11 Reasons Why Crowdfunding Is The Best Way To Launch Your New Product

A lot of people see negative press about crowdfunding and are hesitant to use it to launch their idea.

However, as of 2015, crowdfunding has helped entrepreneurs raise over $34.4 billion (yes, billion, check out Massolution’s 2015 report).

It’s helped tens of thousands of entrepreneurs bring their ideas to life, launch their business and live the life they want.

And yes, crowdfunding works whether you are an established company or a bootstrapped entrepreneur or a funded startup or a mid-stage company with a new product.

With rewards-based crowdfunding, people pre-order new, innovative products before they hit mass retail or eCommerce. These people usually frequent Indiegogo and Kickstarter and are usually early adopters, trend-setters and world-movers.

Here are the 11 reasons why crowdfunding is the best way to launch your new product.

1. Tap into a huge marketplace that is rapidly growing every year

According to SimilarWeb.com, Kickstarter and Indiegogo combined receive about 60,000,000 total visits per month.

That’s a staggering amount of visits.

Both Kickstarter and Indiegogo are vibrant communities filled with potential customers eager to back a project and mission that resonates with them. They’re a certain breed of people who are willing to pay a discounted price to get an item before everyone else. And people who want to be part of your journey as a business.

Just capturing a small piece of the 60M total visitors will provide you with huge success.

The cool thing about crowdfunding? Their platforms are designed to create a win-win-win situation between you as the entrepreneur, the customer and the platform.

A good product drives pre-orders for the entrepreneur (win), which drives revenue for the crowdfunding platform (win), which identifies only the best products to show new potential backers (win).

2. Attract new customers at a fraction of the cost

With crowdfunding, you’ll also see an attractive cost per acquisition for your marketing efforts. The platform becomes a multiplier and will promote your success and drive additional traffic for no additional cost.

From my experience running marketing campaigns in a variety of industries, I’ve found that the nature of crowdfunding (short timeframe backed by a huge number of hot leads), results in the best ROI for each advertising dollar in the 30-60 day period.

During the crowdfunding period, conversion rates on your crowdfunding page are significantly higher than through other mediums like your own eCommerce site.

And yes, a higher conversion rate will result in a lower cost per acquisition.

Additionally, crowdfunding backers are a special breed and are more likely to share your story with their friends, family and acquaintances, thereby enhancing the virality of the campaign and the value of each customer.

In short, your marketing dollars go further because you get free traffic from the platform and even more from your backers.

3. Pre-sell your product to generate more revenue with less risk

Source: Motley Fool

As an entrepreneur, you’re always looking to generate more revenue and decrease risk.

For the lowest risk, you’ll want to pre-sell your product so that you know that people actually will pay you money for the product.

Sure you might think that your product is the coolest thing in the world, but there’s no proof that someone will actually pay for it. Imagine paying tens of thousands of dollars for a thousand doodads just to find out that there’s no actual demand for it. They’ll be left sitting in your garage with no one to buy them.

Pre-sales are ideal because you don’t need to worry about amassing a stack of unsellable inventory. Going through the product validation process and conducting presales ensures that there will actually be a demand for what you create.

With crowdfunding, you can capture pre-orders and use that seed money to inject into manufacturing and shipping the (tried and tested!) products to people.

This is the new-age direct-to-consumer business model through crowdfunding.

4. Determine your positioning with a structured framework

The most important time for a crowdfunding campaign is the pre-launch phase.

It’s the time period where you as the entrepreneur conduct extensive research and testing to lock down the positioning of your product.

How much should it cost?

What type of audience responds the best to it?

What type of imagery/assets create the highest conversions?

What features do people love the most?

At the end, you’ll need to be able to do the following:

Communicate the value — do you know the feature that makes you stand out above the rest of your competition? This can be anything from colors to materials to portability and is different across all products and industries.

Identify the target consumer — do you know the audience that most needs your product? Know if you’re targeting stay-at-home parents with two-year-old children or working women who commute 30 minutes or more to work.

5. Validate a new product at minimal cost

You have a winning product when you find the right positioning, pricing, placement, and people.

With crowdfunding, you’re able to validate your hypotheses and decisions at a smaller scale before you look to launch to a wider, larger market.

The costs to you as an entrepreneur are minimal when validating the product via crowdfunding as opposed to moving directly to pitch to large retailers.  These crowdfunding campaigns are a low risk and low cost way to do market research and prove product viability while seeing some serious revenue.

Some valuable questions to ask during a campaign:

How will a potential customer receive your product?

What questions/concerns do they have about your product?

Some of the most valuable product insights arise directly from crowdfunding campaigns through customer feedback (via comments, emails, focus groups, market surveys, etc.) and advertising data.

I’ve seen customers ask questions that lead to product breakthroughs.

I’ve seen advertising campaigns that have revealed new customer insights that provided new ideas on how to improve the marketing message.

