If you are not using crowdfunding to launch at least one product per year, you are missing out on billions of dollars of risk-free revenue and millions of new customers.
This is true whether you are an established company used to traditional product launches or a funded startup looking to come out with a bang. I guarantee that not taking advantage of crowdfunding now will be your biggest regret (especially once you see your competitors doing it).
This article covers the top 5 reasons WHY this is true. If you are looking for the HOW — check out our how-to article here.
Before I start, we need to set one thing straight — the majority of crowdfunding campaigns fail because they don’t meet the following…
If you have these three things, then we can confidently assume your next crowdfunding campaign will be successful.
With that out of the way, let’s dive in…
First off, we know crowdfunding is awesome (accounting for over 34.4 Billion dollars in 2015 according to Massolution’s 2015 Crowdfunding report), but what is it?
From Kickstarter to GoFundMe the term “crowdfunding” is a general term for raising money from a large group of people. However, for the sake of this article, we are only discussing “reward based” Crowdfunding (ie. Kickstarter and Indiegogo). On these platforms, companies do not exchange equity for cash. Instead, “backers” pre-order cool products, usually at a discount, before they hit mass retail or ecommerce.
That leads us to our first point…
#1 Tap into a HUGE marketplace that is growing exponentially every year and attract new customers at a fraction of the cost
According to Alexa.com:
Both Kickstarter and Indiegogo combined receive about 600,000 Unique Visitors per month.
They are vibrant communities filled with potential customers. As my business partner at LaunchBoom, Thomas Dadourian says it best:
“Backers on Kickstarter and Indiegogo want cool stuff, at a discount, before anyone else.”
If you can take a small piece of that pie by making a part of that community yours, you will see huge success.
Not only will you see a great cost per acquisition in your marketing efforts, the platform itself will promote your success and drive additional traffic for no additional cost.
From our experience running marketing campaigns in a variety of verticals, we’ve found that crowdfunding is the best acquisition channel and results in the best ROI for your advertising dollar. Conversion rates on crowdfunding platforms are significantly higher than through other conversion mediums like your own e-commerce site. A higher conversion rate will result in a lower cost per acquisition.
Additionally, backers are likely to share your story with their friends on social media, thereby enhancing the virality of the campaign and value of each customer. Your marketing dollars go further because you get free traffic from the platform and even more from your backers.
#2 Validate a new product and improve it with customer feedback
According to the Council of American Survey Research Association:
US businesses alone spend 6.7 billion dollars each year on market research and 18.9 billion worldwide.
Crowdfunding campaigns are a low risk and low cost way to do market research and prove product viability while seeing some serious revenue. Some valuable questions you may ask are…
Who is your target demographic?
How will your customer receive your product?
What questions/concerns do they have about your product?
Two of the most valuable things we have seen come out of crowdfunding campaigns we have participated in has been customer feedback and data from advertising. We’ve seen customers ask questions that lead to product breakthroughs. We’ve seen advertising campaigns that have revealed new customer demographics that gave us insights on how to improve the marketing message. We’ve seen the price of a product change based on positive feedback. All of the information you gather during your campaign will lay the foundation for the future success of your product and for your company.
The beauty of crowdfunding is your community of “backers” know your product is improving and they are willing to invest their ideas, money, and social reach to ensure the success of your product. Include them in your product development process by launching your next product on Indiegogo or Kickstarter.
#3 Generate more revenue with less risk
Crowdfunding enables businesses to pre-sell thousands of units in a 30–60 day period which helps drive larger volume orders with manufacturers. Larger volume orders usually decrease the cost per unit and increases your margin. This is a beautiful model because companies can leverage economies of scale by capitalizing on pre-sale orders and reducing their financial risk. Pre-sales are ideal because you don’t need to worry about massing an inventory.
All you need is a working prototype and a great marketing plan. As discussed in number two, this is even better because you can include your audience in product development and iterate before investing in manufacturing.
#4 Move more product and upsell anything
What if you are a larger company with many product lines? How do you make the most of your current inventory and increase customer lifetime value?
Your campaign is not over when time runs out.
There is still a HUGE opportunity to upsell anything you want to your backers. After your campaign has closed and you are finalizing order information, you can reach out to your customers and offer add-ons and accessories for the product you just launched OR introduce other relevant product lines. We’ve seen many of our clients double their campaign goals during post campaign efforts.
In addition to upselling backers and increasing a customer’s lifetime value, post campaign efforts also offer companies the opportunity to move excess inventory. Companies can sell anything they want (not just new products) through post campaign efforts because they are launched on separate platforms not associated with Indiegogo or Kickstarter.
Another important aspect to consider is that we continue to see campaign success improve exponentially after a consecutive launch. For example, the Ecoqube raised $79,000 the first time it was launched on Kickstarter.
The new and improved Ecoqube C was launched a little over a year later and raised over $375,000.
Companies that have the ability to develop new products quickly are foolish not to incorporate crowdfunding into their annual sales/marketing strategy because they can ride the success of previous campaigns and significantly increase their annual revenues.
#5 Better position yourself for BIGGER deals
Once you deliver a successful crowdfunding campaign, you have proved that there is a high demand for your product which will help you close larger volume deals direct with retailers or expedite potential licensing deals or even sell your company.
You can leverage your success for future press as well. Crowdfunding is social by nature. Your success will be disseminated across social media by your newfound community and will always live on the platform. We have seen our clients have huge success after a successful campaign in the retail and venture capitalist arenas.
One of my favorite moments was when one of our clients refused an investor offer because their crowdfunding campaign created new offers that enabled them to work with someone else who’s deal better matched their company’s value.
Crowdfunding is not just for cash poor startups. Crowdfunding is the best way to validate a new product, build a community, and see serious revenue within a handful of months (the time it takes to develop all your assets and run the campaign).
The sooner you start your first (or second) crowdfunding campaign the better.