This is a really good question and one that has become more frequent in emails I’ve gotten and on our forum.
The short answer is fees. The long answer is it’s complicated.
The good news is that if you’re a creator or entrepreneur and go with my approved list of crowdfunding platforms, then you have nothing to worry about.
Yes, you’re going to be paying a fee. Typically 5% for “all or nothing” campaigns and typically another 4-5% fee if you’ve done a “keep what you raise” campaign and fail to hit your goal, but the campaign functionality that you’re getting for that price makes sense.
The bad news is that if you’re trying to create a new successful crowdfunding platform using WordPress or one of these tools, then you may need additional ways to provide and monetize the value you’re creating.
Platform Fees
Platform fees are the main way that crowdfunding sites make money. There are two types of types of fundraisers:
- All or nothing campaigns: You must hit the goal you set in order to keep the funds that you’ve raised. Typically the platform takes a 5% of funds raised if you are successful.
- Keep what you raise campaigns: You can keep the amount of funds that you’ve raised, even if you haven’t hit your goal by the end of your fundraising duration. Platforms usually will tack on a fee if you did not hit your goal so that their total fee is 8-10%.
You will also pay a payment processing fee with most crowdfunding platforms, which averages about 3%, though it varies from platform to platform.
Low goal and high volume vs. High goal and low volume
Most crowdfunding platforms rely on the high frequency of low goal campaigns for a sustainable business model.
Just think about it. Is it easier to attract 10 campaigns each month that go on to raise $10,000 each or 1 massive campaign each month that raises $100,000? Both avenues would produce $5,000 worth of revenue.
At the time of writing, 71% of all of Kickstarter’s successful campaigns are comprised of projects that raised between $0 and $10,000.
However, the high goal and low volume projects do contribute a significant amount of revenue.
Let’s do some round number calculations from Kickstarter’s stats.
All successful projects: 90,229
Less than 1,000 raised: 10,650
Between $1,000 – $9,999 : 53,519
Between $10,000 – $19,999: 12,644
Between $20,000 – $99,999: 11,135
Between $100,000 – $999,999: 2,166
$1 million raised: 115
I’m going to average the dollar ranges for a quick and dirty calculation in terms of how much revenue each tier brought in. Keep in mind that these results are likely skewed.
$266,250 = ($5,325,000) * .05
$13,379,750 = ($267,595,000) * .05
$9,483,000 = ($189,660,000) * .05
$33,405,000 = ($668,100,000) * .05
$59,565,000 = ($1,191,300,000) * .05
$5,750,000 = ($115,000,000) * .05
Conclusion: The projects that take in between $100,000 and $999,999 are responsible for almost half of Kickstarter’s revenue, with the $20,000 – $99,999 tier comprising the next largest section.
The smaller projects are most frequent and therefore the most reliable income stream. Interestingly, the larger projects likely attract more smaller projects to the platform and build the brand name.
P.S. My math is probable off at some point. Did this very quickly just to give you a brief snapshot.
Free fee platforms
An example of a fee free platform would be Indiegogo Life. A lot of people have been asking me why Indiegogo would offer free fundraising. Here’s why I think they are:
- To collect email addresses. A great functioning platform is a good way to develop relationships with individuals interested in fundraisers, who might try using their paid platform later on or support other people’s projects.
- To gather more data. The more data they have, the better they can improve their marketplace and marketing efforts. They can also learn how to more effectively convert people to their paid platform.
- Increase brand awareness. The more people who know about Indiegogo and associate the term with crowdfunding, the better for backers and creators. Also, as their campaigns are spread around the web, they will receive more repeat traffic and new projects.
Platforms can indirectly monetize with some kind of a free service or platform.
Do platforms offer consulting?
Aside from answering basic questions for free, not in my experience.
There are some smaller/niche platforms that offer support services or will connect you with individuals that can help with various aspects of creating a crowdfunding campaign.
The main reason that I think platforms don’t offer paid consulting is that it’s simply not a scalable business model.
Paid advertising?
At first, it surprised me that platforms like Kickstarter and Indiegogo don’t offer any paid advertisement space the way that Kicktraq does, along with this blog.
On further examination, I think that ads would be in conflict with the values of a crowdfunding platform. A crowdfunding platform should exist to bring the best projects to light, not the creators who have the most marketing dollars.
Ecommerce and other forms of fundraising.
In the long run, I think we’re going to see Indiegogo expand into other forms of fundraising (equity crowdfunding), though Kickstarter seems like it’s going to stay in the rewards-based crowdfunding space.
We’re also seeing some connections between ecommerce and crowdfunding. Kickstarter now allows you to customize a call-to-action button after you’ve finished your project to direct backers to a pre-order website and Indiegogo has their InDemand program, which allows you to accept pre-orders.
Now that you have a brief overview of how crowdfunding platforms make money, check out this article to discover how creators make money.
