Crowdfunding is not a get-rich-quick scheme. It’s a viable option for small businesses to raise money, but it requires a lot of hard work to be successful. If you’re thinking about crowdfunding, do your research and create a solid plan before you launch your campaign.
Crowdfunding can be painful.
In most cases, people receive value immediately when they buy your product. They buy your product and then receive it, which is the end of the transaction.
Crowdfunding is not simply asking for money. When crowdfunding, the final product may not even exist yet. You must persuade people to give you money for something they will not receive for months, or possibly even longer.
To get more funding, you can use perks and rewards to entice people. However, the majority of donations come from people’s generosity. What are crowdfunding best practices?
To understand when and why people donate money, I looked at academic research on crowdfunding, philanthropy, and helping behaviour. This research can help you run a successful crowdfunding campaign.
This article covers the most powerful techniques for crowdfunding success, including the psychology behind each one. You’ll also learn how to plan and launch a successful campaign, and transition your idea into a sustainable business once the campaign is over.
What is crowdfunding?
Crowdfunding is a way of raising money from a large number of people, often in exchange for direct rewards, who want to see a project succeed.
The process of raising money online for a business, product, or charitable cause has been made easy and accessible to everyone through online platforms like Kickstarter, Indiegogo, GoFundMe, and Crowdfunder.
Crowdfunding websites can help increase the reach of your ecommerce business and products to new audiences that might not have been accessible otherwise.
These sites work as virtual middlemen between entrepreneurs and backers, giving both the ability to host a campaign as well as accept funding.
Types of Crowdfunding
Projects that rely on crowdfunding or online fundraising generally fall into one of three main buckets:
- Equity. Equity crowdfunding gives contributors partial ownership of a business in exchange for the capital they provide. Some sites only allow you to sell shares of your business to accredited investors, who are people who meet a specific income level.
- Donation. Donation-based crowdfunding provides no financial rewards or incentives for backers, so it’s most often used for charitable purposes or by nonprofits. The fundraiser is not required to pay anything back to donors.
- Rewards. As covered above, any type of crowdfunding campaign that incentivizes contributors with rewards (but not a stake in the resulting business) upon completion can be considered rewards-based. We’ll mostly focus on this approach throughout the rest of our guide.
Crowdfunding Benefits
Crowdfunding has many benefits in addition to being a great way to raise money for a new business.
It validates your ideas
If you want to reduce your financial risk when launching a product or business, it’s a good idea to learn as much as you can about your target market. One way to do this is by using crowdfunding to conduct market research.
Crowdfunding campaigns can help you validate your creative projects by giving you an indication of whether or not people will buy your product. Manufacturing your product without any indication of demand could cost you a lot of time and money if it turns out that there is not a strong demand for your idea.
When you know that people want what you’re selling, you can plan and grow your business with confidence.
It helps build a following
Crowdfunding can give entrepreneurs a significant advantage by helping them build a dedicated following before their first product is shipped. By properly using crowdfunding in combination with social media and press coverage, entrepreneurs can create an audience that will ideally stick with them as their business expands.
It’s a source of flexible funding
For many new small-business owners, it can be difficult and time consuming to secure financing. Conservative lenders, like banks, may not be interested in untested ideas or new business models. One option is to find private investors to help raise funds, although you will likely have to give up a portion of ownership in exchange.
How to Crowdfund an Idea
1. Decide on a product or cause
There aren’t many restrictions on what types of products or businesses can be crowdfunded, but the most successful projects tend to have a few key things in common:
- A specific product. If you look at the biggest crowdfunding success stories, you’ll find most of them focused on funding individual products, not stores. There’s a reason for that: backers tend to want to support tangible items, not broad ideas. For the best chance of success, seek backing for your best product. You can build a store later, after your initial idea has taken off.
- A targeted, niche audience. Create a product that fills a need or a gap, then find the market that craves it. Often, founders create products that solve a problem that exists in their own lives, like the founder of MindJournal did when he couldn’t find a journaling tool designed for what he needed. Develop a prototype that taps into those needs.
- Strong differentiation. To generate buzz and attract backers, your product has to be something that can’t be found elsewhere. Do your research to ensure your product is one of a kind.
2. Plan your campaign
Your crowdfunding campaign’s success will largely depend on your marketing skills. However, there are other crucial factors you need to take into account when planning your campaign, like creating a timeline and making sure you can logistically handle backer rewards. Not to mention, you’ll need to figure out how to sustain your business long-term after your campaign comes to an end.
3. Market and promote your crowdfunding campaign
To make your crowdfunding campaign successful, allocate time for marketing and public relations both before and during the campaign.
4. Setting up your own web presence
It is best to establish your web presence before your campaign launches, or at the latest during your campaign.
Crowdfunding platforms and social media can help increase traffic to your campaign page.
When you have an online presence that will continue after your campaign ends, you can get links from established websites right away, which can improve your long-term search engine optimization.
