What Consumers Should Know About Crowdfunding

What should consumers know about crowdfunding and giving money through the various platforms? There are pros and cons to consider for both donors and recipients.

Reality of Crowdfunding

Consumers should understand the reality of most projects that are funded:

• More often than not, projects typically fall short of their target goals
• First time fundraisers are usually unprepared for crowd funding and therefore success rates are very low
• Greater than 90% of donations will be from the raisers’ network, although that number is decreasing as consumers become more familiar with the platforms and feel secure about the transaction,

One way to measure a project’s likelihood of success is to monitor the level of engagement and social buzz within its network. Crowdfunding success has a strong correlation to early funding within a projects immediate network which encourages participation from others. Hence, the marketing campaign and preliminary planning are critical.

For whom is crowdfunding a viable way to raise money?

Although crowdfunding is a great channel for raising money, it’s not suitable for everyone. Additionally, the right crowdfunding platform plays a role in the likelihood of success as well. At a high-level, the projects that tend to succeed have the following characteristics:

• Have a financial goal of $10K or less, therefore allowing the immediate network to fully fund this reasonable financial goal.
• Will result in an actual product, whether tangible or intangible. Though, tangible products have higher success rates.
• Project leads have strong social networks. This is the biggest driver of project success and the marketing strategy must be planned well before the crowdfunding campaign begins.
• Have an excellent crowdfunding campaign post that includes solid copywriting and visual assets such as high-quality video and/or imagery, and strong call to action.

While projects that have higher financial targets can succeed, these projects will need a stronger social media campaign and network to carry the initial wave of funding.

What do you think consumers should know about crowdfunding? Let us know your experience using crowdfunding sites? Were you or the project successful?