Crowdfunding is one of the possible ways to get money to develop your project. It doesn’t matter whether you need 5,000 USD for a small exhibition or 100,000 USD for software development. The only thing that matters is your preparedness. With a sophisticated plan, communication strategy, reward system and an active community, you can push your project to infinity and beyond. Jana Hanfová from the Czech rewards-based crowdfunding platform Hithit, however, points out that the real workload doesn’t end once you successfully finish your crowdfunding campaign, it is actually only beginning.
Crowdfunding has come to the media’s attention in recent years thanks to crowdfunding platforms such as Kickstarter and Indiegogo. Artists, entrepreneurs and activists have begun publishing their projects and asking the general public to contribute to their dream. They promise reward for money. Thanks to community support, many original products, services and events have seen the light of day. That’s how rewards-based crowdfunding was born.
However, crowdfunding has deeper historical roots and, moreover, there are several types. In addition to rewards-based crowdfunding, there is donation-based crowdfunding (donations are not expected to be rewarded), equity crowdfunding (for the money provided, the creator of the project gets a share of the company) and debt crowdfunding (the collected money must be returned). Since rewards-based crowdfunding is the most common, we have decided to focus on it.
To Go or Not to Go Into Crowdfunding
For what type of projects is rewards-based crowdfunding suitable?
In this type of crowdfunding, it doesn’t matter whether people want to open a restaurant, start producing shoes or organize a one-time event. It is important that they want to share their idea with the public, can describe it simply and offer donors appropriate rewards.
At what stage is it best to launch the campaign?
Generally, I think the best time is when people already have a prototype. We want the project creators to show us their product. It is also a certainty that they have put effort to its creation and it’s not just a momentary fancy.
When, on the contrary, does crowdfunding not pay off?
If you don’t have people nor enough time, I wouldn’t go into crowdfunding. Or, even when you want to get a patent, and you’re afraid someone could steal your idea. The point is to share your idea with as many people as possible. The crowdfunding reward works well for projects that produce products and services but worse for charity and also for applications that are free because backers receive no reward.
How long does a campaign process and its preparation take?
The project itself runs on Hithit for 45 days at the most, but is preceded by long preparation – creating an idea, a prototype, photos and videos, and rewards. If the target amount is collected, creators of the project need to wait two weeks for the money to be processed. When the campaign is over, that’s when the real work starts – distribution of rewards, communication with contributors, and product development. It’s definitely a matter of months.
“You have to work pretty hard during the campaign, but the main job starts only afterwards. Everything only starts with a crowdfunding campaign.”
When is the best time to run the campaign?
It’s a good idea to start the campaign in advance so that there’s enough time to prepare and distribute rewards. It should never end on the same day when the event is to take place. We don’t recommend running the campaign over Christmas holidays because people don’t use computer for two weeks and plus, they are exhausted after Christmas break. On the contrary, it can work great before Christmas.
How many people are needed to create a campaign?
It depends on the campaign. I think it’s good when you’re not alone, if even just because we stop being critical towards ourselves when we do something every day. The bigger and more ambitious the project is, the bigger and more ambitious the team should be. It’s different if you ask 200 people to contribute 2,000 USD, or if you need to collect hundreds of thousands.
When I decide I want to go into it, how should I proceed?
I see three areas that one has to deal with. First, you have to fill in all the information on the crowdfunding platform – upload texts, pictures, videos and describe rewards. Second, you need to think about the communication plan and how to show the project off to people. Third, you must calculate the target amount well, basing it on a very detailed budget.
How Much Money One Can Get from a Campaign
Do you have any advice for people who are calculating the target amount for the first time?
You should never say less than what is needed for the project so you don’t get into a situation in which you have no money left. When the target amount isn’t reached, the money is returned to donors and the only thing a person loses is their time. But they also receive valuable feedback on the product. Failure can therefore be better than success and being unable to deliver rewards to people on time because you misinterpreted the amount.
How should people calculate the amount?
There are various ways. For a rough idea, you can estimate that you will ask XY people on your social networks to contribute, consider that only 2% (Hithit acquisition) out of this XY will buy your product and then multiply the number with an average Hithit contribution of 40 USD and you will get a rough estimate of the target amount. Or, if you know that the target amount you need is much more ambitious than the channels you have available, you can adjust the communication plan. Alternatively, you can also work with milestones. Matemagus, a mathematical learning application, works with milestones in such a way that the more money they collect, the more arithmetical problems they program.
On the Hithit website, you write that one should always add 20% extra to the target amount. Why?
Because there will be a lot of unplanned spending during the campaign that needs to be counted in the project itself and if this isn’t considered, there might be no money left. People often forget that they invest their own time in the campaign, pay for advertising, or pay for postal fees when distributing rewards.
How much from the selected amount will remain to the project creator?
I wouldn’t dare guess. In addition to the 9% Hithit commission, people are taxed for the amount, but the taxes are done by the people themselves; we don’t get into it. VAT payers have different conditions than non-VAT payers. Moreover, I don’t know the internal costs of each project. I would say that what is more important than how much money is left is how many pieces have been pre-sold or how many customers have been addressed. Getting money is one thing, but getting feedback is even more important.
“The ideal crowdfunding experience is like the iconic pairing of shampoo and conditioner. If you are well prepared, you won’t only get the money needed to develop the product, but also valuable feedback from your fans. Just how these hair products always come in combination, crowdfunding is, together, marketing, pre-sales, and market research.”
How many projects ultimately collect the target amount?
We have an almost 50% success rate, which is due to the quality of our pre-selection. There are many projects applying for Hithit, but only a quarter of projects are shown on the site. We only choose those that meet the formal criteria and are in compliance with our moral convictions.
Are you able to say which projects are the most successful on Hithit?
It doesn’t matter whether it’s a theater performance, a new technology or a social project. Success comes to those who are prepared. The best projects are those that have an audience, communicate with fans and care about them. People like to participate in something that they see as important and that they would like to see in the world. And with their relatively small sum, they can contribute to it.
Continue reading this interview on the UP21 blog.