Crowdfunding is when a project is funded by raising many, small financial investments from a large number of people (the crowd), usually through the Internet. This alternate way of raising funds has quickly gained the attention of investors, inventors, charities, artists, groups, entrepreneurs and businesses in all stages of growth. There are three types of Crowdfunding, Reward, Donation and Equity. This is the first in a three part series that will take a closer look at each of these types of crowdfunding.
We’ll look at Reward Crowdfunding first. If you choose a Reward-based Crowdfunding campaign, your investors will get the satisfaction of helping you to launch your original idea, get the funding you need to begin your business, manufacture your product. In return, you will provide them with a reward or perk, in exchange for their money. The contributors do not receive a stake or equity in your firm or idea. In some cases, the reward contributors are the first in line to receive the finished product at a reduced price.
Reward Crowdfunding differs from Donation Crowdfunding in that the money given is not a ‘donation’ and not recognized as such legally, nor is the campaign for a charity.
All Crowdfunding campaigns have a cycle and the start of the campaign is usually months after careful planning. Two key elements of the Rewards-based Crowdfunding campaigns that can make or break your final goal are planning your rewards and reward fulfillment.
Plan your Rewards
It is critical that the Crowdfunding portal you choose is able and willing to provide you with the names, emails, addresses and any other information you deemed necessary to get your supporters their promised rewards. Plan on a tiered rewards program based on your budget. Plan out the cost you will spend on the rewards against the amount of funds pledged at each tier level.
So for each level of contribution, your reward should mirror the value. The rewards can go from simple and free to expensive and costly. For example, a young singer had these reward tiers:
- $1 Pledge – Every little bit counts! Thank you!
- $10 Pledge – CD of Finished Album
- $20 Pledge – 2 CDs of Finished Album
- $35 Pledge – CD of Finished Album and a t-shirt
- $45 Pledge – CD of Finished Album and an awesome mug
This particular artist had even more tiers. She based the rewards on the cost of her Album run, purchasing in bulk the mugs and t-shirts – things she could sell or give away as promotion of her music well after the end of the campaign!
When you decide on your tiers, remember to give your supporters only what you can really give them in terms of rewards. You don’t want to reach your goal only to find out the rewards cost more than you had expected.
In some cases, for the larger rewards, some campaigns limit the number of contributor gifts available. We don’t necessarily recommend that you limit your rewards since that is the motivator for many people to support your dream and give even more than they initially planned.
One you have an idea of your tiers and the rewards you want to offer in your campaign, make sure you include the price of shipping and tax. If you decide that it would be more efficient to outsource your fulfillment, include that in as well. You may want to consider the lead time when ordering your rewards and based on the delivery, communicate to your supporters when they can expect to receive the reward.
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