You have a great idea, but no money to fund its development or build a business. You’re too small and your idea is untested, so you can’t attract investors and your uber-supportive friends don’t have any more money than you do. What do you do? You turn to crowdfunding, of course! Crowdfunding has become the go-to solution for small businesses and startups looking for a quick way to launch a product, project or get their business started. But is it right for you?
Since we’re a 3PL fulfillment company with expertise in crowdfunding fulfillment, we’re mostly interested in new-product (as opposed to project) crowdfunding campaigns. So today we’re going to talk about the benefits and challenges of crowdfunding campaigns to finance new product launches. We’ll explore how it all works, and dive into the differences between the two major product-oriented crowdfunding platforms. But first a few definitions.
What is Crowdfunding?
Crowdfunding is the process of raising money from a large number of people in order to fund a project or small business startup. Typically, instead of struggling to find a few investors to lend you large sums of money, crowdfunding brings in small pledges from a large number of people via a crowdfunding website or platform. These small investors are called backers. They are investing in a product they believe in, even though it hasn’t been built yet! Many campaigns offer rewards to entice backers to contribute. Crowdfunding campaigns may last a few weeks or up to 60 days, with a goal of raising a certain dollar amount within that time frame. The campaign is considered a success if you reach your goal. In some cases, if you don’t reach it, you don’t collect any of the money.
Crowdsourcing, on the other hand, is the process of soliciting free help or ideas (not money) from a large group of people in order to quickly solve a problem or complete a task — not the same thing at all (although crowdfunding can also be a great source of feedback on your ideas).
How Crowdfunding Works
In order to start a crowdfunding campaign, you begin with a great idea, and usually a prototype and/or business plan to prove that it’s going to work. You’ll need a budget and a bang-up marketing plan. Then you launch your campaign and hope for the best! Here are the general steps:
1. Prep work
Preparation is actually the hardest part, but if you do it well, it will set you up for success.
Budget — You’ll need to set a campaign goal, and in order to do that, you’ll need a budget to launch your new product. The goal should be the minimum amount needed to create what you promised and fulfill all the rewards. Be sure to include testing multiple prototypes, product design, manufacturing, importing costs, website design and development, branding and marketing, legal fees to trademark and register your product, packaging, fulfillment and shipping.
Timeline — Create a timeline for key points in your campaign: final prototype, campaign launch, production, shipping, etc.
Choose a platform — Compare crowdfunding platforms, eligibility requirements, rules, and visitor demographics, and choose the one that best meets your needs and budget. There are dozens of crowdfunding websites and platforms that you can use to start a crowdfunding campaign, but to simplify things, we’ll focus on the two most well-established, product-focused crowdfunding platforms: Kickstarter and Indiegogo. Kickstarter projects must be reviewed and approved before launch. Indiegogo does not have a review process, but will pull your campaign down if you don’t follow their rules.
- Eligibility guidelines for Kickstarter and Indiegogo.
- Kickstarter rules, fees, and prohibited items.
- Indiegogo rules, fees, and prohibited items.
- Develop and launch a marketing campaign to build buzz around your crowdfunding launch date. Write copy, shoot product images, and create one or more videos that tell your story and show backers everything they’ll want to know. Much of the success of crowdfunding stems from word of mouth and the exponential power of social media. Still, your campaign will depend heavily on your initial network of friends, followers, and supporters to get off to a good start.
- Develop tiers of rewards or perks that motivate backers to contribute at higher levels. All backers should receive some type of recognition from you, even if it’s a simple thank you note, but many campaigns offer more enticing perks for larger contributions, such as a personalized gift or a discount on the finished product. But don’t go crazy with these — too many tiers can make things complicated when you reach the fulfillment stage.
- Build an email list of everyone you know, and build up your followers on social media channels.
- Build your pre-launch and campaign pages. Kickstarter and Indiegogo both allow you to promote your upcoming campaign with a pre-launch page before it goes live. It can’t reveal too much (usually just a title and photo), but visitors to this page can sign up for emails to follow your project and receive a notification when the project launches. On Indiegogo, you can even A/B test different versions of this page to see which one gets more engagement. Then use all of your fabulous marketing copy, photos and video to build a compelling campaign page. It can be waiting in the wings for the big launch day.
Once your campaign page goes live, you can’t change your funding goal, or your rewards/perks. Your job will be to heavily promote your page via email, events, social media, or any other method you can think of. Notify everyone on your email list and social media followers that your page is live, and have your friends, family, and team members do the same. The first 48 hours of traffic are crucial.
If your campaign is successful, you can begin production on your product. Keep backers up to date on its progress, as you might experience delays or go through multiple iterations before you begin production.
5. Fulfillment & Shipping
Once your campaign is over, your backers will be anxious to receive their promised rewards or perks. You should give them an expected delivery date within a few weeks of the campaign’s conclusion. Once you have product in hand, you can begin fulfilling orders. You will need a warehouse with direct-to-consumer (DTC) fulfillment capabilities, whether you manage it yourself or partner with a 3PL. You will need packaging that protects your products and/or rewards from damage during shipping. Custom packaging, colorful packing materials and pre-printed inserts (like a nice thank you note) can elevate the unboxing experience for your backers and customers. Not all 3PLs offer this option, but ShipMonk does.
