New crowdfunding sites are popping up every day. Some are for business startups, others are for creative projects, and still others are for charities. These sites generate a lot of success stories, and they should: Crowdfunding is proving itself to be the big new thing in fundraising. It has a dizzying array of possibilities. The Crowdforce crowdfunding platform is just one of those possibilities, but we thought it might be helpful to walk you through how our platform stacks up against the crowdfunding sites.
Crowdfunding Is Not Free
Does crowdfunding sound like free money to you? It sure looks like that at first blush. But behind the stories of college kids raising $50,000 for a startup over the course of a week are the less glamorous realities of fees and expenses.
Crowdfunding is not free. Actually, it can be quite expensive. One of the classic newbie crowdfunding mistakes is to not include the actual costs of getting the funding in the goal figure. The team hoping to launch the project does a budget, and may even roll in the crowdfunding site’s basic fee, but they skip over all the other costs. The result is that when they get their funding they discover that a really big chunk of it has to go out the door immediately, and not go into their project. Bang: The first week in they are already underfunded.
Common Crowdfunding Platform Fees
Kickstarter has one of the lowest fee structures of the major crowdfunding sites. They charge 5%, but only if you reach your funding goal. Otherwise, it’s free. IndieGogo let’s you choose your poison: Fixed Funding or Flexible Funding. With Fixed Funding if you don’t make your goal all money is sent back to the funders and there is no charge. With Flexible Funding, you are charged 4% on everything as a base, and if you do make your goal, you’re charged 9%. Other crowdfunding platforms have different fee structures that you’ll need to consider on a case-by-case basis. According to Crowdfunding.org’s May 2012 Crowdfunding Industry Report, some platforms charge as much as 25% of raised funds.
Let’s use the IndieGogo 9% and the Kickstarter 5%. Of course, depending on the project you want to fund, you will almost have to use Kickstarter, IndieGogo, or another platform, but let’s leave that restriction aside for a moment.
Don’t Forget the IRS
Let’s say you need to raise $50,000 all in to make your project happen. This income is taxable so you’ll have to tack on whatever your tax bracket is in funds to come up with what you want to hold on to. We’ll use the 25% tax bracket, which means you’ll need to raise $62,500 to get $50,000 to keep. Add Kickstarter’s 5% to that and the sum becomes $65,625. Add IndieGogo’s 9% and you’d need to raise $68,125.
Use the Crowdforce Crowdfunding Platform for $300
Using Kickstarter’s platform will cost you $3,125. Indiegogo will cost $5,625. Crowdforce will cost $300, and that’s assuming you need to use the license for two full months – say two weeks to get the site completed, a month for the campaign, and then two weeks to wrap up. Not only does Crowdforce cost you 9.6% of what Kickstarter costs, and 5.3% of what Indiegogo costs, but you won’t be constrained by the rules of someone else’s platform, and you will get the primary position on the site, of course.
It is only fair to note that your standalone crowdfunding site won’t get the extra traffic that it would have gotten by being on a destination crowdfunding platform. And there may be some trust issues from possible investors, because your site will not be backed up by the infrastructure of an established crowdfunding organization.
There are plenty of ways to make up for these disadvantages. For the traffic issue, think of all the publicity you can buy with the $2,800 to $5,300 you saved on platform fees. For the trust issue, if you are getting funds from a group that knows you already (this is almost a given… if you want to be successful with crowdfunding, you’re going to need a crowd first), you will have already built up some trust.
Plus $5,000 for Publicity and Attorneys
Speaking of publicity costs: You should add those in too. Tack on a bit for attorney’s fees if you think that might be necessary (it will be, if you are setting up an equity platform). The publicity plus the attorney fees is the final sum of funds you’ll need to raise. For our example, let’s add $2,500 for publicity and $2,500 for lawyers. That makes $70,625 to raise if you use Kickstarter, $73,125 if you use IndieGogo and $67,800 if you use CrowdForce.
Depending on how confident you feel with your crowdfunding prospects, it might be better to have the flexibility and affordability of Crowdforce or the name recognition of Kickstarter or Indiegogo. We realize Crowdforce is not ideal for every project, but there are plenty of crowdfunding campaigns that would do much better if they had their own platform.