Why most people should NOT hire a crowdfunding agency

Alright, let’s talk about the elephant in the room first.

Yes, the CEO of a crowdfunding agency is writing an article about why most people should not hire his company for their crowdfunding campaign. It seems like Marketing 101 that telling your potential clients to not hire you is a bad idea.

Well, this isn’t just some click-bait headline. It’s the truth.

We got into this business to help entrepreneurs bring their ideas to life. An entrepreneur has many paths they can take when doing this. That’s why we are honest about which path we think would be best for each entrepreneur we speak with—even if that path is a recommendation to not work with LaunchBoom (or to hire any other crowdfunding agency).

Before I go on, the point of this article is not to discourage you from crowdfunding. I believe crowdfunding is the best path for most entrepreneurs launching a consumer product. This is an article that explains why deciding to hire a crowdfunding agency like LaunchBoom is not the best path for most entrepreneurs. You have better options. The best option for you will depend on your budget, your expertise, and/or your available time.

Before we go into these options, let’s dive into the numbers behind crowdfunding campaigns. Understanding these numbers allows us to reason up from first principles and find the best path for you and your crowdfunding campaign.

Understanding the stats behind crowdfunding

Indiegogo and Kickstarter are the top crowdfunding platforms and the only two we launch on. Kickstarter has an awesome public stats page that breaks down important statistics about their platform. Understanding these stats will allow you to better understand your risks and likelihood of raising a certain amount of funding. Even though we are only looking at stats from Kickstarter, the data is also insightful if you are launching an Indiegogo campaign because the two platforms are essentially the same.

Let’s start high-level by looking at some aggregate stats about Kickstarter (taken 5/24/21):

• Total dollars raised (USD): $5,841,190,707.00
• Total projects launched: 524,713
• Projects successfully funded: 202,206
• Funding Rate: 38.5%
• Average funds raised: $11,132.16

First, I’m going to single out the rate of successful Kickstarters. Most entrepreneurs I speak with are surprised that only 38.5% of Kickstarter campaigns successfully hit their funding goal. Said differently, the majority of crowdfunding campaigns fail. Not many industries allow you to quantify the odds of success so easily. As I’ve talked about before, life is a game of calculated risk – because of this, it’s important to understand the risk before you start.

Only 0.11% of crowdfunding projects raise $1mm

Now let’s dive into more granular numbers. We’re going to look at the distribution of total funding on successful crowdfunding projects. The table below breaks it down by different groupings of total funds raised and calculates what percentage of total successful projects falls into each grouping.

The chart below visualizes this distribution of funding on Kickstarter vs. total projects launched on Kickstarter. You can see that only 8,424 projects launched since 2009 have raised over $100k. That’s only 1.61% of all projects. When you look at the amount of projects that have raised over $1 million, that number drops to only 557 projects (0.11%).

The takeaway: raising over $100K through crowdfunding is statistically very, very difficult. This means that for most people, it doesn’t make sense to hire a crowdfunding agency.

The massive disparity between entrepreneur expectations & crowdfunding reality

At LaunchBoom, we get hundreds of applications to work with us every single month. In our application, we ask some detailed questions to get a better idea of what an applicant’s goals are as a business. Here’s how our stats break down at LaunchBoom.

One of the questions we ask on our application is “How much are you looking to raise on crowdfunding?” This question gives our team an idea of the entrepreneur’s expectations and goals. Knowing this, we can educate them on whether or not we think that is likely.

The chart below looks at the past year of applications and the distribution of answers to the question above.

Next, I’ll group the above data into three categories:

1. Under $99,999
2. $100K – $999,999
3. Over $1M

By doing this, I can then compare the funding distribution of successful projects on Kickstarter vs. the desired funding distribution of LaunchBoom applications.

As you can see from the chart above, there is a massive disparity between what applicants want to raise and what is statistically likely. For example, the percentage of LaunchBoom applicants who want to raise over $1mn is 146 times the percentage of campaigns that actually raise that much on Kickstarter. Of course, there will be applicants whose desired funding goal will be realized when they launch, but statistically, the majority will not. There’s a reason for this.

To understand why, let’s take a look at what it takes to reach a seven-figure crowdfunding campaign.

What it takes to have a seven-figure crowdfunding campaign

At this point, you understand that it’s statistically difficult to have a seven-figure crowdfunding campaign. There are many factors that make this so, but one factor stands out amongst the rest: you need a huge advertising budget.

Yes, hitting the coveted seven-figure mark requires you to spend a lot of money. It’s why hitting seven figures remains elusive to 99.89% of campaigns that launch. When we consider that the majority of crowdfunders are launching a new business, this makes sense. Typically new businesses are not well capitalized, which is why they are crowdfunding in the first place.

XION CyberX

To give you an idea of just how much money it could cost you to raise over $1M, take a look at a recent million-dollar campaign we launched: XION CyberX. We raised $1,195,136 on this campaign. Let’s take a look at how much we spent to raise this amount.

Pre-Launch Spending Budget

The most important phase of a crowdfunding campaign is the pre-launch. It’s during this phase that we build a pre-launch email list through Facebook/Instagram advertising. Using our Reservation Funnel, we are able to generate an extremely qualified list of potential backers who want to buy the product we are launching.

For XION CyberX, we spent $102,084.27 during the pre-campaign. With this ad budget, we generated an email list of 33,908 people. We used this email list to get funded extremely quickly on day 1 (this is what we call “having a LaunchBoom”).

Using this email list, we generated $743,180 in sales on the first day alone, setting the campaign up for massive continued success.

