It’s ironic that today there’s so much talk about crowdfunding but very few people know what it really is. The ignorance of the subject is undoubtedly one of the downsides that Latin America has had to face in order to adapt to it. For that same reason, today we’ll dedicate an entry to detail how crowdfunding works. Step by Step.

What is crowdfunding?

This is a term that encompasses several meanings, but always with the same result. Crowdfunding (also known as “collective financing”) is simply a form of financing. Namely, a way in which a person, group or company can obtain money to use it for a particular purpose.

However, crowdfunding is not a traditional form of financing. Like we said, it means “collective financing” since those who “finance” or give the money to fulfill a certain purpose are actually a large number of people.

A crowd, so to speak. This “crowd” can be understood as a network of people who in one way or another have a common interest related to that purpose that they want to finance. In general, crowdfunding is usually carried out on the Internet. Where several people contribute money for causes headed by a person or an organization.

How does it work?

First of all, it should be noted that to carry out a crowdfunding you need to have a purpose. After all, if you’re asking for money, it’s for something, right? That purpose can be an idea, a desire, a need. For now, let’s assume that this purpose is to create a business based on baking. And for that you want money, to buy everything you need.

Let’s do a step-by-step guide so you can understand it better:

1. Identify what is the purpose of raising money

As we said before, suppose that what you want is to set up a pastry shop. Have your own patisserie or cake shop. Taking this into account, you should intuit that for this you need to have a place or establishment of your own. You have to buy all appliances such as ovens, blenders and refrigerators for your pastry.

Crowdfunding Goal
Is there’s something you’ve always wanted to do or have? Something you haven’t been able to carry out because you don’t have the money to do it? Crowdfunding can be a solution to your problem. Source: Photography by Chad Santos Kurono at Foter.com/CC BY

However, crowdfunding is not just to earn money to start a business. You can also use it for other causes. If in your neighborhood there’s a particular problem and you would like to help but you need money, you can use crowdfunding. If you would like to write a book, make a movie or create an invention, you can also use crowdfunding to get money.

It can be something more personal, like wanting to pay for a surgery or medical treatment for you or a loved one. The possibilities are endless. Identify what you need money for and take it into account.

2. Prepare a campaign

You’re now very close to starting to benefit from crowdfunding. Once you know what’s your purpose to raise money, the next thing you should do is set up a crowdfunding campaign. What’s this about…? You have to do a campaign to attract people to let them know that you want to raise money and that you need their support.

Related: Never Do A Crowdfunding Campaign Without This

On the Internet, there are platforms aimed at creating crowdfunding campaigns. As for example, us here in SOLIDARIDAD LATINA. When you find one that you like, you must register, create an account and put your personal data in it. After that, you can set up a campaign where you describe in detail what’s it about and how much money you need.

[bctt tweet=”In crowdfunding, you must make a short video where you talk about the purpose of your campaign.” username=”solidaridadla”]

3. Create a perk system

Before starting, what is a perk? A “perk” (or reward) is an incentive that you give to people so that they feel encouraged to contribute to it. We’re going to use the same example of confectionery. If you set up a campaign and ask for a certain amount of money, you can create perks based on what your baking business will be.

One way to start is that for every $1 you receive, you send a thank-you email. That would be a “level” or perk number. Then the thank-you email would be your first reward level. As a second level, you can offer the same thing plus something else or merely something apart in exchange for a higher amount of money.

Perk System Crowdfunding
Perks are usually benefits that your contributors get by contributing a certain amount of money to your crowdfunding campaign. It’s ideal that they’re attractive and satisfying.

For example, as a second level you can offer the thank-you email plus a digital recipe book for $10. Or give only the recipe book on its own as a second-level reward for $10. Take into account that if for each level you include all the previous perks, you’ll be more likely to attract potential contributors.

In general, a crowdfunding campaign must have a minimum of three (3) reward levels. And a maximum of ten (10). But everything will depend on what you intend to offer as a perk.

4. Publish the campaign and receive money

Once you have your idea, your campaign and your perk system ready, you can publish everything on the platform for everyone to see. But don’t think that people will come like ants to contribute money automatically. Neither think that the crowdfunding platform will be responsible for looking for people to give you money.

That’s your job! As the creator of the campaign, you have the task of attracting people who are interested in it and want to give money. How can you do this? Promoting your campaign. There are many ways of doing it. You can start from the basics, talking to your family and your friends about it and encourage them to support you.

Crowdfunding Content Marketing
The purpose, idea, desire or need of your crowdfunding campaign won’t be disclosed on its own. You must take charge of promoting it. And it’s recommended that you do it before launching it.

The next thing is to use social networks to spread your campaign, taking into account what type of audience you want to address. We recommend you read this entry we did on how to promote your crowdfunding campaign on social networks.

If you liked this post, share it on your social networks! That would help us go further. Regards!

Related: How Technology Brought Immigrants And The World Together

This is how crowdfunding works!