Crowdfunding: What It Is, How It Works, Getting Started

Crowdfunding—one of the hottest ways to fundraise—can be an effective way for your nonprofit to generate money toward your goals.

Crowdfunding raises over $17 billion a year in North America. That’s a lot of potential to tap into if you understand the basics of crowdfunding, which platforms to use, and the strategy’s pros and cons.

Find everything you need to know about crowdfunding in this comprehensive guide to see if it’s the right option for your campaign:

• What is crowdfunding?
• How does crowdfunding work?
• Pros of crowdfunding
• Cons of crowdfunding
• Crowdfunding platforms
• How to start a crowdfunding campaign—successfully
• When to use crowdfunding vs. another method

What is crowdfunding?

Put simply, crowdfunding is a type of fundraising. From startups to charities and even individuals, anyone can start a fundraising campaign on a crowdfunding platform.

One major difference between crowdfunding and a traditional fundraiser is the ease with which you can share your campaign details with a large audience via social media.

How does crowdfunding work?

If you’re wondering what is a crowdfunding campaign and how it works, there are a couple of different types of crowdfunding to note:

• Donation-based – Where your supporters contribute to the total funds raised for your campaign.
  
  
• Investment-based – Where a business sells ownership stakes in its brand, usually through debt or equity.

Donation-based crowdfunding is optimal for nonprofits and organizations raising funds for a cause. On the other hand, investment-based fundraising is ideal for businesses and startups that need capital.

Pros of crowdfunding

Crowdfunding can be a beneficial way to raise funds for many organizations. Some of the advantages of this method include:

• Expanded reach to a larger audience via social media and other digital platforms
  
  
• No need to repay funds if you don’t reach your goal (on most platforms)
  
  
• Faster way to raise money than going door-to-door

Crowdfunding may be appropriate if you want to reach a broad audience to raise money quickly for your project. With seamless integration on social media, the user experience is more pleasant, and there’s no need to hire employees or volunteers.

Cons of crowdfunding

While crowdfunding has many benefits, it won’t work for every organization or cause. When deciding if it’s right for your team, consider these possibilities:

• Competition – Because many widely available crowdfunding platforms exist, competition can be high. You’ll have to work hard to stand out from the crowd and capture donor attention.
  
  
• Time-consuming – You’ll have to dedicate a good amount of time to promoting your campaign.

If these are a concern for your group, crowdfunding may not be the most efficient way to raise funds.

Crowdfunding platforms

If you’re considering a crowdfunding campaign, you must find a platform that matches your needs. Some of the most popular options available include:

• GoFundMe – GoFundMe is a donation-based platform where people can contribute money to your cause. It includes shareable email, text, and social media links. More importantly, you don’t have to meet your fundraising goal to receive your earnings. 
  
  
• Classy – Classy is a customizable microsite platform for nonprofits. It offers flexible payment options and lets you easily manage donor activity.
  
  
• Indiegogo – Indiegogo is popular for businesses selling products or services. It lets you choose whether you want flexible funding (keep what you earn) or fixed funding (meet goals to receive the money).

While these are three well-known crowdfunding websites, you could choose from many others. Always vet your options before selecting one for your organization.

How to start a crowdfunding campaign—successfully

If you decide to try crowdfunding, you’ll want to take some steps to help ensure you hit your desired goals. To that end, keep these tips in mind:

• Set specific, realistic goals – How much money are you trying to raise? When do you need to raise this money? Learn more about how to set effective fundraising goals.
  
  
• Create content – To garner attention, you’ll want a well-defined marketing plan that includes compelling content. Make videos and social media posts clear and concise.
  
  
• Launch your plan – Try to generate buzz for your campaign before it starts. Share posts on social media about your upcoming fundraiser, including when it’s starting and what it’s for.

When to use crowdfunding vs. another method

Crowdfunding has the potential to yield substantial earnings for your cause—but it may not be the most streamlined approach. Crowdfunding is most effective when you can swiftly capture widespread attention, which is why this method is especially effective for specific grassroots campaigns, one-time events, or social or charitable initiatives.

However, it's essential to recognize that crowdfunding demands significant time and effort—everything from marketing to content creation. You might want to explore alternative strategies if your needs call for a more ongoing, sustainable approach.

Thousands of nonprofit organizations and community groups across the US currently partner with RaiseRight, the leader in gift card and online shopping fundraising. Earn money without asking for money.

RaiseRight is free to join—simply enroll your organization and invite participants to join. Then, you and your supporters can shop online across hundreds of retailers, or purchase gift cards for hundreds of popular brands to raise money for your cause. Instead of paying for day-to-day purchases with cash or a card, buy and use a gift card instead. With every purchase, your organization earns up to 20% back.

RaiseRight partners with some of the biggest brands in the world, like Amazon, Walmart, Target, and Starbucks, as well as a variety of restaurants, department stores, and gas stations. It’s easier than crowdfunding and is suitable for any lifestyle.