety of campaigns, including ongoing projects and charitable campaigns. It allows you to choose whether to get paid only if you meet or exceed your goal, or to receive what’s been pledged even if the goal isn’t met.
3. Realize that you will need to spend money to make money
Although your ultimate goal is to raise money to launch a product or business, you will need to spend money to give your campaign a chance for success. Depending on your project and the amount you’re trying to raise, your costs may include some or all of these (and possibly other) expenses:
- Video production
- Still photography
- Cost of having a prototype made
- Cost of manufacturing the finished product
- Cost to advertise your crowdfunding campaign
- Cost of perks
- Cost of packaging and shipping the perks and finished product
- Marketing costs (for instance, social media advertising, press releases)
- Platform fees and credit card processing fees
The platform fee is the fee the crowdfunding site will deduct from your donations. At the time of this writing, Kickstarter and Indiegogo.com get 5% of the money you raise. You’ll also pay a fee for credit card processing.
You’ll need to consider all of these costs and factor them in when setting your funding goal (the dollar amount you’ll seek to raise.)
Another consideration in choosing a funding goal is the likelihood of raising the money in the time frame you choose. If you don’t meet the goal, you may not get any money, or the fees you have to pay for the money will increase.
Note: Any funding you receive will have to be reported on your tax returns, so be sure to keep good records of all your expenses as well as the income. And if you expect to show a profit, plan to put some of it away to pay your tax bill.
4. Study successful campaigns
Look at their videos and text. What was the amount set for the goal? What was the length of time? What was shown in the video? What was said? How long was it? Was there a call to action?
Look at the promotional text on the project page. What’s there to convince people to pledge money? Look at the rewards or perks that are being offered for contributions. How are they structured? How many levels are there? Use your answers to plan your own project page.
5. Understand the process and timeline
Campaigns have defined start and end dates. Find out what steps you’ll have to take before you turn on the campaign, and how long each step will take. Kickstarter has an “awesome platform,” says Tim Carter of AskTheBuilder.com. But the last two steps (getting an Amazon payments account, and getting approval for the project from Kickstarter) before you can actually launch the campaign to the public can take 14 days or more.
6. Have a great pitch
“Have a great pitch,” advises Indiegogo.com. Spend time creating your campaign. Many people who reach their goal spend at least a day creating their campaign before they go live.
7. Include a video that entertains and tells a story
“Make sure you have a video that entertains and tells a story,” suggests Jim Kukral of Funnervids.com. “The story should be about why people will participate … it’s not about donations. It’s that they want to be part of the book, the process, the community, part of the piece of hardware. They want to be first in line.” Carter agrees. “Video is everything! It represents 90% whether you fail or succeed.”
8. Plan your reward levels
“Plan your reward levels carefully,” Tim Carter advises. “I made a huge mistake,” he adds. “I had one level where you could get all the videos for $30, and I limited that to 300 backers. And then the unlimited level to get all the videos (plus some other perks) was too far away at $95. There were a lot of people who wanted the videos, so the $30 level sold out before the campaign was over. I should have called the $3 perk an ‘early bird’ reward, and then had a $45 level for a limited amount of people, and finally a $60 level that was unlimited.” Now that the campaign is over, Carter is selling the shed-building videos from his website.
Although perks aren’t always offered, Indiegogo has found that campaigns that offer perks raise 143% more money than campaign that don’t. Many campaigns offer three or more perks, with different perks given for different pledge amounts.
9. Make sure everything is ready to go for launch
Once a Kickstarter or Indiegogo campaign is live, it can’t be paused or turned off. The only thing to do is cancel it, which is permanent. And on Kickstarter, they’re never deleted. “We actually launched before we intended by hitting the go-live button on accident. We had to make a decision to cancel it and make a new one or go with it. We went for it and used this mistake as part of our story!” says Scott Jangro of Nightmare Protectors.
Furthermore, while you can edit and tweak your campaign description, FAQs, and updates during the campaign, there are some things set in stone that cannot be changed, like the duration and goal amount. “This one got us,” Scott adds, “Once you have one backer in a reward, it cannot be edited or removed. Plan and write carefully!”
10. Find an audience that cares
Indiegogo.com suggests starting with your inner circle: friends, family, social media following, and email list. When these people click on a link from your mailing, they’re likely to contribute more than other visitors. Then encourage those people to spread the word further to extend your reach.
Jim Kukral accomplished that by promising an extra perk to people who shared his Indiegogo campaign on social media. But depending on your project, a much larger percentage of your funding may come from your own sources. Tim Carter, for instance, raised 88% of his total from his own DIY mailing list.
11. Don’t assume longer campaigns make more money
Most people wait until the last minute to act, unless they have some special incentive to act early. Carter found that while he got some money pledged when he first announced his Kickstarter campaign to his mailing list, most of the money came in during the last 36 hours of the campaign.
And remember, once your business is up and running, your profitability depends on making sure your customers are paying you. Our ZenBusiness Money app makes it fast and simple for small business owners to get paid. You can use it to easily send custom invoices, accept credit card and bank transfer payments, and manage your clients from an easy-to-use dashboard.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
