Crowdfunding Campaigns Come With a Growing Price Tag
Get the working capital your business needs from Entrepreneur Lending, powered by CAN Capital. Learn More »
Crowdfunding portals are an ideal channel for testing ideas and products. Thousands of campaigns have been completed, resulting in the launching of numerous ventures. As crowdfunding matures as a path to capital, however, the elements that go into a successful campaign are coming with a growing price tag.
Four years ago when crowdfunding started to emerge, only a handful of portals hosted just a few hundred projects each. With the limited number of projects, attracting attention from contributors was easier. Now entrepreneurs are competing at any given moment with thousands of live projects (Kickstarter currently has more than 6,000 active campaigns), many with slick, professionally produced videos and hearty marketing budgets.
Previously an entrepreneur could sketch out an idea on the proverbial napkin and post the concept on a portal to gather feedback and contributors. Now many project creators spend thousands of dollars on their campaigns before heading to the crowd.
Project creators should remember that the campaign expenses might not be just for the fundraising effort but often a whole venture is being launched as a result of the crowdfunding. Based on my research, some of the campaign costs that can be expected these days are as follows:
1. Product prototype.
Many project creators use 3-D printing for prototype creation. Depending on the item and material used (say, plastic or metal), the cost to create one prototype can run from a few hundred dollars to $1,000. For campaigns that don’t need 3-D products, free prototyping tools such as Marvelapp can be tapped.
Marvelapp can take an idea, design or sketch and generate an interactive prototype. This is great for showing backers the workings of a potential app or website. It creates screens, links and images and adds transitions to give viewers the experience of using an actual product.
2. Video production.
The video capabilities of a smartphone can be used, of course, for rudimentary work. But, a two- to three-minute campaign video produced by a professional media company can run $2,500 to $10,000, including script writing and editing.
The pricing depends on the style of the video, whether it involves hiring actors, renting a studio setting or creating animations.
This is probably one of the best places to direct funds as a high-quality, clever video can mean the difference between a campaign going viral or not. And when a crew is booked, use the opportunity to shoot other footage that can be used for overall marketing for the company.
3. Public relations.
The full-service public relations firms with the most experience and success in promoting crowdfunding campaigns charge about $5,000 a month for their services and many require at minimum a three-month engagement.
While one might think that public-relations service costs might vary, according to region, the PR companies that have done the successful campaigns have a set price and don't care where their client is located. The campaigns that everyone has heard about -- that hit the big numbers -- have tended to hire just a handful of firms.
Lower-cost options in the $1,000 to $3,000 range exist, but most of the firms involved offer the same generic promotional packages to each client: email templates, media lists, a press release and its dissemination via standard distribution services.
Recently project owners have started to buy Facebook ads to promote their campaigns. While entrepreneurs can buy these ads directly, some marketing professionals will create and plan this type of advertising for a fee. Some vendors charge a one-time fee of $500 (in addition to the ad budget), while others charge a fee and receive a percentage of the ad spending.
Have a big budget and want to extend your reach with paid celebrity tweets? Depending on the celebrity, this might cost from $650 for someone of Lance Bass’ renown to $13,000 for Khloe Kardashian.
Be wary of anyone marketing a service via Kickstarter’s internal email system that promises for $200 a week for to land a project a spot on Kickstarter’s coveted popular project page. While that might sound exciting to the campaign owner, I find it disheartening to see people game the system. (Such marketers claim to have figured out the algorithm that determines how projects get pushed to Kickstarter's popular page.) It's not fair to crowdfunders who don't rely on such methods.
5. Campaign consulting.
Since the majority of crowdfunding campaigns fail, obtaining customized advice on the strategy and best practices for a campaign can be invaluable. (Disclosure: This is the type of consulting I do.) While I don't advise outsourcing the entire campaign to a third party, a consultant can assist in properly preparing a campaign, including selecting a platform, designing compelling rewards, deciding on the best financial goal to target and outlining a strong marketing strategy.
These services can cost $100 to $1,500, depending on the amount of time booked and the quality of the service. Additionally a success fee might be required.
6. Logo design.
Having a logo is not a campaign requirement but many entrepreneurs want one for their business. So they design one before launching their campaign for a more polished look. A good bet for finding someone to design a logo are crowdsourced design sites such as crowdSPRING and 99designs, whose designers will draft for $250 40 to 50 logo options.
Entrepreneurs with no budget for crowdfunding can still launch a successful campaign but will need to devote a lot more human hours to researching and mastering the numerous elements that go into preparing and running a winning campaign.