Crowdfunding For E-commerce: Benefits And Drawbacks

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Crowdfunding is a good kick-off for anything you like whether it is a single product or a webstore idea. You can raise starting funds, reach out to the community and get support of potential customers long before actually selling something. It all sounds fantastic; a cherished dream for anyone who is burning with a new business idea. The reality is a bit different though, so first of all let’s take a closer look at Kickstarter’s statistics in February, 2016.

– Only 35.4% of all projects were successfully funded;

– Of all 180.316 unsuccessful pledges 41.214 (15%) didn’t make a single penny;

– 110.797projects or 38.6% raised maximum of 20% of the desired goal.

These numbers show that you shouldn’t expect strangers to generously throw money at you just because you need it. You also should remember that crowdfunding for a specific product is much easier than a campaign for an idea. People tend to be materialistic and use their dollars to support something tangible, something that they can quickly benefit from.

Before starting a crowdfunding campaign for a webstore take some time to step into your contributors’ shoes. Put your business idea into simple and clear terms, share a development strategy with realistic goals and terms; and most important show how your e-commerce site will be different or improved comparing to webstores that already exist. Motivate people to get excited and engaged by not promising but guaranteeing something in return for their help.

When you feel confident that your e-commerce business will reach people’s hearts and minds, wage the risks and speculate on benefits and drawbacks of crowdfunding.

Let’s be positive and start from the advantages you’ll have.

The most valuable benefit that you will get with crowdfunding is not money. It’s market approval. You can spend hours and days talking about your future webstore and how good it will be to all your friends and relatives. With their positive feedback it’s very easy to forget that these people care about you and your personal success. Total strangers don’t concern about your individual growth; they will contribute their hard-earned money only if your offer can make their own lives better. With crowdfunding you will find out if anybody cares about your webstore at all and would you even have customers.

Feedback from your potential clients usually goes hand in hand with market approval. On crowdfunding platforms the prototype of your e-commerce site is delivered straight to an engaged community of people who are the future customers of your webshop. They will ask questions, point out strengths and weaknesses of your business strategy, request features and services and so on. You even might want to modify your offer at some point along the way and it’s absolutely alright before the business goes live. You will also get valuable information on the products you are going to sell. In some cases it is easier to campaign with your best product and then create a store around it using related items and various analogs. Though if you decide to go with a product rather than promoting the whole webstore, you should create a separate plague and star over the crowdfunding process.

Feel the power of word-of-mouth marketing! Normally it takes a lot of time and investment for a new business to get out there and reach people. Crowdfunding however is all about virality. Fans of  your future store are not only potential customers, they are also a devoted marketing team ready to attract positive attention to a new-born brand by sharing info in social networks or just in face to face interactions with their friends. Moreover, since they wish you to succeed, they also motivate more people to upvote you through funding.

Pages on Pinterest, Facebook and Twitter can be really helpful in overcoming the hard cold-starting moment. Burn with the idea, talk about it, and you’ll surely find support. If you’ve never worked with social networks, now is the time to start; there are a lot of guides and suggestions on the Internet, for example a set of tips on using Pinterest.

Most crowdfunding platforms require a certain set of information for all the projects, including business ideas and webstores. The basics usually include mission statement, pitch videos and articles, as well as your own background and stories on how this particular business idea entered your head. Constantly think about your audience while creating that content; remember that you are not just gathering money but creating a brand that will stick to you and your webstore for long.

The actual funds are also a huge benefit of crowdfunding. All the expenses of your webstore, like for example forming the stock and hiring a small team, will be financed from somebody else’s pockets. The best part about the raised funds is that they are exchanged for a non-material reward like positive shopping experience and unique products in case of e-commerce.

As you can see, crowdfunding can offer tons of benefits and can really push your webstore or product to the stars but don’t look at it through rose-tinted glasses.

Drawbacks are true for all projects and ideas.

Success is not guaranteed. The statistics shows that about 60% of all projects just don’t make it. Average raise vary from $1000-10 000. Reaching such results requires a lot of time and effort. Really a LOT. So if getting the money to start the webstore is your only goal for crowdfunding, think twice and you might discover an easier way to achieve the goal by taking a loan for example.

Crowdfunding requires work and effort long before you open a campaign. You should schedule at least 3 month of preparation before revealing your product or store to public. You would need to commit the initial research, find your niche and future audience, prepare some marketing materials and test it all on your friends and family to make sure that the content of your campaign can inspire and encourage people who know nothing about e-commerce.

Besides, not all the money you raise is yours. Though all crowdfunding platforms have different terms and conditions as well as the required fees, 10-15% of what you earn will be shaved off. It doesn’t sound like much but if you aim for a relative small sum in general, fees can matter.

Considering possible profits and risks we at Amasty chose an easier way to start off than crowdfunding; though we really would like to hear about the experience of e-commerce merchants who made a shot. Tell your story in comments!

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Dariya is a devoted marketer whose goal is to make knowledge and modern trends benefit the business. She currently works at Amasty, a provider of top-class Magento extensions and services.