What You Need to Know About Reward-Based Crowdfunding

What You Need to Know About Reward-Based Crowdfunding
Image by mohamed Hassan from Pixabay

Reward-based crowdfunding, off-late, has garnered popularity and is gradually setting up as a viable and prevalent source of funding for inventors, startups, SMEs, and project managers. And it’s not that hard to see why every entrepreneur wants to join this bandwagon. 

So, is it really a feasible alternative compared to other financing models or even other types of crowdfunding

As the name gives it away, reward-based crowdfunding entails reaching out to the public, pitching out an idea, and plan to pool small investments from your backers. In return, you will offer some types of incentives, not in monetary form, to appreciate the effort. Thus, you can sum it up as a sort of pre-sale. 

Still, there is more to that. In this up-to-date masterpiece, we will elucidate all there is regarding reward-based crowdfunding. As a result, you can gauge and make an informed decision whether it’s an appropriate model to inject cash into your project. 

What You Need to Know About Reward-Based Crowdfunding

Also referred to as perk-based, it’s the most popular and preferred form of crowdfunding. It may seem streamlining and less-stringent to sign up with an excellent crowdfunding platform, list your funding needs, attract backers, and voilà you have raised the money. 

Nevertheless, it’s not a walk in the park to raise money for your project through reward-based crowdfunding. Or rather through any other forms of crowdfunding. Similar to other marketing or fundraising campaigns, it requires a knowledgeable, solid, and efficacious strategy. As a starting point, let’s take a look at how reward-based crowdfunding works.

How Reward-Based Crowdfunding Works

First and foremost, you have to figure out the exact sum of money you intend to raise from your campaign. This is particularly critical considering different platforms employ specific funding models. We mean that depending on the crowdfunding platform, if you set a high target and unluckily fail to raise the desired amount, you will end up with nothing ( all-or-nothing model ). On the other hand, if you set a low target, then your crowdfunding campaign might as well be futile and a waste of resources.

After setting a reasonable target and, of course, choosing the right platform that aligns with your project, you have to devise a reward strategy. Bear in mind, failure to deliver promised incentives is a significant difficulty overshadowing the success of reward-based crowdfunding campaigns. Not to mention failure to honor your promises tarnishes your reputation. 

On the other hand, some incentives may be overwhelming for your project’s operation, especially for startups or ventures trying to find their footing. For instance, if you have to ship the gifts to your backers. Therefore, an ideal approach should be motivating your backers without breaking your bank. For example, some individuals offer a handwritten thank you note. 

Pitching your campaign to the crowdfunding platform should be your next priority. How you approach this critical step ultimately determines the success of your campaign. First, prepare videos, detailed business plans, and all the materials in general. Then, broadcast them on your platform and share the opportunity with friends and family. Still, it shouldn’t rest at that. Promote your campaign through social outlets. A robust social media outreach increases the chance of success for your crowdfunding crusade. 

Progressively, intrigued backers will donate to your cause and probably share their activities over social networks. As you can imagine, this will broaden your outreach, and you might pool more investors. In return, you will be required to send rewards to the backers based on the amount of funding they commit. 

After hitting your target, you will receive your money. Depending on the crowdfunding platform you chose, they may deduct a percentage from the raised amount. Now, you have to commit to the incentives. Regrettably and as mentioned, if you fail to meet your funding goal, you get nothing, and consequently, backers receive their donations back. 

Pros of Reward-Based Crowdfunding

Besides raising funds for your venture, the most significant benefit of reward-based crowdfunding is the opportunity to create public interest and market your product.

Other benefits include: 

  • It’s a cheap way to raise capital. You don’t have to sell an equity stake for your project. Also, you don’t have to repay the allotted funds. 
  • In case you have another perspective project, reward-based crowdfunding is an ideal way to lay the groundwork. You will have built a network of engaged and ardent financiers who profited from supporting your project and definitely might be eager to participate in the next. 
  • Considering most of your backers will be individuals interested in your product/service, you can receive genuine first-hand feedback that you can incorporate to better your products before the official launch. 
  • Unlike other lending options such as banks, you don’t require collateral or a credit score to acquire funding. 
  • Lastly, it’s a straightforward process. With the proper knowledge, you might not require professional guidance or legal advice. 

Why Reward-Based Crowdfunding Might not Be The Perfect Choice For Your Project

First and foremost, if you intend to raise a substantial amount within a short period, you might have to consider alternative lending options or equity-based crowdfunding. 

  • As mentioned, if you fail to hit your funding target, you will receive nothing.
  • Pitching your idea out there exposes it to competitors. Without a patent or copyright, someone might steal your concept.

Popular Reward-Based Crowdfunding Platforms

Tentatively, there are about 550 renowned Reward-Based Crowdfunding companies globally. With a convincing pitch that’s appealing to the masses, in technology, creative projects such as fashion, film, technology, the following are the most prevalent platforms:

It can be overwhelming to choose the ideal platform but scrutinize your prospective platform’s requirements and restrictions to ensure it aligns with your project. Also, consider their rates and, importantly, offer several customization options to improve your design, brand and, in general, advance your campaign.