I’ve seen the price of a product change based on customer feedback.

All of the information you gather during your campaign will lay the foundation for the future success of your product and for your company.

6. Quick and varied product feedback.

Source: IBM

The beautiful thing about crowdfunding is that you have direct access to people who have paid money to support you and your idea. When you ask a question, there’s an overwhelming number of responses from people who want to see you and your product succeed.

That’s incredible information for an entrepreneur.

Instead of creating a product in a top-down fashion where founders decide what to make and force it onto people, crowdfunding reverses the process and makes it a bottom-up process.

It’s true customer-centric creation.

People involved in crowdfunding have a say on how the product evolves and ultimately looks and acts before it actually gets made.

That feedback is invaluable for entrepreneurs as they look to answer questions about their product before it finally goes out to market.

7. Create massive economies of scale

Crowdfunding enables businesses to pre-sell hundreds if not thousands of units within a 30-60 day period.

This helps you as the entrepreneur bring large volume orders to manufacturers.

What happens with large volume orders is that they usually decrease the cost per unit and usually in turn increases your margin. With orders that are large enough, you might even get away with negotiating prices with the manufacturer or shipping and logistics team.

This is a beautiful model because entrepreneurs and companies can leverage economies of scale by capitalizing on pre-orders and reducing their financial risk.

8. Move more product and upsell anything

Source: Econsultancy

At the beginning, I mentioned that crowdfunding also works with established businesses. This holds true even for a larger company with many product lines.

For one, you can use crowdfunding to move more product and increase customer lifetime value.

There is a huge opportunity to upsell anything you want to your backers – both during and after a campaign. I’ve seen campaigners get creative with their rewards and tack on products they’re having trouble moving so that their backers get an additional reward for a fraction of the price. In this scenario, the cost to the company for that additional product is minimal but the value upside to the backer is tremendous.

In addition to getting creative during the campaign itself, post-launch efforts also offer companies the opportunity to move excess inventory. Companies can sell anything they want (not just new products) through post campaign efforts because this is conducted on separate platforms not associated with Indiegogo or Kickstarter.

After your campaign has closed and you are finalizing order information, you can reach out to your customers and offer add-ons and accessories for the product you just launched OR introduce other relevant product lines. I’ve seen many of clients double their campaign goals during post campaign efforts to upsell to existing customers.

Another important aspect to consider is that we continue to see campaign success improve exponentially after a consecutive launch.

For example, the nonda raised $274,165 the first time it launched a product on Indiegogo.

Source: Indiegogo

Their next campaign was launched a little over a year later and raised $422,565. They capitalized on their previous backers and added new, eager backers to their list.

Source: Indiegogo

Companies that have the ability to develop new products quickly need to begin incorporating crowdfunding into their annual sales/marketing strategy because they can ride the success of previous campaigns and significantly increase their annual revenues.

9. Master a structured and systematic way to build a product and launch

Source: Amazon

There is a tried and true process to get a crowdfunding campaign live and to reach 100% of your goal.

The truth? Companies conducting huge global launches for new products go through the same exact process but in a longer timeframe.

Crowdfunding just condenses this long, convoluted process into a few months of hard work.

There are many questions to answer and the process of crowdfunding sets a solid framework from which to work from as you go through the product creation process.

10. Better position yourself for bigger gains

Source: Shutterstock

Once you deliver a successful crowdfunding campaign, you have proved that there is a high demand for your product.

This sets your business up for future success since the campaign success will help you close larger volume deals with retailers or expedite potential licensing deals or even sell your company.

Additionally, you can leverage your success for future press as well. Journalists love scouring for stories of success, be one of those stories of success and people will find you, your product and your company.

Lastly, crowdfunding is social by nature.

Your success will be disseminated across social media by your newfound community and will always live on the platform.

11. A stepping stone to getting additional funding from investors.

Some people who run campaigns on crowdfunding use it as one of the many ways to raise funds for a successful launch.

Crowdfunding becomes more than the end-all-be-all for a new product/service, but rather one prong in a multi-pronged approach to bring a product to market.

For example, some investors are hesitant to put their money into ideas and startups that haven’t made any money or raised any funds. However, they are more likely (or less hesitant) to invest in a project that has already passed the rigors of the crowdfunding test and come out the other end with units pre-sold and a community formed.

By going through crowdfunding, you’ve proven to them that you have the grit to get everything together for launch, that you have tested the variables for your product (pricing, placement, people, etc.), you’ve successfully found an audience that responds to your message and your product, and, most importantly, you’ve found a product that actually sells.

What does this mean for you?

The beauty of crowdfunding is your community of backers knows your product is improving and they are willing to invest their ideas, money, and social reach to ensure the success of your campaign.

In the end, crowdfunding is not just for cash-strapped startups.

It’s the best way to validate a new product, build a community, see serious revenue within a handful of months and lay a solid foundation for future successes.

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