Crowdfunding – funding models and how to choose the right one for you

In my previous piece, we looked at the different types of crowdfunding, and the particular needs of organisations in the cultural and creative sectors. So once you’ve pinned down the type of crowdfunding you need (probablyrewards-based), what’s next?

What funding models are there?

There are two main funding models available to you - all-or-nothing, and flexible funding. Lots of people start out thinking flexible funding would be the least risky, but all-or-nothing funding is not as scary as you think, and it can really accelerate your campaign.

One practical point before we go any further: we’ll talk about whether different funding models means you receive ‘everything’ you raise, but in reality, in most cases you won’t receive literally everything. Some funds will be deducted before payout to cover platform and transaction fees, so bear that in mind when budgeting.

Flexible funding

Flexible funding, also known as ‘keep what you make’, is a pretty simple proposition - whatever people pledge to your campaign, you keep, no matter what target you set. If you set a £10k target but only make £5k, you walk away with £5k. If you set a £5k target but make £10k, you walk away with £10k.

This sounds pretty good to most people, especially in the early stages of seeking funding. Because maybe you don’t hit the full amount, but after putting in all that time and effort to plan, run, and launch a crowdfunding campaign, at least you’re walking away with something, which is better than nothing, right?

Here’s the thing, though: it’s left you with half a budget. So now you still don’t have enough money to make your project happen - but on top of that, you’ve now also made a lot of promises to your backers which you also don’t have enough money to fulfil. Perhaps you’re planning to refurbish the cafe and one of the rewards was to hold a party in the new space; perhaps you’re introducing new educational materials and promising access to downloadable versions for home usage; perhaps you’re funding new works and offering backers a VIP backstage tour. Those may need your wider project to be completed before you can even reliably deliver the rewards.

And even if you have rewards that don’t rest on the completion of your major project, they may still need money to make them happen - and do you want to prioritise those rewards, or your wider project?

This may not be a big problem if you have significant sources of backup funding to fill the gap - but if you have enough backup funding to cover what you were crowdfunding for in the first place, then think very carefully about how to tell that story publicly. Why were you running a crowdfunding campaign if you already had the money, your backers may want to know?

All-or-nothing

All-or-nothing funding means that if you hit your target, you get the funds - but if you don’t hit your target, you get nothing. So if you set a £10k target and only make £5k, that money is either refunded to your backers or they’re never charged.

Why would you pick out a funding model that means you might get less money, though?

For starters, it gives backers some reassurance that it’s a worthwhile project that will go the distance - they know you’ll be working hard behind the scenes to drum up enough support to make this happen, and they know their money isn’t just going to fund a pet project. They can see clearly that the project will only happen if enough other people also agree it’s a great idea.

It’s also a powerful way to bring a sense of community and urgency to your project. With a deadline and a target, and real funds at stake, there’s a clear sense of everyone needing to pull together to make it happen.

Your backers may well be more willing to not just support the campaign themselves (to get you closer to your target and make sure you don’t miss out on funds) but also to share it with their friends and wider networks.

Think about the difference between:

“We want to raise another £1000 by next Thursday to hit our target” and

“We need to raise another £1000 by next Thursday otherwise we lose everything we’ve raised so far”.

All-or-nothing funding is also more transparent. If you genuinely can’t make your project happen without a particular amount of money, then there’s no point in pretending you’ll do something with half that amount.

Be honest with your backers - put your topline budget online for them to look at, let them see how much it costs to make projects like this happen, and why you couldn’t do it with less.

And if none of that has quite convinced you, how about the research showing that all-or-nothing funding consistently raises higher amounts than flexible funding?

How do you choose?

There are a handful of projects for which flexible funding would be the best choice - perhaps you have a backup source of funding, perhaps you have a project that scales perfectly (get one pledge, do one thing; get ten pledges, do ten things), or perhaps you’re raising funds for a cause where every contribution helps, no matter how much you eventually raise.

However, if you have any fixed costs you’d need to meet to make your project happen, I recommend going with all-or-nothing funding. It’s a clear statement to your backers about how the project will actually be funded, it’s a powerful way to unite your supporters behind a single cause, and it’s likely to raise you more money in the long run.

Jo Breeze, Crowdfunding for the arts 

hello@jobreeze.co.uk

Main image: www.gotcredit.com