The Role of Crowdfunding in Boosting E-commerce Businesses

A photo of a crowd of people discussing fundraising strategy

After the COVID-19 pandemic, the online retail industry has seen significant growth. In just 2020 alone, global e-commerce sales have grown by 27.6%. In 2021, e-commerce sales was estimated to be at $4.9 trillion, and by 2025, it’s projected to reach approximately $7.4 trillion. As you can see, there has never been a better time than today to start your own e-commerce business.

Still, even if you have the greatest idea ever for a product or a business, you might not have the required funds for it. This is where crowdfunding comes in.

In this article, we discuss how crowdfunding can help boost your e-commerce business, as well as some best practices to ensure that your crowdfunding campaign will end in a success. Let’s dive in!

Crowdfunding Refresher

Crowdfunding is defined as “the practice of funding a project or venture by raising money from a large number of people, typically via the internet”. To put it simply, it’s the process of raising capital to fund your new business via interested audiences on the internet. 

There are different types of crowdfunding, such as:

  • Donation – usually used by charities, non-profits, and other social or charitable projects. These are campaigns where there are no financial returns to investors or contributors, instead, individuals give money to fund a cause. 
  • Reward-based – used to raise funds for new companies, businesses, or start-ups that offer a product, goods, or service. For this type of campaign, individuals who contributed will earn a reward based on the amount they’ve given. 
  • Equity-based – this is usually done by small to medium-sized companies that are hoping to gain a large amount of money to fund their business, as they expect a huge potential of growth in their company. In exchange for their donation, individuals get a percentage ownership or shares in the company. 
  • Debt-based  – in this type of campaign, the fundraiser borrows money from their contributors, with the expectation that this money will be repaid in the future. They will usually set a time frame to when they can pay the money back, as well as set interest rates.

While crowdfunding can be done by anyone (for example, an individual raising funds to pay for their medical bills, or a charity organization looking to fund their charity drives), it is still mostly entrepreneurs and business owners that are utilizing crowdfunding most effectively. 

And it’s no surprise that crowdfunding is emerging as a better way to earn capital instead of going for traditional bank loans for businesses. In our increasingly digitized world, getting funds from our online connections is easier than ever. In fact, the global crowdfunding market is expected to triple in the coming years, hitting a whopping $28.8 billion by 2025. If you want to boost your e-commerce business, crowdfunding is definitely the way to go. 

Crowdfunding for E-commerce Businesses

If you are planning to launch your e-commerce business via crowdfunding, we recommend doing it either by equity-based crowdfunding or by rewards-based crowdfunding. 

For equity-based crowdfunding, aside from gathering funds, you’ll also be able to gather a solid base of customers. After all, in an equity, they are not looking for immediate return. They are choosing to invest because they believe in your business and products. This gives you a customer base that is not only loyal, but is an outspoken advocate for your products, which is what every e-commerce business dreams of. 

In a rewards-based campaign, you’ll have a greater chance of generating buzz and excitement around your products. When a donor gets their reward from you, they are more likely to share the news with their friends and family, or on social media, which might spark more interest with your campaign. For any e-commerce business, spreading the word about your products is a priority and a rewards-based campaign does just that. 

Benefits of Crowdfunding your E-commerce Business

There are many benefits to crowdfunding your e-commerce business. Some of them are:

Finding and growing your audience

With the buzz that you’ll earn online with your campaign, either via social media or digital marketing campaigns, you’ll be sure to find people that are interested in businesses like yours, and thus grow your audience. 

Build engagement and emotional investment 

By doing a crowdfunding campaign, you’ll have a better chance of building a solid and loyal customer base. This is because your investors or donors are more personally engaged and invested in your success, as they had a part in building your business. Therefore, they are more likely to support your business through thick and thin. 

Gives you “social proof”

Social proof is a marketing principle where we make judgments about a business based on other people’s behavior and reaction to it. If you are able to launch your e-commerce business via a successful crowdfunding campaign, it gives you that social proof – that lots of people like your business, and that an individual should be interested in you since lots of people are. 

People are also influenced by social buzz – if your campaign gains exposure in social media, people are more inclined to check out your business to see what the hype is all about. 

Vet public interest in your products

Crowdfunding allows you to test out the waters and see the reaction and feedback from people regarding your products. This is how Reebok used IgnitionDeck with their small-batch crowdfunded sneaker design concept.

For example, you are planning to launch an all-natural and organic lipstick line. With your campaign, you can gauge if there is a demand and interest with your product before you even launch them. You can also gather feedback and suggestions from your investors, to further improve your product before launch. 

All of this information is beneficial in ensuring that your products will actually be successful once you do release them. 

Less monetary risk if your campaign doesn’t succeed

There is little to no financial risk involved in a crowdfunding campaign. If your campaign is not successful, then you don’t need to launch your product. 

You are also able to test out your marketability beforehand. Since you weren’t able to have a successful crowdfunding, it just means that you were able to save on lots of time, money, and resources compared to if you launched a product that wouldn’t have been successful eventually. 

Best Practices For A Successful Crowdfunding Campaign

Don’t forget your branding

Even if you haven’t launched your product, you should already have a clear brand identity at this point. This signals to your investors that you are a credible, competent, and professional business, and that you are taking this seriously. 

This means having a solid brand voice (for your written communications), memorable yet appropriate business name, and a consistent visual identity (this involves your logo design, color scheme, marketing illustrations, video marketing, etc). 

If you don’t have any of these branding assets yet, try looking into some business name generators or logo maker tools online. This should give you a starting point in creating your brand identity. 

Create compelling marketing campaigns

You shouldn’t underestimate the power of marketing. No matter how good your business is or your products are, if it doesn’t reach your audience’s eyes then it’s meaningless. 

But how do you make a compelling marketing campaign for your crowdfunding? One way is to tell a story. People make decisions based on their feelings and emotions. By having a unique story that resonates with your audience and touches their heart, you give your audience a more personal connection with you and make them more likely to donate to your campaign. 

Try reframing your marketing with a deeper, more personal touch. Instead of just wanting to sell products, maybe you want to launch a product for a market that is often forgotten or put aside. Maybe there is an under-researched problem that your business can help solve. Maybe your product can help people to feel more confident about themselves. And so on. 

Research, research, research

There are loads of successful and unsuccessful crowdfunding campaigns before you. Take your time in researching campaigns for businesses like yours, and see what worked for them and what didn’t, and what you can do to make yours stand out. This will help you build a campaign that is more likely to succeed.

Be very specific about the details of your campaign

One of the reasons why a donor might feel reluctant to help in your campaign is if it is way too vague. They don’t know where the money is going towards, if you really know what you are doing, or if you might just be scamming them.

Providing clear and detailed information about your campaign should help dissuade these concerns. Be honest and transparent about where you’ll allocate the funds that you’ll be able to gather. If you are doing a rewards-based campaign, be specific about the rewards that they receive depending on which tier they are in. 

Wrapping It Up

E-commerce sales are continuously growing and are showing no signs of slowing down. If you want to hop on this lucrative business, now is the time to do so.

By using a crowdfunding campaign to kickstart your e-commerce business, you not only raise capital and funds to make this possible, but also gather a solid network of interested and invested audience, as well as gather detailed and insightful market research about your product. 

Good luck, and we wish you success in your crowdfunding ventures!

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