What is Rewards Crowdfunding?

What is Rewards Crowdfunding?
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Thanks to innovative, entrepreneur-driven platforms like Shark Tank, you no longer have to be a big name in the marketplace to launch something new. But there’s another way to get attention and financial support for your dream: crowdfunding. While not brand-new, it’s evolved much over the years, and one of the most notable (and fun) ways to get cash for your dream involves kicking back a few perks to your supporters.

Rewards crowdfunding is incredibly effective, but why? What does it take to do one successfully? What are the best platforms and perks? Here’s a bit more about this trend in raising startup capital.

Crowdfunding Types

Rewards crowdfunding is just one type of crowdfunding. While this method focusing on giving back perks, prizes, or actual product to those early adopters who support you with cash, these strategies are also successful:

  • Donation crowdfunding, where supporters give money and don’t expect anything in return (except, perhaps, tax documentation)
  • Lending crowdfunding, in which the startups seeks to borrow the funds to finance their project. This is also called “debt crowdfunding.”
  • Equity crowdfunding, where those that contribute are given a fraction of the value of the funded company in return.

 

Rewards Crowdfunding Benefits

Each has its own benefits and challenges. Because rewards crowdfunding works for any creator, even those with no business history or adequate credit, it’s appealing to those who have great idea but lack the documentation to get a loan, snag investors, or get straight-up donations without some kind of return. It’s also a good choice for anyone who doesn’t want to incorporate or file for charitable tax classification.

Rewards crowdfunding has also been instrumental in helping creators and entrepreneurs build and maintain the kind of buzz that will help them sell their finished product or service down the road. Many a successful business was able to reach millions of people with a viral crowdfund. Offering the product as prizes also helps create demand for the item later on. Those who commit to funding are considered a ground-level fan base for future projects the company may develop. It’s a marketing strategy, as well as a funding technique.

Which Platforms Work Best?

Any crowdfunding platform that offers you to explain your business idea, accept money, and then offer reward “tiers” for those who donate will be a good option. Currently, top sites include Kickstarter, IndieGogo, and even Patreon. Note that Kickstarter and IndieGoGo are goal-based sites that let you pick one funding goal and work until the time expires or you’re fully funded. Patreon is an ongoing support site where Patrons set up a monthly monetary gift and get regular rewards in return.

Site terms change often, so practice due diligence in reading the fine print and understanding how each platform works. Questions you should be able to ask before starting include:

  • If my project isn’t fully-funded, do I get to keep any of the money?
  • What percentage of funds does the site take? Is there an additional charge for “cashing out” or for processing payments, issuing payment checks, or transferring funds?
  • How are earnings reported for tax and accounting purposes?
  • Do I get access to the contact info of my supporters for future promotional and reward fulfillment purposes?
  • Does the platform allow me to regularly communicate updates to the projects, change goals, or answer questions from supporters?
  • What payment forms are accepted?
  • Can supporters withdraw funding or ask for a refund?

There are many other considerations to make regarding how your project can be marketed. The ability to upload videos, add documentation, and chat directly with supporters are all wishlist items that not all platforms allow. Figure out what you need in advance of setting up any crowdfunding goal.

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What Rewards Should I Offer?

Rewards can be as unique and diverse as you are. While it’s completely up to you which perks you provide, remember that they should tie into the branding of your project and the overall marketing strategy for your idea. Don’t offer items that have nothing to do with your goal or business.

Here are some of the most popular rewards offered in the past few years:

  • The product being funded at a deep discount
  • Special shout-outs, movie credits, mentions on social and handwritten notes
  • One-on-one time with the creator or brand owner via phone call (or over dinner!)
  • Branded tees, posters, and other novelty items
  • Accessories that coordinate with the item being sold
  • Free versions of the item in digital format
  • Autographed items, artwork, or other piece of memorabilia
  • Lessons, consulting, or other service rewards

Make reward levels for even those with not much money to spend. If people are excited about your offering, they will want to support it, but might not have more than a few dollars to give toward the development of your $200 gadget. Allow them a way to contribute, even if the reward is simply a mass-produced digital assets or personal thanks.

Don’t forget to factor shipping into the equation. Not all of your supporters will be local, and many worldwide contributors will be expecting their perks, too. Have a plan for extra shipping charges, if your item is a physical product.

Fund Early

One of the most common indicators that a project will reach its goal funding level is that it’s showing traction early on in the fundraising effort. If you don’t have your project near half-way funded in the first week or so, it may be a hard road to get it to goal. Buzz built early is the back way to succeed, as those who “buy in” are more likely to tell friends and family, share on social, and be your best brand evangelists.

For that reason, it’s essential to give people a reason to fund early. “Early bird” and even “Extra early-bird” perks can help jump-start that funding and get the word out about your goal. These rewards should be in low quantity but offer the biggest perks. You could choose to offer your product for free at a reward level that’s equal to half of the eventual market price. This will entice those who want to score a good deal to buy-in early and feel like they were on the ground floor of something big.

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