Research Update: Crowdfunding with reasonable ROI

Geefunding crowdfunding  by Bizking2u

Geefunding crowdfunding by Bizking2u

The arts sector has benefited from the booming crowdfunding industry. Massolution's research suggests that since 2012, the industry’s pledged dollar amount has doubled annually, and in 2015, the total global estimated amount raised was $34 billion. Kickstarter's statistics show that $2.67 billion was raised for 322,500 projects on the platform since its founding in 2009 (as of October 20, 2016). Of that $2.67 billion, $326 million was raised for projects in music, arts, theater, dance, and crafts. In fact, in 2012, the amount that the platform raised for the arts surpassed the funding given to the sector by the National Endowment for the Arts. Additionally, large technology companies are now offering platforms geared specifically for not-for-profit organizations. For instance, Facebook recently started a new fundraising tool for organizations with 501 (c) (3) tax status, and Google offers an app for not-for-profits, One Today, where users can easily search for and donate to projects of interest.

Crowdfunding has certainly had a positive impact on the arts, yet some factors might make arts organizations hesitant to employ crowdfunding themselves. First of all, most crowdfunding platforms have the policy of “all-or-nothing.” Unless a launched project achieves its goal in the specified period of time, the organization will not receive any of the funds they raised. In addition, not all projects succeed. For instance, Kickstarter's average success rate is 35.77% (as of October 20, 2016). Even though the average success rate of the arts sector is 47.43% (as of October 20, 2016) and higher than that of other fields, the risk still exists that a project could end up with nothing, no matter how fascinating it is. Furthermore, even if a project succeeds, it doesn’t mean that the donors who pledged for a specific project will contribute to the same organization again. In fact, research conducted at Stanford University found that the crowdfunding's donor retention rate is 25% on average. This indicates that crowdfunding highly depends on one-time donors, which is problematic in terms of long-time donor cultivation.

Tips to succeed in crowdfunding endeavors have been provided by both platforms themselves, as well as researchers. The Indiegogo Field Guide suggests that prospective crowdfunding recipients should prepare a video, a written pitch, a small image, a good title, and a short description prior to launch in order to increase the probability of success. They also suggest that individuals or organizations should leverage social media, devise and adhere to a marketing plan, and form a launch committee. Researchers emphasize the importance of setting a moderate goal, keeping donors involved, letting donors know the impact of projects, and giving appropriate recognition of donors in order to retain them.

While tips are helpful for organizations that plan to add crowdfunding to regular fundraising campaigns, additional human resources, time, and energy will be required to succeed. The reality is that many organizations cannot afford these efforts, and more importantly, the efforts do not make sense if return is too small.

Stay tuned to understand how arts managers, specifically development directors, can introduce crowdfunding as an additional fundraising instrument with reasonable return on investment, as well as hear additional insights from arts organizations with crowdfunding experience.