Everything You Need to Know About Crowdfunding in 2020

What you must know in crowdfunding!

Tom J Law

October 4, 2019

Gatekeepers used to be everywhere.

Very few people could start a business, publish a book, release a record, or broadcast their opinion without someone else’s financial backing.

Unless you had a particularly wealthy and supportive relative, you’d have to try your luck at the bank or in countless soul-crushing meetings with investors.

And even then, you’d lose large portions of equity or be crippled by high-interest rates.

Thankfully, today there’s another way - crowdfunding.

What is Crowdfunding?

Crowdfunding is the process of funding a venture or project by raising small amounts of money from a large number of people.

Crowdfunding for startups is a common practice, and it’s also often used by inventors, entrepreneurs, musicians, filmmakers, artists, and charities.

It began in 1997 when British rock band Marillion challenged the status quo.

Lacking the money to finance their U.S. tour, the band raised $60,000 from fans – and in the process, created the blueprint for today’s crowdfunding sites.

That’s when the gatekeepers started to lose their stranglehold.

With so few business models you can start without capital, crowdfunding brought opportunity and democracy to funding.1§

Then crowdfunding went mainstream, and online crowdfunding platforms flourished. Suddenly, entrepreneurs and artists could simply ask their fans and customers to fund their new ventures.

Today, most crowdfunding is conducted through crowdfunding sites like Kickstarter or Kiva. Crowdfunders will create a page on one of these sites, where they’ll pitch their project or venture to potential backers.

Advantages of Crowdfunding

Crowdfunding was valued at $10.2 billion in 2018 globally and this value is projected to reach $28.8 billion by 2025.

So why is crowdfunding so effective? Here are four key advantages:

1. Marketing is Made Easy by Existing Platforms and Engaged Funders

Crowdfunding is rapidly expanding each year.

More and more people are becoming crowdfunders and contributors. However, the best part is that individual campaigns are also taking home larger sums of money.

The image below shows that the average funding per campaign in the crowdfunding arena is expected to rise over the next few years.

But that’s not all.

Each popular crowdfunding platform has a highly engaged community of investors and customers that are incredibly easy to access.

In fact, according to Alexa.com, Kickstarter and Indiegogo combined receive about 600,000 unique visitors per month.

This is an amazing opportunity.

It means that although crowdfunders still need to drive their own traffic, there’s also a large pool of investors actively looking for projects to support.

In other words, your marketing to warm prospects.

2. You Can Generate More Revenue with Less Risk

Behold the power of pre-sales.

By pre-selling products upfront, you don’t need to buy and store large quantities of stock.

Cash flow problems are greatly reduced and you’ll never order more than you need.

Plus, when you pre-sell thousands of units you can place larger orders with manufacturers. This will nearly always decrease the cost per unit and increase your margins.

In other words, crowdfunding enables businesses to reduce financial risk, and capitalize on economies of scale.

3. You Can Validate Your Product and Use Feedback to Improve it Before Shipping

Crowdfunding allows you to validate your idea before you invest in things like manufacturing and operations. Plus, if your idea doesn’t resonate, you can make adjustments or pivot before getting too deep.

But that’s not even the best part.

Crowdfunding also provides a perfect opportunity to improve your product.

Just ask your audience, customers, and investors to share their thoughts. Because they have a vested interest, they’ll tell you what they like, what they don’t, and how to tailor your product to the exact needs of your target market.

4. You can Cross-Sell and Upsell Like Crazy

What are cross-selling and upselling?

Cross-selling is a sales technique used to persuade customers to purchase additional, complementary products or services. E.g., McDonald’s cross-sells by asking, “Would you like fries with that?”

Upselling is used to persuade customers to purchase a more expensive upgraded version of the product they’re looking to purchase. E.g., McDonald’s upsells by asking, “Would you like to supersize your order?“

Rewards-based crowdfunding provides an incredible opportunity to increase revenue by selling upgrades, extras, and package deals.

What’s more, this opportunity doesn’t end when your campaign finishes.

Then you can reach out to your customers and offer add-ons, accessories, or new product lines.

Plus, your first campaign can often act as rocket fuel for the second crowdfunding campaign.

How to Start Crowdfunding: 6 Essential Tips

Regrettably, only 50 percent of crowdfunding campaigns are successful.

However, many far surpass their original expectations. For example, Flow Hive has raised almost $15 million with an original goal of just $70,000!

Here are six essential tips to crowdfund your way to success:

1. Create Something Truly Unique and Highly Valuable

In order to capture people’s attention – and money – you have to produce real value.

This is almost certainly the most difficult part of the process, but without it, you’re doomed from the start.

2. Prepare Everything in Advance

Paul Farago, a veteran crowdfunder and the founder of Ace Marks, says, “A Kickstarter campaign isn’t something you can just do, you must spend a lot of time planning.”

You need to be able to give detailed answers to questions like:

  • What is the core benefit your product provides?
  • Why is that core benefit so important?
  • Who are your target market and target audience?
  • Who are your main competitors, and what makes you different?
  • How much money do you need to raise?
  • What will that money be spent on specifically?
  • Which form of crowdfunding are you going to use?
  • What happens if you don’t meet your target?
  • How much money do you have for marketing activities?
  • Which marketing channels are you going to focus on?
3. Build a Crowd Before you Launch Your Crowdfunding Campaign

Khierstyn Ross, the founder of Crowdfunding Uncut, says, “If you launch your campaign with zero audience you are launching to crickets.”

The most successful crowdfunding campaigns build an audience first. This is how Flow Hive hit their original goal of $70,000 in just 8 minutes after launching.

4.Make Sure Your Product is Right for Crowdfunding

Not every product idea is crowdfunding-worthy.

There’s a reason crowdfunding campaigns go viral: They’re newsworthy, unique, and innovative. If your product is too similar to other offerings already on the market, no one is going to feel compelled to contribute to it.

Your first step? Market research. You need to be sure that your idea hasn’t been executed before and that there’s a need for your product.

If you’ve checked that box, check out trending products on crowdfunding platforms. What commonalities do you see? Why are these campaigns trending?

5. Create Compelling Content
6. Offer Motivating Pricing Tiers that People Actually Want

Part of the fun behind investing in crowdfunded projects is the rewards you earn for being a supporter early on. Sometimes it’s as straightforward as a discount on the product.

Summary: Moving Forward With Your Crowdfunding Ideas

Crowdfunding is an incredible opportunity.

This cultural phenomenon has democratized funding and eradicated gatekeepers. Now, anyone with a great idea and the ability to execute it can raise the funds needed to succeed.

Editor's tip: Order management and shipping are also very important parts of crowdfunding. At last, we introduce you PledgeBox, a premium & free Kickstarter survey tool. PledgeBox is a good choice if you want to process orders efficiently and offer more payment options to your backers. You can send the perfect surveys to backers through it. You also have the possibility to recommend add-on items to raise more funding. The support team is available at all times, which is a plus if you are new to order management systems.