Next, we built upon this day one success by continuing to drive traffic to the campaign from Facebook. During the course of the campaign, we spent an additional $51,685.50 on ads which generated an additional $451,956 and brought the campaign total to $1,195,136.

In summary, it cost XION CyberX $153,769.77 in ad spend alone to launch a seven-figure crowdfunding campaign. Keep in mind that there were additional costs (such as paying LaunchBoom and Indiegogo) that aren’t included in that number. But even if we just look at the ad spend that was required, most entrepreneurs don’t have access to the type of capital required to launch a campaign of this size.

Don’t let this example discourage you. There are other options that also lead to a successful crowdfunding campaign. But before we go into those options, let’s discuss why raising a lot of money may not be as important as you think.

You don’t have to raise a lot of money to be successful

If you remember from above, 59.55% of all LaunchBoom applicants want to raise over $100K. But many never stop to ask the question, “Why is raising this much money necessary?” For the majority of crowdfunders, it’s not only unnecessary, but not advisable.

In 2019, I wrote an article about why raising $1mm through crowdfunding isn’t as important as I once thought. My belief hasn’t shifted. In fact, it’s only grown stronger after our experience with one client last year. You can see in this article how we took a $50,000 crowdfunding campaign and turned it into a $5,000,0000 eCommerce business in 8 months.

I recommend reading both of these articles before you launch your crowdfunding campaign. They will allow you to think through how much money you really need to raise to launch a successful brand. They can also help you decide whether or not it’s worth it to hire a crowdfunding agency.

With that out of the way, let’s dive into the other options available to you to successfully crowdfund.

Other options to launch a successful crowdfunding campaign

The majority of crowdfunding campaigns should not hire an agency to run their campaign. Instead, they should evaluate other options that are much more affordable yet still effective.

Option 1: Free educational resources

Since LaunchBoom began in 2015, we’ve wanted to approach crowdfunding differently than other agencies. Instead of building our company like a black box, we sought to share our strategies and educate the world. That’s led to hundreds of free pieces of content being created on every topic related to crowdfunding.

The first place you’ll want to check out is our blog. We have nearly one hundred articles covering a wide range of topics on a deep level. New articles are released twice a week, so be sure to subscribe to our newsletter at the bottom of this article for updates.

If video is more your style, check out our webinars. At the beginning of 2020, we decided to focus a lot of our energy on bringing the industry high-quality live webinars with other experts in the space. Now we have dozens available for you to watch and are adding more every month.

Every year we host the largest virtual summit on crowdfunding. It’s called the Crowdfunded Summit and our next one will be at the beginning of 2022. Make sure you subscribe to our newsletter so you can be notified when early bird registration opens up.

Option 2: CROWDFUNDED book

On April 15, 2020, I published my first book, CROWDFUNDED: The Proven Crowdfunding System For Launching Products, Raising Millions, and Scaling Brands Using Indiegogo and Kickstarter. The goal of this book was to create a “no BS” guide to crowdfunding. In it, I break down LaunchBoom’s system step-by-step so entrepreneurs can apply it to their own campaigns.

Since that time, it’s become the bestselling book in crowdfunding, has a rating of 4.7 out of 5 stars from 116 reviewers, and has empowered many entrepreneurs to launch successful crowdfunding campaigns.

Here are a few campaigns that launched after reading CROWDFUNDED:

Frescopod: Single-Serve Coffee’s New Best Friend

Yianni emailed me after reading my book back in October of 2020. You can see what he wrote to me below:

True to his word, he launched his campaign in early 2021 and crushed it. He raised $213,676 on Kickstarter and now has a successful foundation to build his brand on top of.

Edasi: The Evolution of Denim with 16+ Features

Since Omar and I met years ago, I’ve always been impressed by his vision and drive. He had many product ideas and I knew it was only a matter of time before he launched a successful campaign. He read my book when it came out and then launched Edasi on Kickstarter. You can see him shout out CROWDFUNDED in the “Special thanks” section shown below:

By using the strategies outlined in the book, Omar was able to raise $121,967 on his Kickstarter campaign. Now he has an initial customer base of over one thousand backers he can use to continue building his brand.

Option 3: LaunchBoom Academy

My final recommended option is for the most committed entrepreneurs. The LaunchBoom Academy consists of coaching, community, and courses. It’s for the most serious and committed entrepreneurs who want to accelerate their learnings and get much more support directly from our team. Members of LaunchBoom Academy get access to in-depth video training, weekly coaching calls, our best performing templates, and more.

We have hundreds of active members in our community and they are seeing results. Here are a few of our students’ recent crowdfunding launches:

Seedtime (Raised $341,796 on Kickstarter)

OXI ONE (Raised $280,180 on Indiegogo)

BLUVY (Raised $165,725 on Kickstarter)

One of the most valuable aspects of LaunchBoom Academy is how fresh the content is. We take what we learn from our Agency and share it directly with our Academy members. The speed at which we can share and transfer knowledge allows our LaunchBoom Academy members to be on the cutting edge of our crowdfunding strategies.

Bringing it all together

With this information, I hope you feel more clear about which path is best for you and your crowdfunding campaign. You should now understand the following, which will help you decide whether or not you should hire a crowdfunding agency:

• It’s statistically unlikely to make over $100K on a crowdfunding campaign
• Raising a lot of money will require a lot of ad spend
• There are three recommended options that don’t require you to work with an agency and can still lead to very successful crowdfunding campaigns:
  • Free educational resources
  • CROWDFUNDED Book
  • LaunchBoom Academy

If you’d like to speak with one of my team members about your project, don’t hesitate to apply to work with us!