People often ask me what is crowdfunding and how to make money with crowdfunding?
So I decided to explain everything about Crowdfunding in this article.
I know how hard it can be to create a successful startup. In addition to having an innovative idea, you also have to raise enough capital for it, which is anything but easy.
Crowdfunding can be the best option for you to get the funds you need, provided you have a solid business strategy and the ability to generate awareness around your brand.
I’ll break down the crowdfunding process and share with you 12 steps to get started.
An overview of Crowdfunding
Crowdfunding is a situation in which a large number of people each contribute relatively small sums towards a venture or project.
The project can range from paying for a friend who needs medical surgery to helping a community access clean water.
This is primarily done online, mainly through crowdfunding platforms that allow entrepreneurs to raise funds to develop and promote their ideas.
After all of the funds have been collected, the capital is used to fund the project or aim.
Advantages of making money with Crowdfunding
Crowdfunding provides meaningful competition by gaining access to hitherto untapped financial resources and effectively bypassing banks.
It uses the power of social media and the internet to enable people to;
- Collect finances
- Assist others in overcoming adversity
- Achieve aspirational goals.
Here are the main advantages of crowdfunding.
Existing Platforms and Engaged Funders Make Marketing Simple
Crowdfunders and contributors are increasing in number, and so is their support for personal campaigns. This means individual projects are winning increasing quantities of resources crowd funders pull together.
That isn’t all, though.
Every prominent crowdfunding site has a vibrant network of investors and customers who are easy to reach.
According to Alexa.com, Kickstarter and Indiegogo receive approximately 600,000 unique visitors per month.
This is a once-in-a-lifetime opportunity. Crowdfunding can help you raise funds for your business and also help you expand your social network and meet new people.
More revenue, less risk
You’ll never order more than you need, and your cash flow concerns will be considerably minimized.
To put it another way, crowdfunding allows firms to lower financial risk while also benefiting from economies of scale.
Crowdfunding enables you to test your concept by asking your audience, customers, and investors for feedback.
Types of Crowdfunding
Equity-based, loan-based, reward-based, and donation-based crowdfunding are the four major approaches for generating funds.
Find out how the following types of crowdfunding platforms operate.
Individuals and private investors earn a percentage of a company’s equity in exchange for their funding or investment.
When compared to rewards-based crowdfunding, equity crowdfunding is better at raising more significant sums of money.
Equity crowdfunding platforms are controlled by the government due to the significant sums at stake. There are limits to how much money can be raised, how much money can be invested, and when it can be done.
This platform gives the ordinary person unparalleled access to capital to invest in new and developing businesses in ways they couldn’t before. It also facilitates improved access to more traditional private investors like business angels, venture capital firms, and angel investment networks or syndicates.
Loan Based Crowdfunding
Private individuals’ band together to lend money to a business in a manner similar manner to the way banks distribute credit.
This approach eliminates the need for an intermediary and links lenders and borrowers directly through the internet. However, lenders are exposed to the borrower’s credit risk, which is often significantly higher.
People use this strategy to make an online contribution in exchange for a reward.
The rewards vary based on the amount provided, but they frequently include the product or service you intend to launch.
This type of crowdfunding is only feasible for startups and small enterprises if you have excellent marketing skills to convince consumers to buy a product that may not exist for months or years.
Donation-based crowdfunding is a type of crowdfunding where people don’t receive anything in return for their donations.
GoFundMe is one of the major crowdfunding sites that use donation-based fundraising to raise money for charities.
How does Crowdfunding work?
Crowdfunding flourishes by getting people to donate to a cause they are passionate about. As a result, people donate money for the ideal reason: they want to help others.
Why would someone donate to a cause with which they have no personal connection?
The answer is simple: because they enjoy seeing others achieve.
How to make money with Crowdfunding?
Do you have a project that requires funding? Or a strategy to grow your company? It might be time to expand that borehole drilling project in your region.
While there is no magic recipe for making money with crowdfunding, there are several steps you may take to increase your chances of success.
The most important thing you can do is organize a compelling fundraiser and cultivate a supportive community to donate to your cause.
Invest your time and effort into your fundraiser story to motivate your friends and family to participate.
12 steps for making money with Crowdfunding
#1. Check the crowdfunding rules and regulations
As an investor or a firm seeking money, you need to be very familiar with the rules of any platform you are considering investing in.
The majority of crowdfunding platforms have their own set of restrictions.
For example, Kickstarter does not allow equity crowdfunding and includes a list of prohibited items that you cannot have in your project.
Indiegogo, on the other hand, provides a comprehensive list of campaign guidelines for campaign owners.
While GoFundMe requires you to submit identity documents in color.