10 Psychological Tactics for Successful Crowdfunding Campaigns
1. Include a breakdown of donation spending.
One primary factor in why people donate to charities is efficacy, or the feeling that their donation is making a difference.
The problem with most project creators is that they use aggregate framing when describing their project. This means that they state how much money they need to accomplish the project, then describe the project and why it would be great, without providing many details.
With that approach, donors can’t see how their donation will help specific people.
If you want people to donate money to your project, you need to be specific about how much money will be attributed to each aspect of the project. Break down the costs and create a roadmap so potential donors can see where their money will be going.
Reducing the most important risks is the next strategy.
2. Describe your education and past successes.
What are two ways you can demonstrate your reputation? Your education and past successes are both good indicators.
Education
Education is a big factor in venture capital. for example, research has found that startups are more likely to get funding if someone on their team has a PhD. Similar effects have been found with MBA degrees.
If you have a higher level of education, you can mention your degree when describing your background.
Past successes
Donors are more likely to invest in a Kickstarter project if the creator has been successful with other Kickstarter projects.
You don’t need experience with crowdfunding to be successful. If you have successfully completed a similar project to the one you are promoting, then mention it. Your past success will make potential donors more likely to invest.
3. Donate to other crowdfunding projects.
If you’ve read Influence by Robert Cialdini, then you know the power of reciprocity. However, reciprocity has two main facets:
- Direct reciprocity. If you provide value to someone, that person feels obligated to give back to you.
- Indirect reciprocity. If you provide value to someone, other people (who notice the kind act) feel obligated to give back to you.
When considering reciprocity, people typically think of direct reciprocity. However, indirect reciprocity also has a significant impact on online communities, such as open-source development.
4. Look into the video camera.
We become more likely to engage in prosocial behavior when we encounter a pair of eyes.
Eye contact is a very powerful tool, but it is not the only method. In a separate study, door-to-door solicitors received more money when they made eye contact with potential donors.
You should follow that rule when filming your video.
When filming, do whatever it takes to look into the camera:
- Use a teleprompter;
- Memorize your script;
- Be authentic.
You should look directly into the camera for most of the video regardless of what method you choose. Avoid interview-style videos where you don’t look at the viewer since they trigger a lower degree of self-awareness and are less effective.
5. Use second-person narratives.
This tactic uses 2nd person pronouns and hypothetical narratives.
By using 2nd person pronouns such as “you” and “your”, you can make people more aware of your project and how it relates to their own lives.
You could also achieve a similar effect by incorporating a narrative into your description. Narratives help overcome resistance in two ways:
- They reduce the audience’s tendency to counter-argue your message.
- Your audience identifies with the characters in the narrative, relating the message to their own life.
In your project description, you can use both first- and second-person perspectives. How? Describe a narrative from a second-person perspective. You don’t need to create a long fictional story. Any action from a second-person perspective will trigger self-awareness.
6. Amplify their feeling of guilt.
We know that we should be more charitable, more environmentally conscious, or more patient with others. We try to do the right thing sometimes just because our conscience nags at us.
If potential donors feel guilty, they are more likely to donate to your campaign.
Although this tactic may be effective, be careful how you go about it as it could easily backfire. The tactics outlined in this section have been chosen carefully to avoid manipulation and should be used with caution.
7. Disclose personal information.
The identifiable victim effect is the tendency to feel more empathy for a specific person than for a group of people. This effect is important to social psychologists because it helps to explain why we often show more concern for individual victims of tragedies than for groups of people who are affected by them.
The more personal information you share, the more of an impact you will make. Another study found that people donated more money to a sick child when they were given more information about the child.
When writing copy, reinforce your personal identity. Reveal certain details about yourself:
- Your name;
- Your age;
- Hobbies and interests;
- A picture.
Giving personal information about yourself will help to make your identity stronger. You are not just a random number now, you are a real person to potential donors. This will make them more likely to want to fund your project.
8. Publicize the names of potential donors.
Identifiability has a flipside. And it applies to donors.
When you share the identity of potential donors with others, they feel more pressure to donate. For example, participants in a dictator game were more likely to play fair when their opponent received a picture of them.
One way you can use this approach is by working with developers who use crowdfunding. For example, you could add these sections:
- People who have visited this project;
- People who have liked this project;
- People who have upvoted this project.
If you want to increase pressure on people to donate to your campaigns, include a compilation of their Facebook/Gravatar profile pictures. Revealing their identity will make them more likely to donate.
9. Give rewards that are tangible and practical.
A study on crowdfunding motivation found that economic value was one of the strongest motivators for crowdfunding supporters. Potential donors need to feel like they’re receiving a fair amount of value for their money. Among tangible rewards, practical rewards generated the strongest motivation to invest.
10. Offer the lowest possible donation.
You should increase the number of backers as much as possible to have a strong influence in donating.
To do this, offer the lowest possible donation amount when creating reward tiers to increase the total number of backers. Having more backers will likely increase the amount of donations collected overall.
Crowdfunding can be a tough sell, but hopefully the tips in this article will help you improve your chances of success.
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