Since it started, it quickly became popular with the passing of years. Crowdfunding is a financing method that has inspired the creation of businesses through it. However, many are still wondering if it’s profitable. With an analysis, we’ll provide an answer to that question.

Crowdfunding: A profitable business?

We’re referring to a business that has raised billions of dollars worldwide. According to Fundly, a total of $34 billion in 2017. A figure certainly surprising for the current era. One wonders then how this method of financing managed to produce so much money. Especially when there are conflicting opinions about the profitability of this business.

Between 2008 and 2009, Kickstarter and Indiegogo were born. Two of the most well-known and commercial platforms that exist. Since their appearance they’ve become progressively popular and known throughout the world. And therefore, much more lucrative with the passage of time. Kickstarter has claimed to have raised $3.9 billion in projects so far. While Indiegogo, $1.5 billion in comparison.

Total Monthy Funding Kickstarter Indiegogo 2017
A graph showing the total monthly funding of Kickstarter and Indiegogo for 2017. Of its 500 top projects Kickstarter has raised $103.3 million and Indiegogo $71.7 million. Source: The Crowdfunding Formula

However, these are the revenues of highly positioned platforms. What happens then with those that are less known? This is where most people think that the results are different. Samuel O. Ronsin, a data scientist who worked on a crowdfunding entrepreneurship, is one of these people. He expressed in a response from Quora that from his point of view, small platforms are hardly profitable.

His reasoning is based on a particular fact that he exposes. That small crowdfunding platforms produce an average of between $10 and $20 million per year in revenue. But of that amount, they only keep less than 5% and this would be equivalent to almost one million dollars per year. A number of revenues that, in his opinion, wouldn’t be sufficiently profitable for a company with more than 20 employees in North America or Europe.

High profitability cases in crowdfunding

It’s true that crowdfunding platforms only keep a percentage of profits. This happens because these, to obtain income, charge a transaction fee for each contribution. This rate is usually only 5% of each donation obtained but in other platforms it may be higher. In most cases, it remains at 5% to ensure that campaigns and their creators get the most money.

This at first seems to be a disadvantage. However, there’s a factor that can counteract it. If a platform comes to own a certain number of monthly campaigns. Which manage to receive high contributions and consecutively. Especially if it’s about successful campaigns that exceed their goals and raise millions of dollars. That’s when a noticeable difference can be seen.

campaigns launched success rate kickstarter indiegogo 2017
Monthly number of crowdfunding projects launched and their success rate in 2016. Source: isointeractive.com

An article by Forbes of 2012 talks about the growth and profitability of crowdfunding. Which explains that long before the JOBS Act was approved in the United States, this method of financing was already predominant. Because at that time there were already 452 crowdfunding platforms around the world. And this business would have raised a total of $1.6 billion according to a report from Crowdsourcing.org.

Legal restrictions and a low volume of transactions could affect the profitability of crowdfunding. But in another way, if there are a considerable number of campaigns, the revenues can be solid. But everything will depend on the success of the campaigns. Successful campaigns are the ones that manage to position a crowdfunding platform almost without having to invest in marketing.

Money Raised Successful Crowdfunding Campaigns 2017
The total money raised by particularly successful crowdfunding campaigns. Updated until February 2017. Source: Statista

Taking this into account, we can safely say that crowdfunding is a profitable business. Under certain conditions but potentially productive if they’re met. Not only for the creators of the platform in question, but also for campaign owners. Those who have the opportunity to finance their projects through these services.

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Crowdfunding produces profits!

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