Crowdfunding is incredibly popular and enables investors to fund otherwise impossible projects. However, even simple mistakes can doom a good idea before it gets off the ground. Read on to learn the most common mistakes crowdsourcing campaigns make, and how to avoid them.
Decide what type of rewards to give investors
There are two types of crowdfunding sites: reward and equity. Which one you select depends on what incentives you want to offer your investors. Reward sites offer the finished product or service itself, while an equity website will instead give investors a share of the project’s future profits. Keep in mind that offering equity is only attractive to investors if their potential return on investment is high enough, which typically means a project of $100,000 or more.
Start marketing early
Many people look at their projects through rose-colored glasses, believing their idea is so great it will have no problem finding an audience. But the reality is often much different. Only a small percentage of ideas go viral, and most struggle reaching potential investors. This is why it is so important to start marketing early; you need to get enough momentum before your crowdfunding campaign goes live or else you will struggle to meet your target.
While some projects have broad appeal, most don’t. In order to get enough interest, you must target your niche audience. Ask yourself: who would want to buy my product or invest in my business? Now think of ways to capitalize on this group’s characteristics. Gamers, for instance, might appreciate hands-on experience with a game in development, and you can use this as a key part of your marketing strategy.
Now that you know who to target, you can start growing a following. Most successful projects post on social media, run a successful blog, or both. These techniques can take up a lot of your time, however. If the time demands are too high, consider offering a deal to someone who has a following with your audience.
Decide on your reward thresholds
Most crowdfunding projects don’t deliver on their promises, and fail to ship items out on time, turn a profit, or stay under budget. Investors know the risks involved, and are more likely to invest if they are given perks, like discounts or limited edition items, if the project is a success. While you may be tempted to offer these incentives at full market price, this will only alienate potential backers who don’t feel you are taking their personal risk seriously. Instead, always offer your rewards at an investment threshold below their suggested retail price.
Build investor trust
Investors want to know how their money is spent, and many will only back a crowdsourcing project with a clear plan for success. Your campaign description should always list your goals for every phase of your project, including plans for any extra revenue. Showing how you will keep your audience updated about your project’s status once it begins is another great way to build your investors’ trust.
In a world filled with successful crowdfunding campaigns projects, the temptation to believe your idea is foolproof is a strong one. But such optimism is too often contradicted by reality. Thankfully, by being proactive with investors and setting realistic expectations, you can beat the odds.