marketing, crowd-fundingI am interested to learn what types of crowdfunding incentives can work well to entice potential supporters to donate. This is a general question about incentive strategies as opposed to specific to an individual project or cause.
To clarify - this Q&A will be most useful if used to explore a variety of tactics specifically for converting shoppers in this last stage of the purchasing decision (to donate money to a project/business/cause etc.) on crowdfunding platforms like kickstarter. So the best answers deal with tactics for this final point of conversion.
There are far too many factors to give an exhaustive answer in Q&A format. Key bits (there are many more):
Start by understanding that launching your crowdfunding campaign should be your last step in promoting it; not the first.
As such, identify the target audience and where it hangs out online before launching your crowdfunding campaign. This is key. Your entire execution will be a gazillion times more efficient if you do this properly.
Then build your list before launching. You want backers lined up and excited before you publish. In practical terms, this means building a landing page to feed a mailing list, and then drum-rolling the crowdfunding campaign by emailing your list when you’re about to launch.
Make a video. Campaigns that succeed without a video are rare. On that note, avoid common crowdfunding video mistakes:
Write good copy. Articulate the value you’ll deliver and how your readers will benefit from the finished product. Keep in mind that customers seldom buy features, slogans, or credentials. They buy answers, benefits, and solutions.
Pay attention to your headlines. Without good ones your copy won’t stand a chance. Avoid words like “help”, “support”, or “fund” – especially in the project’s title. They can give the impression that a project is, in fact, a handout that is masquerading as something else.
Keep in mind that, like VCs, backers don’t invest in ideas; they invest in people. Readers need to be reassured that your team has the drive and passion to execute. A good way to do that is to tell the project’s story. Bonus points for laying out potential conflicts and stakes: they make a story more engaging and compelling to share.
Rewards must be desirable and fairly priced. To borrow an exquisite quote by Seth Godin: “If you give your tribe something to believe in as well as a reward that’s easy to talk about, you’ve done two things right.” Speaking of which: it’s ideal to check what kind of rewards potential backers might want before to starting your campaign.
Rewards typically include copies of the thing (e.g. the DVD), creative collaboration (e.g. the backer gets to write the backstory of one of its part), creative experiences (e.g. dinner with the cast), and creative mementos (e.g. appear in credits).
$25, $50 and $100 rewards bring in the most. A reward under $10 helps go viral, as it provides a way for cash-starved students to get involved. When done right, a crazy expensive reward can make less expensive ones look like good deals; if it’s outrageously overpriced, it’ll backlash by chopping into your credibility.
Create some exclusivity and scarcity. For instance, offer the $25 reward for only $20 to 100 early adopters. But beware of creating artificial scarcity in a way that can backlash. For instance, by disgruntling backers when a highly desirable reward is sold out – especially once a campaign is fully funded.
There’s somewhat inconclusive data that 5-6 reward levels might be ideal. This is not counting the exclusive early adopter ones, and the basis would be that more reward levels confuse viewers.
Beware of the logistics involved in shipping physical rewards as they can be overwhelming. Particularly if they’re tied to a pledge of less than $25. Be sure to address international shipment details in the FAQ if you offer any.
Lastly, be sure to understand campaign dynamics: successful crowdfunding campaigns are often halfway there within the first day or two, seldom last more than 30 days. When a campaign is spread over more than a week, there’s a mid-stage period where little progress is made. Have emails drafted in advance to keep backers excited and promoting.
So I’m assuming you’re focusing on the type of crowd funding where people commit cash and you define gifts available at different levels of donation (and not, for instance, loan or equity crowd funding).
The first thing to recognise is that in the vast majority of cases, these sites provide a mechanism for your existing audience to pledge cash, rather than being a way to reach a new audience. So the first group of answers starts with asking a different question: what would your existing audience value?
The second group of answers starts with the question: what are the products, and what are the by-products, of my project? If the product is something people will be able to buy, one of the gifts will generally be that product - obviously enough. By-products are a special class of gift. If you’re making an artwork installation, byproducts might include sketches, molds, pieces of the completed piece after its show and so on. If you’re making a business, there might be no by-products that would be relevant, but there may.
The third group of answers starts with the question: what is everyone else offering? I could make a list of things I like, but you’ll do better just by browsing and filtering for relevance to your project.
Going through this process, you’ll come up with a list of gift ideas - probably quite a long one. So how do you pick? Use your own judgement to come up with a shortlist, then reach out to your audience to rank pairs (ask ten of them, would you rather have a T shirt or early access? etc). Weed out ideas that are too similar, and shorten the list to give the right number for the range of pledge levels that fits your project.
