What Is Rewards Based Crowdfunding?


Rewards based crowdfunding is a collective effort involving a group of people (the crowd, contributors, backers) and a project creator (project owner or campaign manager) to fund a specific venture. The creator of that venture requests from the crowd to contribute small amounts of capital to fund his or her new concept (many of them from his or her immediate social network), which is usually hosted from an internet-based platform. In return for the crowd’s contributions, rewards or perks are offered to the contributors from the project itself. While that may be the end result, crowdfunding has many more aspects to it than just this simple definition. This is a guide to better understand the basics of crowdfunding, and while not all crowdfunding campaigns apply here, this is a general overview on how most rewards-based crowdfunding campaigns function

With reward-based crowdfunding, the project owner keeps 100% ownership of his or her project and incurs no debt from the money raised. There is a platform fee and processing fee from transaction providers, which is only deducted if and when the project successfully completes funding. With rewards-based crowdfunding, in exchange for contributors support, the project owner will give rewards or perks in return. These rewards or perks can range from a printed T-shirts, hats, DVDs, CDs, tickets to a film premier, etc. Many of the perks are simply pre-sales of the end product itself. These are just a few examples, but the possibilities of rewards/perks for creative projects vary. Contributions can start from $1-$5 and go over $10,000. The most common contribution is from $10-$30, but the average is between $60-$80. The rewards/perks will usually reflect accordingly to the level of contribution.

Crowdfunding Benefits

Crowdfunding, at its fundamental level, is the first step in creating and increasing interest for your idea; it is an extremely effective tool to build awareness for your concept and share your vision with the world. The crowd can be an excellent resource of collective knowledge and creativity. When you involve the crowd in your project through the comment process, they can make suggestions, point out oversights, and help you improve your project, while providing valuable feedback that you would otherwise not have access to.

Crowdfunding can also be a vetting process; if a crowdfunding campaign doesn’t reach its funding goal, it could be a sign that there is not enough interest in the idea to be successful short or long term. This process can actually save an entrepreneur years of time, energy, and resources that would otherwise be spent if the early test of crowdfunding wasn’t present, so we see this as one of crowdfundings many positive features. On the other hand, many projects wildly overfund, showing that the crowd was ready and eager for the idea, allowing it to come to market almost immediately.

Crowdfunding allows you to raise money while simultaneously introducing your idea to a large market at very little cost, which is a benefit that is not present in any other form of funding. While many people may view crowdfunding as something as simple as taking an idea, loading it on a website, and letting the dollars roll in, there much more to the process.

Related: 10 Steps to Crowdfunding Success

Preparations to Launch a Crowdfunding Campaign

If you fail to plan, plan on failing. The most successful crowdfunding campaigns spend many months on preparation. One of the first things you will need to do is outline your idea in clear, concise terms and illustrations. You will need to create a business plan or a well-thought-out strategy to penetrate the market you intend to enter. Having a good idea is one thing, but it’s another proposition to implement a plan and see it through to its ultimate realization. You and your team should be knowledgeable in your field and passionate about your idea. You’ll need to create a budget and set a target for the amount of money you intend to raise. This will also help with your efforts when explaining to your contributors how and where the money will be spent.

Crafting the message is an important step in creating your campaign. It should be noted that some of the most successful crowdfunding campaigns start with a compelling “why”. “Why are you creating your idea? What is your motivation?” The why can be even more important than what you are actually creating in some cases, and it’s what will give the crowd an emotional connection to your project. Also, don’t focus on you, focus on what your project can do for others. A credible idea will gain people’s interest, but if you can touch the crowd at an emotional level, your campaign is almost guaranteed to be a success. Many crowdfunding campaigns that reach and surpass their goal are not offering project as much as they are mobilizing a movement. This is one of the reasons campaigns can overfund by large multiples and go viral.

Start Gaining Support & Building Momentum

Often overlooked, and one of the most important steps you will need to put in motion before you start your campaign, is to raise awareness and gain support for your idea. This can take anywhere from 2- 6 months depending on the size and scope of your project and your marketing abilities. If this step is missed, your project will be buried in the many hundreds of pages of most platforms, affording it little visibility and diminished chances for success. Studies have shown that over 90% of successful crowdfunding campaigns were funded between 25-35% within the first week through their pre-campaign support efforts.