If you really want to make money with Crowdfunding, then it’s a good idea to thoroughly research these laws before deciding on a platform, so you don’t have to cancel your campaign before it even begins and lose money.
#2. Prepare in advance and decide on your donation collection strategy
You must be able to provide compelling responses to questions such as:
- What is the primary benefit that your campaign will offer?
- Significance of that campaign?
- What are the demographics of your target audience?
- Who are your primary competitors, and how do you distinguish yourself?
- What is the amount of money you need to raise?
- What exactly will that money be used for?
- Which type of crowdfunding platform will you use?
Most often, you will raise money from donations made by debit or credit card or via bank transfer.
In order to make money with Crowdfunding, you should be able to share your bank account details. Alternatively, you could use a third party virtual platform. A third-party platform is a web-based service that operates as a “virtual middleman” between you and your donors. People can donate to a third-party source rather than sending money directly to you.
Paypal and GoFundMe are two examples of this. This is the most straightforward and most convenient approach to collect donations because people only donate for about 30 seconds.
It is possible to donate as little as $5 or as much as $100.
#3. Select the appropriate donation crowdfunding platform
Begin by deciding whether you want to use a rewards or equity-based model. Find out how long campaigns can run on different platforms. That might be crucial.
What is the maximum amount you can raise?
Also, figure out who is going to view it. Different categories of backers may be attracted to different platforms.
There are three main crowdfunding platforms to select from;
The “all-or-nothing” principle is at the heart of Kickstarter. This implies that funders will not be charged unless the campaign achieves its objective.
All contributions and item sales are subject to a 5% fee from Kickstarter. This 5% transaction fee is a flat cost that is not based on the amount of money raised.
You get to keep all funds if you choose this option, even if you don’t accomplish your objective.
This is a great option if any amount of money will allow you to complete your campaign goal and meet your funder’s requirements. Indiegogo, unlike Kickstarter, does not require you to go through an application process.
Indiegogo takes 5% of the money you raise as a fee, plus a payment processing fee of 3% + $0.20 for each pledge. This implies that if you raise $10,000, you’ll get $9,500 in return. You will receive $19,000 if you raise $20,000.
GoFundMe is the most well-known and widely used of the three platforms. For any donations over $20, GoFundMe takes a 1.9 percent fee.
Before deciding on a crowdfunding site, think about the following factors;
- Your unique crowdfunding objectives
- The goal of your crowdfunding campaign
- The layout of the crowdfunding platform
- Limitations imposed by the platform
Find out how long campaigns can run on different platforms. What is the maximum amount you can raise? Also, figure out who is going to view it. Different categories of donors may be attracted to different crowdfunding platforms. Determine whether or not your campaign will be able to raise funds.
#4. Build a credible, inspiring content and profile
The following items should be on your crowdfunding campaign content checklist:
- At least one video pitch for a hero
- Professional videos and images
- headlines and content that grabs the reader’s attention
- Kit for journalists
- Use of social media
You need to build a striking profile that explains; who you are? What are you raising money for? And how effective is your campaign?
Your crowdfunding page should have the following features: Text and images that describe the campaign’s story and a video that serves as a campaign’s trailer.
This video presentation explains how to launch a strategic fundraising plan.
Time is valuable! Your audience should have a decent understanding of who you are, what you’re doing, and why you’re doing it within the first 30 seconds of viewing your profile. If you haven’t captivated or confused their attention, they will leave without donating to your cause.
Clarity matters: The need for conciseness can not be overstated.
Instead of saying, “Please help us raise funds to help my community so that they can have access to good hygiene.”
It is preferable to say something like;
“We require financial assistance to organize a sanitation and hygiene campaign targeting three communities in Karatina province of Kenya. The goal is to benefit more than 500 vulnerable households and teach them skills to practise good sanitation and hygiene to stay healthy.”
Text, images and videos create a lasting appeal: Photos and videos are great campaign tools that can help create an emotional connection with potential donors for your money-raising campaign. A well-executed video combined with an excellent social media strategy can help your campaign go viral.
“Including photographs and videos engages your supporters and keeps them on your campaign page longer, resulting in more donations,” says Fundly.
Accuracy, conciseness and Good grammar: It can be challenging to write accurately and professionally if you are making a profile in a language that is not your native language.
But in order to make money with crowdfunding, your campaign must be free of grammatical and spelling issues. Please enlist the assistance of a buddy who is fluent in English.
#5. Write a persuasive proposal
Consider what people would be concerned about if they had never heard of your campaign plan before.
Your proposal should convince potential donors about:
- Who you are
- How big your need is
- What your campaign seeks to achieve
- Why your project is relevant
Writing a persuasive proposal can function as a full-fledged marketing campaign to promote your project or company. To maintain interest, your company should use social media channels to communicate with its potential donors. To keep people engaged in your project, you may need to provide frequent updates.