Some possibilities I am aware of:
• Merchandising with useful branded items
• If a product offering, a part or whole of that product
• Special mentions/shout-outs on website or social media
Here are some of the things that would improve your odds for powerful crowdfunding…
Explain Your Idea Early
Inability to describe the business idea early is the biggest mistake startups make while meeting an Angel Investor. While you are passionate about your business and want to give them a gist of your journey so far, most Angels would lose interest in your presentation or talk after a few odd minutes. They meet hundreds of entrepreneurs every year and all presentations seem the same and hence the decision is made in the first few minutes. So grab them by the hook early if you want to seal a deal.
Highlight The Problem & Offer Solutions
Most startup businesses are centered on certain problems that customers have with existing products and services and how their idea offers a solution to those. This core idea in your business plan about solving problems is something that the Angels are really interested in. You should keep the plan ‘short and sweet’ as your plan is likely to undergo many changes as the Angel would definitely add his/her ideas to the plan if the deal materializes. Long and detailed plans often confuse investors and prove to be counterproductive. In fact what is really important is a strong executive summary as that is often what the investors would have the time to read.
Pick A Lead Investor
Early on it is common for you to knock several doors to raise capital for your business. By doing so entrepreneurs often circumvent the importance of choosing a lead investor and this affects business operations. To start with if you are presenting your business plan to dozens of investors and doing the same odd job each time it can be frustrating and leave little time to focus on your business and improve it. Here picking a lead investor (need not be your biggest investor) saves your day. The lead investor would act as a magnet for other investors and raise the necessary capital while you focus on your business.
Get Valuation Right
It is estimated that 75% of angels walk away from ideas they are interested in due to absurdity in valuations. While you would definitely aspire to become a Facebook or Google, Angels always look at your idea from the ROI point of view. Thus asking for money based on your Pre-Money valuations and selling “big dreams” to people who fund such big dreams isn’t going to work. Ask a few Angels about the realistic valuation of your idea more often than not this will help you arrive at a correct valuation and raise the required money.
Keep Due Diligence Pack Ready
The moment an Angel is interested in your business he/she would ask for a Due Diligence Pack. It is a legal, financial and compliance document that includes your Article of Incorporation, Company Bylaws, Meeting Minutes, List of Shareholders, Voting trusts, Warrants, Audited Financial Statements, Credit Report, Licenses, Employment Contracts, Lease Agreements and everything other kinds of paperwork that is important to your business operations. Though you can offer it to the Angel after he/she shows interest, keeping it ready is a sign of professionalism and shows that you understand the management side of a business very well.
Show Your Focus on Business
If you are looking to raise money every six months you are unlikely to find interested Angels. An Angel investor won’t invest on an entrepreneur who isn’t focused on running the business and is merely looking to raise capital. Ideally, you should run a business for 12 to 18 months after raising money from an Angel before looking for the next round of investment as this will help you increase your market share and valuations. Also never ask for a high salary post investment as no Angel is interested in funding your lifestyle as this is often the reason behind businesses failing!
Have an Exit Strategy
The reason an Angel would invest in your business is to make money and this is why they would want to know about your exit strategy. Gone are the days when businesses were conceived to run for eternity. In the modern era, most entrepreneurs want to get the most out of their business at an opportune moment. Whether it’s an IPO or any other means you need to have an exit strategy early on. It is okay for it to change when new investments come in or market scenario changes but have a strategy in the first place.
Be Honest
Never try and hide anything from an Angel that concerns your business or something that would concern in the near future. This can be a lawsuit or some loans that you haven’t been able to pay back. The moment the Angel unearths such secrets he/she is likely to walk away from investing. Also quite often Angel investors can suggest you the best route to deal with the problem and hiding such facts from investors dents your reputation and can hurt your next round of investments.
Avoid Being Conservative!
You are likely to try and lure an investor with something called ‘conservative’ estimates on the growth of your business. This isn’t going to earn you too many brownie points as the investors are going to rework on the figures and come up with more realistic estimates about your business. As a matter of fact, Angels are always bullish and don’t quite like entrepreneurs who are conservative!
Keep these things in mind and it won’t be much of a problem for you to raise funding if there is a strong value attached to your business plan.
When creating a Crowdfunding campaign, it is imperative to gain a good audience of potential backers before the campaign begins. With this in mind, you can then create the type of rewards that your niche/backers would be interested in.
Based off of your budget, campaign goal, and price of your product or service, you can establish your rewards. These rewards should start at the price that your typical backer will pay, then increase for those looking to spend more. Be sure that your rewards do not differ in price by a large margin. Each reward should be slightly more expensive than the previous. This will give options for every level of backer whether they are a big spender or do not want to invest that much into your campaign.
You can find more information on this particular subject by visiting this blog article on Thrinacia's blog.
Hope that helps!
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