Pros and Cons of Crowdfunding

Crowdfunding is:  the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet (Oxford University Press, 2018).

If you need an extensive description on crowdfunding and the types of crowdfunding, please review our blog Introduction to Crowdfunding.

Cons

• Work and Strategy: although crowdfunding has great potential. It does require marketing plan and strategy to be successful. Regardless if you’re in business or charity sector. Implementing a campaign and waiting for donations to come, will not be effective. You will need to have an plan the effectively increase donations. Luckily, our team does provide consulting within your subscription to help you along the way.

• Crowded Market: crowdfunding is growing immensely every year, particularly 2009. However, it is a saturated market due to its growth. There are a variety of platforms that work in multiple different sectors (I.e Indiegogo: start-ups, equity crowdfunding, charities) to generate donations. Others specialize in niche markets to help clients increase donations. Great example is Patreon, who gives people like artists and writers an opportunity to gain donations, increase their customer base and develop their business.

• Campaign Success: many campaigns do not meet their fundraising goal. Roughly less than a third of campaigns are successful.

However, some things to consider that some organizers will fail to:

• Create an appropriate goal
• Suitable length of campaign
• Consistent updates
• Lack of story or writing too much

To help levitate this, Make Giving Happen provides a Project Success Kit. Which provides crowdfunding’s best practices and we have some fundraising tips to help you along the way.

• Cost of platform: even though crowdfunding has a lot of potential, platform fees with a combination of payment gateway fees can add up. Crowdfunding platforms may charge a:
  • Platform fee (5-7%)
  • Percentage of fundraising goal (4-9%)
  • and/or monthly subscriptions ($200-$1000).

Payment gateways generally charge 2.2% + $0.30 per transaction.

Pros

• Time and Money:
  • For businesses: it prevents you solely depending on banks, budgets, angel investors, board of directors, or private investors to help fund the endeavor. Banks or board of directors may not see the product/service as a worthily investment. And investors may take more part within the business than you may initially want.  Crowdfunding ensures the capital gained is yours to have.
  • For charities or any foundations: it helps brings the cost of administration down. A lot of time and money goes into generating donations and connecting with donors (traditional fundraising). Some include events, call outs, mail outs and more. Which the cost can quickly add up and eat your budget. Crowdfunding can help you gain donations at a faster rate but be more self-efficient.

• Expanding a Supporter Base:
  • For businesses: crowdfunding allows donors (backers) to be a customer early on. Since most business campaigns are tied into providing rewards to backers, such as an early bird product. This will then help expand awareness of your new business or product by supporters sharing your campaign with their own networks.
  • For charities or foundations: crowdfunding allows you to expand your current supporters and help keep current ones. It provides charities to connect with a wider audience, at the same time. Then supporters can share an organizations’ good work with their own networks. Once donors can directly see their impact the trust for charities can grow, and they will more likely donate again.

• Build Confidence:
  • For businesses: if your goal is to connect with investors, crowdfunding can assist. During campaigns, you can build trust and interest from investors. Investors have used crowdfunding to see what projects are building. It’s not uncommon after a successful campaign investors contribute to further increase development.
  • For charities or foundations: some donors have criticized how much donations actually go to the cause(s). Crowdfunding allows donors to build confidence with the charity as they can see the impact and learn where their dollar goes.

• Communication and Engagement:
  • For businesses: It allows backers to engage with the business on what products/services or features they may want. Essentially a cost-effective method to test market and do product research.
  • For charities or foundations: It’s a great method to engage. Crowdfunding allows donors to comment on campaign, share on social media, like and more. This gives you the chance to speak directly to those who donate and who have engaged with you. Allowing you to create a larger community and build strong relationships.

If you want further information on how a crowdfunding can help build your brand and increase revenue, don’t hesitate to reach out at sales@makegivinghappen.com .

We are always looking to engage and expand our current network.

Your platform for your crowd. Let’s Make Giving Happen.