The Science of Crowdfunding
Crowdfunding has changed the way many startups are quite literally starting up. From IndieGoGo, to Kickstarter, to GoFundMe, wide-ranging appeal stems from the idealized potential of do-it-yourself success. It seems so easy that a caveman could do it. Unfortunately, there is a spoiler. Little more than one-third of campaigns reach their goals. Crowdfunding is difficult… there’s no two ways about it.
ETW Advisors is lucky to have growth expert Ben Klein on its team. Ben has created an Indiegogo-based Crowdfunding Formula that deconstructs what it takes to craft a successful campaign. And man, does it work…
In the following interview, Ben reveals portions of his special formula…
What kind of prep work goes into the planning of a serious crowdfunding effort on Indiegogo?
Well everything that we do is based on ETW’s proprietary Crowdfunding Formula. We start with theorizing the target audience, determining the initial channels to reach them, identifying the most relevant KPIs and loading them into our crowdfunding statistical model. Knowing the metrics that matter is foundational to our work. A lot of people launch without a financial plan hoping that pretty videos and hastily considered media buys will win the day. We believe mapping out and predicting where you’re going before you get there is crucial.
Which KPI’s have you identified as most important?
Most of the KPIs within the formula focus on backers. Some of the simplest questions we ask are: how many interested leads can we get to opt-in pre-launch? What is the cost of those leads? How many of those pre-launch leads convert to actual backers? The idea is to identify a positive customer acquisition arbitrage before even launching the campaign. In other words — does expected value per backer exceed the cost of backer acquisition?
Why Indiegogo? With so many crowdfunding options, what makes this platform beneficial?
Indiegogo allows fundraisers to continue collecting money after the end date of the campaign so there is no cap to the campaign. Some people will launch initially with Kickstarter and then shift to Indiegogo. We prefer starting and staying on one platform in order to maximize SEO impact.
What’s different about crowdfunding marketing as opposed to traditional marketing?
There is normal chess where the participant slowly, methodically makes moves. Then there is speed chess. Speed is everything. We’re doing so many of the same things as a traditional digital marketing organization except at 10x the speed. We’re setting up our sales and marketing funnels, iteratively split testing to find the winning combinations of on-page and ad-optimization, and, obsessing over metrics.
Does the Crowdfunding Formula touch on rewards and incentives for potential backers?
Of course. Rewards are a big part of the process. When a backer opts in on a campaign landing page, he/she is directed to a “thank you” page, which is then followed by the rewards page. This page asks the backer to select the reward that is of most interest to him/her. We do this for two reasons. First, it lets the user psychologically commit to a reward of interest. Remember, this is just the pre-launch phase, so we aren’t actually sending out rewards yet. Second, and perhaps more importantly, we collect data on which rewards garner the most interest. This allows us to split-test rewards before launching!
What is an example of an effective reward offering that you’ve seen?
Some of the best rewards I’ve seen provide potential backers the chance to influence the product itself. I think this works really well for app ideas. Take a Las Vegas-themed mobile game for example. Say for a $400 backing, the campaign offers the reward of having your face featured on a slot machine. Or maybe the backer gets to have a character within the game named after him/her. There are tons of ways to get creative and keep your backers involved.
Is crowdfunding for everyone, or is it a strategy that makes more sense for certain startups?
There really are an array of startups exploiting crowdfunding — from art projects to quirky inventions to software. I personally lean towards software as most fitting. There is simply less execution risk — no supply chain or physical parts to worry about. People are always looking for that new app that will make their lives better. I think anything with a viral nature has potential on crowdfunding sites. It is also interesting to note that some entrepreneurs use crowdfunding as a testing tool as a means of measuring demand. Before sinking a ton of money into a product, entrepreneurs can use sites like Indiegogo to test the waters first.
Is it difficult working with startups in different parts of the country?
No, not at all. Everything we do is virtual. High-speed access is cheap and ubiquitous, and companies are increasingly becoming accustomed to remote teams.
Finally, what advice would you offer aspiring crowdfunding campaigners? (Other than to use ETW’s Crowdfunding Formula, of course.)
No matter how passionate you may be about your product, you must put your ego and emotions aside and just go coldly by the data. You always want to see a few moves ahead of where you’re going, and data collection provides a window to the future. If you listen, the data can educate you as to what people want. Then it’s up to you to make it as easy as possible for them to buy it from you.
Written by Benjamin Miller, Social Media & Content at ETW Advisors
