- Material rewards and/or services in exchange for money pledged
- Rewards tailored to the project and pledge amounts
- Considered the easiest form of Crowdfunding for SME/Entrepreneurs
- Financial reward is never offered to backers
- Traditionally strong focus on cultural-creative sectors
- Usually operates on an ‘all-or-nothing’ basis
The reward based Crowdfunding model is nowadays the most popular and widespread form of Crowdfunding, indeed. It is considered as an easiest form of Crowdfunding to take part in. Also for small business and entrepreneurs it seems to be the most applicable model to get a project off the ground. Reward based Crowdfunding is based on various rewards, perks or incentives offered to the investor/backer in return for their financial contribution…
Reward Crowdfunding is a model where large numbers of backers give a relatively small amount of money to support a project in return for material or service reward. Within this model there is no financial reward to backers.
The reward based Crowdfunding model is the most popular and widespread form of Crowdfunding. Indeed, it is considered the easiest form of Crowdfunding to take part in. Also for small businesses and entrepreneurs, it seems to be the most applicable model to get a new product or project off the ground.
This concept has been exploited massively in last years. Today there is a great number of platforms focused on reward based Crowdfunding worldwide, with the world’s most recognisable platform, ‘Kickstarter, a leading proponent.
Campaigns based on rewards were originally organised to fund activities in a cultural-creative environment like music and movie production, art, etc. However, the latest trend shows that there is an increased number of reward based campaigns whose aims are mainly commercial.
Backers usually support the campaign with a relatively small amount of capital starting as low as €5. Campaigns offer contributors special rewards, perks or incentives in return for their support, with the desirability of the reward increased depending on the monetary value of the contribution. The variety of rewards depends on the idea creator, Crowdfunding platform rules, as well as particular geographical territories regulations.
Typical rewards include T-shirts, postcards, book, CD, DVD, stickers, autographs, ticket to movie premiere, invitation to a launch party, final product with the autograph of the inventor, etc. Many project rewards are essentially pre-sales of the product that the funding is being used to develop. In this way, it can be an effective way to raise finance for a specific project, or new product launch.
In practice, reward based Crowdfunding has a number of phases. First of all the campaign parameters are set… campaign goals defined, funding goal set, campaign duration, and reward schedule.
In the next step, the campaign is launched on a suitable Crowdfunding platform. Platform fees should be incorporated into the total funding goal. It is recommended to consult the platform rules and conditions carefully before launching the campaign as these vary from platform to platform.
Campaigns are usually accompanied by promotional videos, presentations, images to raise backers’ interest and social media campaigns designed to stimulate the crowd to contribute. (Promotional campaign usually predates the launch date to ensure the campaign gets the best possible start.)
Once the campaign reaches its funding goals, backers expect to receive rewards in return within a reasonable timeframe. Failure to deliver could result in reputational damage for the company/creator.
There are two main forms of managing the finances after the end of the campaign – “all or nothing” and “take it all”.
All or nothing: within this form the idea creator receives the collected amount only when the funding goal of the campaign is achieved (or exceeded) within the campaign time schedule.
Take it all: in this case the idea creator receives everything even if the campaign funding target is not met. This method raises one very important question…. ‘What happens with the money if the amount collected won’t be enough to realise the idea?