Crowdfunding Best Practices For Nonprofits and Businesses

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Learn the psychology behind crowdfunding and how to harness your audience's attention in order to set your nonprofit and business campaigns up for success.

Have you ever donated a dollar or two to support the cost of someone’s medical bills through a site like GoFundMe? What about a couple of bucks towards the development of “the next big thing” on Kickstarter? If you answered yes to one or both of those, then you have contributed to a crowdfunding campaign.

Crowdfunding is a popular method of raising money that favors smaller, individual contributions over one or two big investors. The goal of crowdfunding campaigns is just as much about exposure (for a cause or a product) as it is about acquiring capital. How large a network you can get your cause to reach is often the best indicator of your success.

At SimpleTexting, we know a good handful of things about what it takes to get your message in front of a crowd, so we’ve broken down some of the most important things about crowdfunding, and developed a list of best practices for any type of organization (not or for-profit) looking to give it a try.

What Makes Crowdfunding Work?

It’s estimated that GoFundMe, one of the most popular crowdfunding sites, receives over $140 million in donations per month. The site has been in operation since 2010. With around nine years of exposure, you would expect engagement with the platform to plateau, but the trend of crowdfunding as a preferred method of investment has in fact led to a more than steady growth. According to last year’s annual report, 61% of people who gave in 2018 were first-time donors.

So, what is it that makes crowdfunding so popular, enough that it’s projected to raise $300 billion USD by 2025?

Like a lot of seemingly mystical concepts, this question is best answered with science.

The Psychology Behind Crowdfunding

Howard Sherman, a crowdfunding expert, has defined the “secret psychology sauce” of crowdfunding to be this: “treat any crowdfunding decision as a business decision and act accordingly.

For nonprofits, this tends to manifest itself in the story you’re telling— the emotional appeal. Unlike crowdfunding for business, where the user is investing in exchange for a reward, nonprofits are offering up emotional currency in exchange for cash.

It’s all about the user experience. Your “ask” must be specific enough that contributing parties feel a sense of accomplishment. For example, if you’re looking to improve educational conditions in sub-Saharan Africa, you wouldn’t want to ask people to donate to help children’s education in Malawi, and follow it up with a bulleted list of problems the region faces. You would be far more successful if you phrase it as “help us raise X amount of dollars to build, staff, and equip a school in Malawi. Then tell a story about one student whom this school would benefit (weaving as many of those relevant bullet points into his/her narrative).

On the opposite end of the spectrum, business crowdfunding is all about appealing to the logic of your investors. How can you make them feel comfortable getting in on the ground level of your idea? Address the risks head on and offer them ample background on why you know your idea will work. Additionally, it’s important to provide valuable return worthy of their investment level.

The rhetorical approach you take in constructing your narrative will also depend on the particular type of crowdfunding you’re participating in.

The Three Types of Crowdfunding

1. Reward: Most commonly found on platforms like Kickstarter, reward crowdfunding offers different levels of reward based on tiers of investment. You’re not fully investing for the sake of stock or company equity, but you’re still getting something in exchange for your contribution.

2. Donation: This method is most common for nonprofits or one-off causes (like funeral costs or donating to help a family replace items lost in a fire). The rationale here is entirely the same as donating to any nonprofit directly, however, the added benefit is the public declaration of support you’re able to make by contributing to a social site.

3. Equity: When thinking equity crowdfunding, think of the show Shark Tank. By contributing to an equity crowdfunding campaign, your contribution makes you a part owner of the company. You’ll be financially compensated based on the success of your investment. The incentive here is obviously the more capital you pour into the product’s success, the more you stand to gain.

Now, let’s take these psychological nuggets of wisdom and put them in to practice with some best practices.

5 Crowdfunding Best Practices For Nonprofits

  1. Break down project spending in detail: As we mentioned previously, people want to know what their dollar is doing when they donate. A good way to help people feel validated that they’re making a difference (and even encourage them to spend more) is to break down the costs of a project. Continuing with our Malawi school example, your pitch should have an overall spending goal, then go on to say that $X of that goal with cover school supplies $Y the materials and labor, $Z the cost of staffing, and so on.
  2. Establish credibility early: A lot of feel-good projects sound great on paper. If you’re a reputable organization that specializes in an area (like Habitat for Humanity) you’ll have fewer issues getting people to donate because they know that you’re doing the best with their money. However, if you’re an individual looking to do good, or a lesser-known nonprofit, you need to spend time selling yourself. Be sure to point to examples of past successes in your pitch that make you worthy of their money.
  3. Write your crowdfunding page in second person: By incorporating 2nd person pronouns (e.g., you and your) into your project description, you heighten reader awareness. It primes them to put themselves in your shoes, in turn, increasing their empathy.
  4. Don’t shy away from a little guilting: This one can be tricky because it’s a fine line. When using guilt as a rhetorical tool, you don’t want to make a person feel like they’re part of the problem (ex: lack of affordable housing is your fault because you’re a part of the neighborhoods gentrification, so you should donate to fix it). This drives people away. Instead, use it to show them how easy it is to make a difference. Because crowdfunding is so heavily impacted by small donations, incorporating phrases like “instead of buying your $5 Starbucks this week, that $25 could cover the cost of a foster child’s after school programming.”
  5. Make sure the list of donors is public: Once again, people like to share the fact that they’ve . done good. Play to that healthy aspect of people’s ego by making donor names and dollar amounts public. Just be sure to offer a way to remain anonymous as well, to avoid driving away people who aren’t as comfortable sharing.

[Read: 7 Proven Marketing Tips for Nonprofits in 2019]

5 Crowdfunding Best Practices For Businesses

  1. Know what works: Studies have analyzed hundreds of successful crowdfunding pages and found several replicable similarities. Attempt to mirror these in order to set yourself up for success. Some of these stats include: an average word count of 300 to 500 words, campaign updates send out to supporters every five days, and campaign lengths of 20 to 40 days.
  2. Get social: Social media is a crowdfunder’s best friend. For every order of magnitude increase in Facebook friends (10, 100, 1000), the probability of success increases drastically (from 9%, 20%, to 40%).
  3. Utilize video: Campaigns with personal videos raise 105% more than those that don’t have them. Even if it’s just a video of you speaking directly to a camera (eye contact on the “viewer”) you’re triggering donor self-awareness. Capturing authenticity is the best way to make sure your video serves your page.
  4. Offer tangible rewards: When competing with thousands of other startups and projects, having the best rewards can sometimes be just as beneficial as having the best idea. While economic value is one of the strongest motivators for crowdfunding supporters, tangible rewards actually generate the strongest perception of value.
  5. Make your campaign dynamic: Don’t stop tending to your crowdfunding page after it goes live. In addition to sending updates to contributors, research has shown that adding new reward tiers towards the end of a project or campaign has a reinvigorating effect on donation momentum.

Texting and Crowdfunding

Hopefully we’ve made one thing clear: sharing is key when it comes to crowdfunding success. The more eyes on your story, the better chance you have of meeting (or exceeding) your fundraising goal.

Take a second to read about the benefits of texting, and you’ll see that it’s one of the best spaces to share information and actually get a response. With that in mind, consider running a text-to-donate campaign as a way to engage with your audience as well as raise some capital.

If you want to give text crowdfunding a try, get 14 days completely free with SimpleTexting! All reward, no risk.

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