It’s a process where you raise money by selling your product in advance of producing it. In its most basic form it is emailing their fans and asking them to send $15 or $20 for an album that hasn’t yet been recorded. You then use the money raised to produce and package the album before popping the finished copy in the post to their fans.
There are many variations of crowdfunding and many uses. There are also a lot of platforms out there offering a variation of the same.
For good or bad, the most common reason people set up a crowdfunding campaign is to raise money to produce a product. This may mean recording music or producing a film or it may mean manufacturing merch. It is also common to see crowdfunding used to fund an event or series of events. A little less common use is bringing a product to market.
Bringing a product that has already been developed to market is by far the best time to turn to crowdfunding. If they don’t have a product in place then their fans will have to place a lot of faith in them.
Most of the time they will look at your past record. What they have purchased off you before and how true to your word you have been. The last thing anyone wants to do is hand over $20 and not see anything in return for a year.
If your product is already complete and you are looking to package it and promote it then there is a lot less risk for your fans and you are already past the biggest hurdle. That said, I have been kept waiting for months on end for products to arrive, simply because the people raising the money have little to or no experience in the process they are undertaking.
For this reason I would always recommend getting as much of your project complete before you turn to crowdfunding. Even if that mean delaying everything by 6 months while you raise the funds yourself. If you can get to the packaging/marketing stage then you will get a lot more out of crowdfunding.
You will be able to use your campaign as a promotional tool for your release. But this will only work if the turnaround is within a few months of the campaign completion date. Otherwise you will risk loosing out on any momentum gained during the campaign.
There are other ways that you can raise capital through crowdfunding. There are crowdfunding sites where you can raise money in exchange for equity in your business. For this you will need to be set up as a business and prove that you will generate a good return for your investors. It’s no different from going to venture capitalists but a lot a little more likely someone will listen to your pitch.
Other sites offer peer financed loans. These are fixed term loans where you agree to pay back money raised plus a percentage within a certain timescale. Neither of these are ideal for bands as it’s very hard to quantify future earning unless you can show past record sales and have a large mailing list.
You can raise money using this method without signing up to an online service and instead going straight to your network of family and friends. By offering them equity in your album or all future earning from your band.
For example you could offer 20% equity in your next album in lots of 1% shares for $500 a share would raise $10,000. Or if you don’t want to offer equity you could request 20 lots of $500 in the form of a loan with a return of 20% over 5 years would see each share returning $100 on top of their original investment. This would require you to generate $12,000 in profit over 5 years to repay the loan.
All this is hypothetical and the figures could be anything you want, but you will need to put a solid business plan in place or nobody will be willing to invest. Either way you will have to answer to your investors if you come up short and there are few guarantees in the music business.
There are a lot of crowdfunding solutions out there each offering their own variation services and fee structures. There is no one size fits all solution and you should do some research on what’s best for you. Here are a few options:
If you want a less work and a bit more guidance then you should go with PledgeMusic.
Crowdfunding is somewhat of a fad that has been driven by the success of a minority. Yet most of those headlines are from a few years ago and less and less media outlets are touting its success.
There has also been a lot of disappointment with crowdfunding from the consumer’s side. With fully funded projects failing to deliver because they were not thought out or their owners were inexperienced or costs were higher than anticipated and they simply ran out of money.
The biggest oversight is the cost of fulfilling the orders. People forget or don’t realise that they need to set aside money for manufacturing, postage and packaging. When setting up a campaign the only look at the cost of recording their album and not that the surrounding costs: Mastering, artwork, packaging, postage etc…
This is another reason to use Crowdfunding to bring your already manufactured product to market and not to pay for the recording.
The fact that some crowdfunding sites allow you to collect money even if you don’t reach your target has only led to increase this problem. If a campaign only raises 50% of their target, they likely won’t have enough funds to successfully fulfil their orders. This will leave them with unhappy backers and still no product.
If you are thinking of choosing a site because they allow you to collect money without reaching your goal then you should seriously think twice as it may not be in your interest.
Another reason not to do a crowdfunding campaign is when you have little of value to offer. If you look at all the successful campaigns you will see a pattern. Most of the money has been raised from a few big spenders.
It’s rare that the $15 CD alone is enough for you to raise the money you need. It’s the higher value perk around the $50 – $100 mark that generates the most money, with a few key people willing to spend a few hundred if not a couple of thousand for the right perk.
But these perks need to be exceptional. You can’t just throw in an overpriced t-shirt and hope people will give you $100. You need to offer something unique to your campaign, something rare and usually something that will cost you $20+ to produce.
When Amanda Palmer launched the most successful music crowdfunding campaign she included an art book with over 70 pieces of art from over 30 artists.
One of the biggest misconceptions with crowdfunding is that setting up a campaign on a popular platform will guarantee it will be seen by people. I can honestly tell you the opposite is true. Unless you promote your campaign, no one will see it. Yes most crowdfunding sites have a marketing department and they do promote campaigns, but these are always campaigns that are already showing traction. If you can’t raise 50% of your target in less than 3 days then they are unlikely to get behind you.
Less than 38% of Kickstarter campaigns are successful and of the 62% that fail a whopping 94% fail to raise more than 40% of their goal.
So where will your sales come from? Where are your fans? How many fans have you got?
You need to be able to answer these questions with certainty. Simply guessing that you can get 100 people to fund your campaign, will pretty much ensure you will fail.
I talk about measuring your fan base a lot on this site and for one simple reason; if you have fans then you can make money. You can sell records & concert tickets but more importantly you can leverage your fan base to excel your career. You can use it to promote new music and videos, you can use it to get on the radio, you can use it to sign a recording or publishing deal.
But you must be able to both rally your fans behind you and show that you have a tangible list of fans. The only proven way to do this is to grow your mailing list. Facebook likes and Twitter follows are fickle at best and conversions are a very low. Yes having big followers on both platforms will help, but email marketing is 10 times more effective. You can show your list to an A&R guy and say: “Look, we have 10,000 fans and they are actively reading our emails and clicking on our links.”
So you’ve come this far and I haven’t been put off. You have some money to get your project rolling, have fans to back your project and you have some ideas for perks. How do you set up a successful campaign?
Start with setting the right target.
Read Part 2 – Your Campaign