How Hidden Fees Cost Creators Money

Thanks to crowdfunding, startups are able to directly connect with their target market and obtain funds from them. However, a number of glaring inefficiencies plague the crowdfunding industry. Most notably, hidden fees. Today we look at how Pledgecamp solves this problem. #TokenTuesday

A simple calculation demonstrates that after the traditional listing fee (5%), credit card fee (3%), rejected cards/chargebacks (5%), backer management software (3%), referral service fee (3% of referred sales), up to 16% of a creator’s campaign funds are lost to expenses not related to project development after the crowdfunding campaign ends.

Pledgecamp aims to leverage Blockchain technology and smart contracts to create a system where the creators ultimately save a lot of money. In this article, we will explore how this is accomplished.

Backer Insurance — More insurance, less fees

Backer Insurance is a built-in system that protect backers from fraudulent creators. The idea is that a portion of the backer’s funds will be locked up through escrow using our smart contracts. If creators reach their milestones, the backer funds will incrementally unlock from escrow. However, if creators don’t reach their milestones, or attempt to walk away with no work completed, the assets are refunded to the backers.

The more insurance a creator offers, the fewer listing fees they will have to pay. This is how the equation works:

• If they allow 50% backer insurance, then they will have to pay 0% listing fee.
• If they allow 0% backer insurance, then they will have to pay the maximum 5% listing fee.
• The numbers fluctuate according to these parameters.

This system will reward creators who have full faith in their vision and project. If they have confidence that they can meet the predetermined targets, then they will be rewarded by not paying any listing fees. With higher backer insurance, the backers will also be more confident about the credibility of the project. In short, it is a win-win scenario.

Lower Transaction Costs

The transaction fees in traditional crowdfunding platforms are usually very high. The reason for that is because the backers aren’t interacting directly with the creators. They are interacting with them through a third-party payment provider like Visa or MasterCard. Credit card fees are typically 2.9% + $0.30 per transaction. Adding the 5% platform fees listed above, crowdfunding creators on today’s platforms lose around 8% upfront to fees!

Cryptocurrencies have been created explicitly for cross-border online transactions with minimal fees. A little more than two weeks ago, someone made a 49,756 BTC transaction, worth $468.5 million. In doing so, they paid transaction fees worth just $374.98! The Next Web reported that TransferWise would have charged $3,600 in transaction fees to send only $1 million from the US to the EU.

The reason why crypto transactions are so much cheaper is because the parties involved transact directly with each other instead of going through an intermediary.

As adoption of PLG increases over time, savings for creators will continue to go up. No foreign exchange is required when using PLG. Plus, there are no failed credit card transaction attempts or chargebacks when using cryptocurrencies. Creators who see that a backer has backed the project with PLG can be sure the transaction will go through successfully.

Superior Design

Currently, most creators use a service called BackerKit, which charges an additional 3% of the total funds raised. Pledgecamp includes a robust backer management system for surveying backer information, segmenting groups, tracking the shipping status, refunding, etc. — for free.

Moreover, in traditional crowdfunding, tracking referrals usually involves either creating a custom solution or hiring a service, which usually costs 3% of all referral sales.

Pledgecamp, by default, offers advanced campaign analytics, Facebook pixel integration, referral sale codes, advanced shipping tables with bundles, and more. Pledgecamp also gives creators the ability to open “Storefronts.” This will allow creators to use their Pledgecamp project page and continue to accept pre-sales after the crowdfunding campaign is over.

Conclusion

By incorporating smart design principles, along with the blockchain architecture, Pledgecamp has what it takes to usher in the era of “Crowdfunding 2.0”.

For more details about the Pledgecamp platform, refer to our white paper accessible at https://pledgecamp.com/whitepaper.

This post may contain forward-looking statements about the future functionality of the platform. The platform is currently in development, and we reserve the right to make changes to the design, names, or functionality of features in the interests of making the platform successful. For full risk factors, see white paper.