Crowdfunding is an impactful method of raising funds for new product development ideas. It provides you with the opportunity to put your concept and business in front of thousands of potentially interested investors, giving them a way of helping grow your company.
However, it’s not always successful, and there are negatives to crowdfunding product development that you should consider. In this article, we discuss the pros and cons of crowdfunding, helping you make an informed decision.
Pros Of Crowdfunding Products
Low Risk, High Reward
Often, investors are motivated by getting access to new and interesting products at a discounted price before launch. Essentially, your investors want physical products rather than shares in your company, which means you have the potential to raise the capital you need without giving away any of your business.
Consumer Market Research
Crowdfunding is the perfect opportunity to learn about your potential target audience. Understanding what they think of your business, brand, and product at this early stage enables you to pivot and adapt to create the best product possible.
One of the most impactful pros of crowdfunding is pre-sales. If you can pre-sell hundreds or thousands of products, this gives you leverage with manufacturers, enabling you to drive down costs and increase your margin. If you have a working prototype and a refined marketing plan, pre-sales are definitely an option for you.
- Increased brand exposure
- A community of engaged early adopters
- Momentum before the official launch
Cons Of Crowdfunding New Products
It takes a long time to prepare and manage a successful product development crowdfunding campaign. Firstly, you need to produce a working prototype, product videos, advertising, compelling content, and a rewards plan. Then, once your campaign is live, you have to actively promote it, respond to questions, and action your marketing strategy.
Can Be Costly & Restrictive
One thing many people forget is the way crowdfunding sites make money – by charging fees to businesses running campaigns. Often, this is around 5% of the total raised during your crowdfunding period. For example, if you hit your target of $50,000, you’ll have to pay $2,500 in fees. Also, there are highly detailed rules you must abide by, especially in relation to rewards and equity funding.
Low Success Rate
As many as 85% of crowdfunding campaigns fail to reach their funding targets. This could be down to a multitude of reasons: product ideas, poorly executed campaigns, bad timing, weak business plans, and much more.
- Difficulty getting noticed in a competitive space
- Unless your idea is legally protected, you risk people imitating your products
- Short window of investment opportunity – usually 30 – 60 days
- Risk the reputation of your idea if crowdfunding flops
Crowdfunding can be the best and most efficient way to fund your product development, but there are also many cons that should be considered. There’s no definitive answer if the pros outweigh the cons – that’s dependent on your idea and how you will execute it.
If you’ve decided crowdfunding is the way to go, reach out, and we’ll create a killer campaign together.