Kickstarter vs. Indiegogo
Kickstarter and Indiegogo are similar crowdfunding platforms with a few important differences. Kickstarter tends to attract products like board games and crafts, while Indiegogo leans toward gadgets and innovative technology. Kickstarter only allows campaigns for physical products, while Indiegogo includes projects to raise money for communities or registered charitable organizations. This chart highlights the main differences between Kickstarter and Indiegogo.
|Main project categories:||Arts, Comics & Illustration, Design & Tech, Film, Food & Craft, Games, Music, Publishing||Technology & Innovation, Creative Works, Community Projects|
|Leans toward:||Creative projects, design, games, technology||Technology, gadgets, innovation, niche products|
|Funding model:||Fixed model only. (If you don’t reach your goal, you don’t get the money and don’t have to fulfill rewards.)||Choice of fixed or flexible model. (Flexible model allows you to keep what you earn, but you still have to fulfill perks.)|
|Fees:||5% of earnings plus 3% of each pledge||5% of earnings plus 3% of each pledge|
|Traffic:||19.5M unique visitors per month||13M total visitors and 5.6M unique visitors per month|
|Success rates:||40%||9% (does not include flexible funding campaigns that did not reach their goal)|
|Project must be reviewed before launch?||Yes||No|
|Post-campaign ecommerce platform?||No||Yes|
Benefits of Crowdfunding
There are so many benefits to crowdfunding, that it’s amazing that small businesses got along without it until now. Here are just a few of the advantages:
- Crowdfunding makes it possible to fulfill your entrepreneurial dreams.
- Crowdfunding is low-risk compared to the alternatives of ceding control to venture capitalists or bootstrapping the project yourself. With a fixed funding model, if you don’t succeed, you don’t owe anybody anything.
- It creates a buzz around the launch of your product.
- In the process, you will build a loyal and engaged customer base that you can rely on for feedback to improve your product, repeat purchases, and potential support for other projects in the future.
- Crowdfunding platforms are available in dozens of countries worldwide, giving you access to millions of potential backers you wouldn’t be able to reach otherwise.
Challenges of Crowdfunding
Sure, it’s great to collect money from people you don’t know to make your dreams come true, but it’s not all fun and games. Here are some of the challenges of using crowdfunding to fund a new product launch.
- It’s a lot of work. You’re essentially writing a business plan, building a website, and launching a marketing campaign for this one product that may not pan out.
- Success isn’t guaranteed.
- If you choose a flexible funding plan, you will be expected to fulfill any perks you promised to your backers.
- If your campaign succeeds, the pressure will be on to produce a product that lives up to expectations. Your backers will be anxious to receive the product and their rewards, and bugging you for expected delivery dates. You can relieve some of the pressure by keeping them informed throughout the process, so there are fewer surprises.
- Communication isn’t everyone’s cup of tea. If you don’t like the idea of soliciting support from friends, hosting events, posting frequent updates on social media, and fielding constant questions and feedback from backers, crowdfunding might not be for you.
- With international reach comes international shipping complications. You can limit your campaign to U.S. backers only, or you can work with a 3PL that has international shipping capabilities.
- If this is your first product, fulfillment and shipping can be unexpectedly expensive and complicated, particularly if your product is a huge success and you have to ship out thousands of orders at one time. Again, a seasoned 3PL can handle this for you.
Advantages of Having a Partner
You don’t have to do this alone. If you partner up with a 3PL like ShipMonk that has lots of experience with crowdfunding fulfillment, you’ll eliminate a lot of problems and bring new operational expertise to your side.
- Powerful software platform — ShipMonk’s advanced software gives crowdfunding projects full control and real-time visibility of their inventory, order fulfillment, shipping, and much more.
- Batch processing — Fulfilling crowdfunding backer orders requires speed and consistency across a large number of similar orders. Our software enables us to utilize batch-style processing with assembly line efficiency and accuracy. This means your orders are processed quickly and with high levels of quality control, customized to your specifications.
- High-tech automation — Our warehouses are technological marvels with the bandwidth to fulfill 100,000+ orders daily. Dimensional scanners, robotics, sorting machines, and multi-point quality control checks ensure lightning-speed fulfillment and order accuracy.
- Tech integrations — Our software integrates seamlessly with major crowdfunding sites like Kickstarter and Indiegogo, as well as most shopping cart platforms, so setup is simple and quick.
- Virtual Carrier Network — Our extensive background with shipping and high order volume enables us to provide elite-level service at superior rates from the world’s most reliable carriers. ShipMonk’s Virtual Carrier Network (VCN) takes the guesswork and workarounds of 3rd party rate-shopping systems to automatically find the best carrier and shipping method for each order. It guarantees orders are delivered on time at the best possible rate.
- Twelve locations — ShipMonk’s eight fulfillment centers across the U.S. can provide 2-day delivery to virtually any address in the continental U.S., and our four international locations in Mexico, Canada, UK, and Europe can facilitate and help you save on international shipping.
- Best-in-class support — It helps to have an expert you can call on. Meet our Happiness Engineers! Our team goes through extensive training and is fully prepared to assist you with your crowdfunding fulfillment needs. Think of them as your employees stationed at one of our warehouses. Whatever you need, they’ll be there for you.
- Special services — If you need something special, we can make it happen. Custom packaging, special pre-printed inserts, kitting and assembly, labeling or repackaging, you name it. Best of all, you only pay for the services you use.
Remember, preparation is the key to success! If you know you’re going to need an experienced fulfillment center, or if you just have questions about how crowdfunding fulfillment works, reach out to us! We’re happy to answer any questions you might have.