There are many different ways that crowdfunding sites can make money. Hundreds of crowdfunding sites from all over the world are already using one or more monetization methods. In this article we’ll discuss some of them and how they apply depending on the type of format used (reward, equity, donation, or debt/lending).
Success Fee
Almost every crowdfunding site, whether donation-based, equity-based, or reward-based, takes some percentage of the total amount crowdfunded. This number usually ranges from between 3% and 10%, but we’ve seen it go as high as 30%. This is usually a mutually beneficial arrangement for both crowdfunder and crowdfundee; you only pay if your campaign is successful. If your campaign fails then no money changes hands and, usually, the pledges or investments are returned to your backers. Of course this is a double-edged sword: if you end up raising hundreds of thousands of dollars, then the fees will also run high. This is something that should be factored into your campaign and budget plans.
Membership fee
Although rare, we’ve seen a few crowdfunding sites that offer a “membership” or “subscription.” For example, you pay $X per month and can create as many projects as you want. The fees are fixed and the platform takes nothing from your campaign funds, even if it is wildly successful. We’ve seen this setup on a crowdfunding site for authors and musicians, who tend to release multiple books or songs (as opposed to a one-time crowdfunding raise for a business idea).
Equity interest
Some equity crowdfunding platforms go beyond a success fee and take an actual equity interest in your business or company. This is not just a percentage of the funds raised, but instead a future interest in your company, just like an investor.
Advertising and Promotional Upgrades
In addition to the standard functionality offered to entrepreneurs and investors, some crowdfunding sites provide premium services for an extra fee. This may include access to consulting services, due diligence materials, video creation software, or featured placement on the site. This “freemium” model is becoming very common in the tech industry, and it looks like it is becoming popular with crowdfunding too. There is a big market for crowdfunding support services beginning to emerge, which gives crowdfunding sites extra ways to partner and make money.
Keep an eye out for our future posts – we’ll be writing about more new and innovative methods that crowdfunding sites are using to generate revenue.