You should be evangelizing your project offline and online. Develop your audience and involve the crowd from the beginning if possible.  You will want to get your network excited about your project and encourage them to spread the word through their networks as well. Let them know all the great rewards they will receive in exchange for their contributions. A great way to gain additional support outside of your network is to do some research for groups that may have a common interest in your projects completion and try to leverage their influence.

Crowdfunding, in most cases, is an exchange of goods and services; it’s not a charity, so don’t be shy and be creative when seeking support. This time should also be used to discuss your idea with your friends and family in and out of your social media network, where you can receive valuable feedback that will help you refine your concept and address any miscalculations you may have missed before you go live.

Make an Awesome Presentation

Your presentation to the crowd can make a huge difference in your results. Be sure to include as much visual imagery and information to illustrate what your project is about and how you will achieve your goal. By making the best presentation possible, you will demonstrate that you are professional and serious about your vision. If you have any manufacturing abilities to create your new product, show it, if you have prior projects or experience, show that too. People will need to trust and believe that you can do what you say you will. You will also want to get the crowd excited to be a part of your project and a strong presentation is a great way to do that.

Selecting Rewards

Rewards/perks are an essential part of rewards-based crowdfunding, and you will be required to deliver these items to your contributors. The expenses for these items should be accounted for in your budget as well. This is how you will thank your contributors for having faith in you and supporting your project. It’s important that you offer creative, exciting rewards in return for contributions. Its also very effective to provide images of the rewards you will be offering if possible. This lets your contributors see exactly what they will be receiving when they support your campaign.

Many people confuse crowdfunding with charity, and while that may be true in some instances, it’s generally not the motivation by which people contribute to creative campaigns. In most cases, the success of your campaign will have a direct correlation with the rewards that are offered in exchange for contributions, so it’s very important to make them desirable with realistic price points.

Making a Video

You will want to make a short video that will best represent you, your team, and your idea. Projects without videos have a far lower chance of success. The video is a way that personalizes your project to the crowd and can be very effective in gaining support. Your video does not need to be of the highest production value; it just has to effectively convey you and your idea to the crowd. With that in mind, your video will be an important representation of your project so it should be of decent quality. Keep in mind, we live in an age of video, and your video may be the only part of your presentation that many people will ever see. Be creative and have fun when making your video, and be sure to keep it to five minutes or less.

Choose a Platform

After completing the steps laid out above, you’re ready to submit your project, but the work doesn’t end there. Managing a crowdfunding campaign requires time and effort, but this can be a fun and exciting process with the proper attitude. Before you submit your project, do some research on the various crowdfunding platforms to determine which site will best fit your projects needs. After choosing the platform, you will submit your project and depending on the platforms policies, there can be a waiting period of a few days while your campaign is approved.

Ready to Launch

Prepare for launch: this is your chance to share your unique vision with the world! Once you launch, you must dedicate time and energy every day your project is live. Launching your project is one of that last things to be done after all the pre-campaign preparations. The crowd should be viewed as your partner in your new endeavor, involve them in every step of the process. Include them in all your updates, read their comments; interact with them as much as possible during this phase. Ultimately, the crowd will decide whether you are trustworthy and if your idea is one they wish to support. So, put your best foot forward, be honest and transparent, gain their trust, and get them excited to be a part of your project and support your vision.

Related: What is Equity Crowdfunding?

Final Note on Crowdfunding

Although crowdfunding in its current form is a new phenomenon, the concept itself is not new at all. Many artists have funded their works by using similar methods in the past, including Mark Twain, Beethoven, and Mozart to name a few. The completion of the Statue of Liberty was crowdfunded over one hundred years ago, only now we have the power of technology to reach a global audience with social media and the internet, bringing crowdfunding to a whole new level.

Crowdfunding is unleashing human creativity, allowing anyone to realize new exciting concepts, while permitting capital to flow to the most innovative, worthy ideas. As we move forward, crowdfunding will give people many more options about what we wish to choose in every aspect of our life. So profound is the idea that there is really no limit to what we could crowdfund into existence, and with all the brilliant, creative minds in the world, that’s a very exciting prospect.