In December of 2022, Kickstarter passed a huge milestone: $7,000,000,000 raised on their platform. If you add Indiegogo, that number is over $10 billion.
That’s a lot of revenue for new product launches.
It’s been 10 years since we launched our first crowdfunding campaign for a product called the EcoQube. We raised $79,026. 10 years is a long time to dedicate yourself to anything. So why am I still here?
Because crowdfunding is still so powerful.
For product creators with unique products, I haven’t found a better way to launch. Nothing decreases risk more than leveraging crowdfunding. And as entrepreneurs, everything we do is risky… so risk mitigation is key.
There are 5 core reasons why crowdfunding is so effective. These reasons are why I’m still dedicated to helping product creators use crowdfunding to bring their ideas to life. And why I think you should use it too.
Reason #1: Generate revenue without inventory
Traditional product launches are incredibly risky. Product creators invest a great deal of time and money to develop their product. They go through a manufacturing run so they have inventory.
Then, they spend a massive amount of money on their marketing strategy. When they go to launch, they pray that the sales come in. If not, they’ll be sitting on thousands of units (and dollars) of inventory.
Crowdfunding gives product creators a different, less risky path. All the product creator needs is a prototype. Seriously, that’s it.
With that prototype, an entire crowdfunding campaign can be built. Since backers are pre-ordering your product, you’ll receive all the money before you go to manufacture.
Ideally, you’ll be able to place a larger volume order with your manufacturer because of the success you’ve had through crowdfunding. Larger volume orders usually decrease the cost per unit and increase your margin. This is a beautiful model because companies can leverage economies of scale by capitalizing on pre-sale orders and reducing their financial risk.
Reason #2: Validate demand for your new product
In the traditional product launch model, product creators sink huge amounts of money into product design and manufacturing before they’ve sold anything. Once they have inventory, they start to invest heavily into marketing.
With crowdfunding, the model is flipped.
You’ll spend more money on marketing before you’ve created the product. Doing so will allow you to validate demand for your product and answer other key business questions before you get inventory:
- Can I acquire a customer profitably?
- What product positioning is most effective?
- Which audiences respond best to my product?
Answering these questions will allow you to go into the manufacturing phase confidently. More importantly, since you invested time and money into marketing during your pre-sale, you can hit the ground running when you transition to ecommerce.
Reason #3: Tap into a community of early adopters
Both Kickstarter and Indiegogo combined receive tens of millions of unique visitors per month on average. That’s an extremely large group of potential customers to tap into.
But it’s more than just a large group, this is a vibrant community that is constantly looking for new ideas to back and get behind. That translates to a group of people that are ready to spend money on your product.
At LaunchBoom, we like to say that backers on Kickstarter and Indiegogo “just want cool stuff, at a discount, before anyone else.”
Let’s take this description and apply it to the famous Product Adoption Curve. This curve represents the different groups of people that adopt new technology, with the middle group being the mass market.
Crowdfunding backers are Innovators & Early Adopters. These are the people that are willing to take more risk with the products they buy. That’s because they are largely motivated to be the first to know about something. We all have those friends that knew about that new popular thing “before it was popular” – well, that friend is like crowdfunding backers.
Each platform allows their community to browse live campaigns. They rank the projects on a number of factors, but it’s largely driven by project popularity. Meaning, if you are able to drive a lot of sales early on, you are much more likely to have higher placement in the rankings and ultimately, more traffic to your campaign.
Tapping into this community allows your marketing dollars to go much further because you don’t have to pay anything additional for this traffic (besides the 5% platform fee on funds raised). Across all our campaigns, we find that at least 20% of funds raised come from organic traffic from the crowdfunding platform. That’s a huge lift that definitely makes up for the 5% fee you’ll be paying the crowdfunding platform.
Reason #4: Improve your product with feedback
According to the Council of American Survey Research Association:
US businesses alone spend 6.7 billion dollars each year on market research and 18.9 billion worldwide.
Crowdfunding campaigns are a low risk way to get feedback from your customers before you make your product.
We’ve seen backers give feedback that lead to product breakthroughs. We’ve seen the price of a product change based on market feedback. We’ve seen creators save thousands of dollars on additional product variants (like colors or sizes) simply by asking their community which variant they wanted.
All of the information you gather during your campaign will lay the foundation for the future success of your product and for your company.
At the end of the day, the beauty of crowdfunding is your community of backers. They know your product is improving and are willing to invest their ideas, money, and social reach to ensure its success. These early customers can be your most loyal fans while also giving you great feedback to make your product and business better.
Reason #5: Position yourself for bigger deals.
Once you deliver a successful crowdfunding campaign, you have proven that there is demand for your product. I’ve seen this significantly benefit entrepreneurs and help them close bigger deals for their business.
They’ve connected with distributors & retailers, received licensing opportunities, or raised capital through debt or equity. We’ve even seen many product creators go onto Shark Tank and get massive exposure!
You can leverage your success for future press as well. Crowdfunding is social by nature. Your success will be disseminated across social media by your newfound community and will always live on the crowdfunding platform. We’ve helped our clients use this credibility to continue building their brand post-campaign.
You understand the why, it’s time to understand the how
At this point you now understand why crowdfunding is such a powerful strategy for launching your product. It offers a new, better approach for product creators that requires less risk than traditional product launches.
Now it’s time to talk about the how.
I’m hosting a live webinar where I’ll break down the nitty-gritty details of the LaunchBoom System that we call Test, Launch, Scale.
See you there!