How Fees Are Lowering in the Crowdfunding Space

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The number of crowdfunding platforms seems to be growing without end. Many are offering the promise of being able to raise large amounts of money. The only problem is that many of these new platforms also want to take a big cut out of that big money.

In September 2014, a young father in Chicago threw himself in front of Metra Train, instantly killing himself. He left behind his wife and a 2 year old little boy. As is becoming custom today, his family and friends created a GoFundMe page to help his family out during this period of time. Together they raised about $10,000 in total.

Except it wasn’t $10,000 that the family received. GoFundMe takes 8% from the campaign. The first 5% goes to fees that are collected to raise funds. The other 3% is a credit card processing fee that the site passes along. Personal crowdfunding has tripled since 2013, but for the crowdfunding sites, it is business as usual. For them, it isn’t just about charity.

It’s also about profit.

In Personal Fundraising, Every Dollar Counts

For that 2 year old boy in Chicago, $800 means clothes, food, and diapers can’t be purchased. $9,200 might still seem to be a nice take, but people are becoming frustrated with the idea that trying to help someone in need is going to cost that family 8% of their donation. It is causing people to just write checks to help so that the fees can be avoided.

Indiegogo has noticed this as well. In December, the crowdfunding site announced that they would drop their fees on personal fundraisers. With the launch of Indiegogo Life, the only fee that personal fundraisers face is the 3% credit card processing fee. For that 2 year old boy in Chicago, that’s $500 extra dollars. In comparison, fees on Indiegogo in the past for personal crowdfunding could be as high as 9%. That didn’t even include the credit card processing fees or the Paypal fees that could be charged as well.

The removal of huge fees from personal crowdfunding also eliminates one of the biggest problems in the crowdfunding industry today: the upcharge. To make sure that people get the full net amount of what is being raised for them, those who donate are asked to pay the fee upcharge so that the net amount equals the displayed amount. On a $25 donation, that might just be an extra $2.50 per person, admittedly not much, but it is the principle of the upcharge that matters.

Help a friend. Pay $2.50 for the privilege of doing so. Not a great tagline for a crowdfunding site to say the least.

Fee free crowdfunding isn’t anything new, of course. Sites like Tilt or YouCaring have already been doing it. Indiegogo is the first major player in the crowdfunding game to step up and say that personal crowdfunding that is fee free is the right thing to do. This may have been a business decision to set themselves apart from Kickstarter, but it also provides money that can change people’s lives in numerous ways.

What Happens When Personal Crowdfunding Goes Wild?

Kevin Wagner lost his home the week before Christmas due to a fire. His four children and his fiancee lost everything, including the Christmas presents for the kids. They were insured, but the insurance wasn’t going to pay until the claim was fully settled. People stepped up and began giving and crowdfunding to help Wagner’s family.

The fees cost the family $2,800. In total, however, the family received nearly $50,000 in contributions because so many people wanted to help out. The initial goal of the fundraising efforts for the Wagner family was only $5,000.

When a campaign goes viral, enough money can be raised to really change someone’s life. Many look to pass that extra cash along so they can pay it forward. Personal crowdfunding, one could argue, really does bring out the very best of what humanity has to offer.

There is no doubt that crowdfunding websites need to have some cut in order to survive. They don’t sell advertising space in most instances and can’t just eat the 3% credit card fee because it’s “the right thing to do.” Indiegogo Life, however, gets it right. When personal crowdfunding is happening, it is because people need the money. Take the cut from business ventures or proof of concept campaigns.

Let families have the money they need without taking profits from it.