#6. Share a compelling campaign on social media
It’s time to show off your amazing work on your website.
Make sure you finish your homework. Examine how much money other companies have raised — and for what – through crowd fundraising, and tailor your proposal accordingly.
Transparent, polished, and informative information should be provided to an equity crowdfunding investor.
Here are a couple of tips on how you can make it even better by sharing it with the rest of the world.
Timing: Consider your campaign launch to be your wedding party. If you want most of your friends and relatives to show up, you should invite them well in advance of the campaign’s launch to ensure that they are present.
Additionally, If you have information on when your followers or friends are more likely to be online, utilize them to post your updates at those times.
Add videos to your campaign posts to attract the attention of not just friends but also potential donors. A good video clip creates a better impression of your project by giving people an opportunity to see your product in motion rather than scrolling through a series of static photographs.
Remember that an amateur video clip won’t persuade people to participate, and it could hinder your campaign.
Ask your friends to spread the word about the campaign: Crowdfunding is all about getting your message out there.
Even if each donor only pays $2, if you reach 500 individuals, you’ve already raised $1,000 for your campaign.
This is a terrific method to get your friends involved who can’t donate money but still want to help.
#7. Examine previous crowdsourcing efforts
It’s easy to overlook that there’s already valuable information available to everyone interested when more big data on crowdsourcing becomes public.
All you have to do is know where to look. Crowdfunding remains a wonderfully straightforward business.
Kickstarter and Indiegogo, two of the most popular platforms, chose to retain all of their campaigns on the site even after they ended.
Let’s say you are trying to raise money to support an orphanage; It would be a mistake not to look at how other people have approached the same concept in the past.
You get to:
- Examine their concept in detail.
- Evaluate which perks and rewards appear to work best for you.
- Figure out why some succeed while others fail.
There are many case studies available, so why not duplicate what has already been demonstrated to work?
#8: Approach individual donors
Individual donors will naturally want to add their support if you tell your tale and share your passion for your initiative.
Note that your backers are giving you money in the hopes of receiving anything in return, whether it’s a tangible product or an emergency relief mission that goes into action.
Therefore, you need to do more than just post about a topic on social media to generate awareness about it. You should also make direct contact with people and send emails to organizations that have a reason to care about your cause.
Write the full names of the person you are addressing, provide only information that is relevant to your request for money, form a connection or build an existing one and summarize your entire project.
#9. Share and Update your campaign
People, it turns out, enjoy being a part of the process and are more likely to donate to projects that make an attempt to interact with them.
If you have a project that you want to share with the world, simply putting it out there and waiting isn’t enough. Campaigns that provide regular updates to their followers raise 126 percent more money.
To expand its reach, you must post updates on a regular basis. At least four updates are required for a successful crowdfunding campaign.
Show your appreciation and feel free to offer any further information on your creation if there has been any progress in product development. Even great if you can post an update in the form of an image or a short video. Don’t be scared to inquire about new information.
While maintaining an active presence on your social media page is a good move, you should also consider re-engaging your outreach list with new information and communicating with specialty forums and community influencers. Most importantly, get organized. Campaigns with a day-to-day marketing strategy are more impactful than once offs.
#10. Maintain the momentum of your campaign
It’s critical to maintain enthusiasm even when you’ve met your funding objectives. Keep in mind the following long-term objectives:
- You want to build a devoted consumer base that will support you both during and after the campaign.
- You’ve invested so much effort creating an email list that you’ll need to keep using it.
Keep people informed about the progress, maintain your enthusiasm by sharing behind-the-scenes content, and ask investors for feedback.
#11. Campaign end
For some social crowdfunding platforms, you may get all the donations generated during the campaign, while others require you to set a goal and receive payment only if you achieve it.
For example, you’re given a deadline to attract investors through equity crowdfunding. If you’re successful, the platform will arrange for the funds to be paid to you and provide the investors with share certificates or convertible notes.
#12. Send out a report and thank your donors
You have to send out a final report highlighting your successes and thanking your donors.
Your report should include: Photos or videos of your project, a numerical summary of the outcome of your work, and reflections on how this project impacted you and your team members and very, very importantly: compose a heartfelt, sincere, thank you letter to your donors;
Your initiative to make money crowdfunding would not have been possible without them.
Crowdfunding is an effective technique to collect money quickly while also attracting a large number of early buyers to your product.
However, obtaining funds is only the first step in a crowdfunding campaign. After that, you must manufacture and ship your goods, which is an expensive operation.
When you factor in the costs you’ll have to pay to use platforms like Kickstarter and Indiegogo, it’s easy to see why.