The continued rise of crowdfunding as a funding strategy shows that the $17.2 billion generated every year in North America is not going anywhere. This is the reason many people are wondering, “how does crowdfunding work?”
There are four traditional methods of crowdfunding and a fifth which might be better than all the rest. But before we disclose everything,in order to properly survey the field, we need to start with the basics.
Crowdfunding Methods: What Is Crowdfunding and How Does it Work?
Simply put crowdfunding is a way of obtaining funds or capital for a project or business by asking a large number of people to make modest donations, generally online. It enables people, companies, and organizations to replace conventional funding sources like banks or venture capitalists and connect with real people for investment.
There are four main different types of crowdsourcing, including a new fifth one.
The most commonly used 4 methods of crowdfunding are:
- Donation-based Crowdfunding: This approach entails soliciting modest contributions from lots of people. Users are free to give any amount they choose in exchange for prizes or privileges, such as access to the website’s goods or services. Non-profits, charities, and social causes frequently employ donation-based crowdfunding.
- Reward-based Crowdfunding: With this approach, backers provide money to fund a particular project or product in exchange for benefits like early access, unique goods, or other incentives. Startups, small enterprises, and independent artists frequently employ reward-based crowdfunding by using various website platforms.
- Equity Crowdfunding: This strategy entails giving investors their own shares in the business in exchange for money. Investors in equity crowdfunding obtain shares in the business and might receive a portion of any future profits. Startups and companies looking for larger financing frequently employ equity crowdfunding. This requires you to own a large company in which the general public would have an interest.
- Debt-based Crowdfunding: This strategy is taking out loans from investors and promising to repay them with interest. Small enterprises and individuals that need to raise money fast but may not qualify for standard bank loans frequently employ debt-based crowdfunding.
- Make Your Website Crowdfund for You: Use the loyalty of your website and build crowdfunding into their engagement. With a strong enough rate of returning users, your own website can become a source of crowdfunding and increasing relationships with your customers. It also means your are in the driver’s seat instead of having to rely on other platforms.
So how does a crowdfunding platform work? Well, the person seeking funding creates a campaign on the funding platform, where they outline the idea, their financing target, and any gifts they want to provide backerfffs.
Prospective supporters search the site for initiatives that catch their attention, then pledge to fund such projects. The promised money is only given to the creator if the campaign meets its financing target by the deadline. The supporters are not charged if the financing target is not met, and the project is not given any money.
When a campaign is successfully financed, the creator utilizes the money to complete their project, and any awards that the supporters are due are given to them.
For its services, the crowdfunding site normally charges a fee, typically a percentage of the whole thing.
You can clearly see that there are many drawbacks to this approach.
And last but definitely not least, you can do a combination of these on your very own website, where your loyal audience can support you. How is that better? Well, if you decide to utilize a crowdfunding platform, nobody from your core audience will actually be there, and you’ll be speaking to new people. Not to mention, crowdfunding platforms take a portion of the pie for themselves.
What Are Ways Can You Make Your Website Crowdfund For You?
Depending on how loyal your website’s audience is, crowdfunding directly on your website might or might not be a good idea. In order to check this out for yourself, go to google analytics, click on audience and overview, and compare returning with new users for the last quarter.
If your returning users are more than 30-40%, then it is definitely a good idea to try crowdfunding directly on your website. This means you have a seriously loyal website readership.
If not, you can do it, but you will have to combine it with other methods in order to reach a wider audience and collect more funding.
The direct support of your readers speaks much louder than the help of people who’ve never been introduced to your website before. And a direct financial relationship with fans brings diversity and durability to online content enterprises.
Get Better Control of Your Crowdfunding Sources
If you directly incorporate crowdfunding into your website your fans would be able to support you at any time, not only while you have a crowdfunding campaign running. The cool thing is, perhaps you never knew, but you can give your fans the option to support you with one-time or recurring donations with just one click.
With a smart solution, integrated into your website, you won’t need to send the reader to another website in order to make a donation. This will keep them engaged and you won’t lose traffic. Not to mention the best part, you’ll keep the whole donation and you can add a personal touch to the whole thing.
And this can be done in minutes.
How Do You Start Crowdfunding?
If after reading all of this, you’re thinking ‘Where the heck am I going to find a tool that implements an easy-to-use crowdfunding functionality on my website in minutes?’, don’t worry, Publir does it all and more.