The Math Behind Successful Crowdfunding
Time and again, students of all ages list math as their least favorite subject. Unfortunately, they also tend to keep these feelings into adulthood. However, when it comes to crowdfunding, math is the best possible friend you could hope for. Why? Because math is truthful and won’t tell you things are good when they aren’t; it keeps you grounded when you’re dreamy, and it helps you focus on what really matters.
Two Questions For Setting A Target
When setting a crowdfunding target, you need to ask yourself two questions. No matter what your thought process is, you will inevitably use math.
- How much must you raise to be viable?
- How much do you believe you can raise?
Focus on your goals
The first question typically applies to product-based projects or when you know your fixed cost. There are many things to consider here, including your time, shipping, associated fees, etc. I won’t get into them all here (here’s a helpful article that goes into greater detail), but if you think there is a minimum amount you need, it’s worth the effort to start a spreadsheet (or get a friend who will) and make sure your target is realistic. Using math will help you keep focused on what matters, because the more you ask for the more challenging your campaign will be. And by the way, It’s OK, to ask for a low amount—it’s perfectly acceptable to raise funds beyond your goal (check out this helpful article to learn more about “stretch goals”).
Bring your goal back to Earth
After you have calculated a minimum amount, the next step is to determine whether you can reach it, or not. Here’s where you need to let go of any fear of math, because when you do, it will bring you beautiful simplicity.
Imagine you’ve set a goal of $5,000. There are many crowdfunding calculations out there, but you can figure out quickly if you’re even in the game. A widely accepted range of average donations is $75 – $100. For this example, let’s go with the conservative amount, $75. This brings us to $5000/$75 = 66.6 backers. Bam. Now you know it will at least 67 people to hit your goal.
You can use different calculations to determine if (and how) you can reach your goal, but using the simple one in the illustration above, you can know super quickly if you stand a chance or not.
Now the question becomes: do you know 67 people who are willing to contribute? Do you have access to that many donors? Don’t just assume blasting a message or two on Facebook will work; remember that a lot of the people you already know won’t necessarily be fully vested in your success. So who are the people you can absolutely depend upon to back you 100%? Those are the ones that will help you realistically reach your goal.
One quick note. At Crack the Crowd, we’ve found that the median for many projects is actually closer to $50. So how does that compare to the average? The easy answer is that you’ll have more people donating $50 than any other amount, but the average is higher because some large donations skew to a higher value. That’s why we like to use the lower average of $75 versus $100. Plus, if your backers are mostly students, don’t expect them to shell out $100 per donation. Know your audience!
Appreciate the honesty
When your campaign is finally up and running, math will tell you the truth about how well your campaign is doing. Most crowdfunding experts have said that you will need to hit roughly 30% within the first week to be on track to hit your final goal. If you meet that first hurdle, you’re doing well, but you’ve got to stay with it. If you haven’t met the first milestone, then you’ve got a clear indicator that you need to ramp up your outreach. Find more people (which hopefully you’ve already done, and have ready to go) to get the word out.
So when the time comes to begin planning for an upcoming campaign, roll up your sleeves, put your thinking cap on, and get friendly with numbers. They will be your best ally for planning, keep you informed about your live campaign, and allow you to stay on track. They will mean the difference between your campaign reaching its full potential or falling short—all thanks to your new best friend: Math.
Do you have questions about how to launch an effective equity crowdfunding campaign or platform? We can help. Contact us today.
[This post was first published on LinkedIn on March 17, 2015]