Pierre-Olivier MAZOYER

In my previous post, the semantic issue of crowdfunding I explained why the name crowdfunding is misleading, and the gap between the expectations of project owners and backers which this semantic issue allows. The rewards are a good example of this misunderstanding.

I hate this term “reward” !

To my knowledge it may refer to the financial rewards

Wanted Dead or Alive for robbery & murder : Jesse James and his gang. Reward : 1 Million dollars in cash.

or to the psychological reward

The mouse pushes the red button in order to get a reward : a door opens and she can get food. But she never pushes the blue button which is followed by an electric shock.

You may admit that this continues to be the unclear and misleading … Just reading this word makes me uncomfortable. I feel like  ”give me your money on your project, I’ll give you a little thank you thing”… “be a good dog and I’ll pet you”. I’m just being provokative… Only one of the website I follow which fund projects related to image have moved away for the awful term “reward”. Indiegogo calls them “perks”. I’m not sure it is much better, but at least it smells like good coffee. In french it’s been replaced by “contrepartie” (counterpart) which I find better…

The reason I don’t like this term, “reward”, is because it adds to the misleading issue : basically it continues in the “donation approach”, in the misleading semantic issue of crowdfunding. So let’s look into details in this topic of “rewards”.

What does the customer, expect from the rewards?

The customer? I mean the backer… Rewards are important for me, the one in the crowd who discovers a great project and you the project owner.  Rewards are important for me. The are what project owners will give me back when the project that I helped funding is over. They’re The straight forward part of the promise the project owner makes to his backers: “You fund my project . You will receive this”. I’m not saying the project in itself and the author’s previous work and the “experience shared” don’t count but, lets face it:

1. If you know the project owner, then you know you can trust him, you know you’ll like his project and you will be happy with whatever reward he gives you.
2. If he’s a friend of a friend, then, ok, you may trust him too, you’ll make sure you like the project and what the author usually does, and you’ll hope, trust, but maybe also check that your friend’s friend will deliver nice rewards…
3. But… if you’re from hat they call the third circle, if you’re not in the author’s network, you don’t know him or any of his real life friends who recommended him to you… then the story is different…

In this post I’ll be discussing rewards for projects for crowdfunding projects from the point of view of a basic guy who is in the 3rd circle (see a definition in Ulule), from the guy who doesn’t know the author and is “not in his network”. Of all the over 10 photography crowdfunding projects I’ve backed, for none did I know the author or someone that know the author.

So I’m the basic amateur of photography. And when I discover a photography crowdfunding project, its quite a quick and linear process: I start by checking the project, then if I like what I felt for this project, I check the author and if I like what he did before. Only after this do the rewards come in.

And when I start reviewing the rewards, it becomes binary. Yes or no. Do I like a specific reward and am I ready to pay for it ?

Rewards must be attractive, progressive, well written… All this is written in the helps/manuals of each crowdfunding site (check on Kickstarter or ulule or any other…) and it so true:

• I’ve decided not to invest in projects in which I really wanted to do so because I did’nt like the reward. I didnt want to pay for something I didn’t want. And it also gave me an odd feeling about the project… The feeling that something was wrong with the project or the crowdfunding approach itself
• I’ve taken only the minimum pledge in a project which I really liked, for which I wanted to get a good reward… but I didn’t find what I wanted in the rewards, either I didn’t like the reward or the gap between reward was too big…

But there is an issue which I think is not correctly raised by the crowdfunding websites :

How do you set the price for each reward ?

The first reward is simple : you only give your backers access to a space where they are only allowed and where they will get updates and more. This space doesn’t cost you nothing… excepted the time you’ll spend on it. You sell it at a minimum price. Some sites set a minimum price (5 – 10 $…). The reasos why this minimum reward is important are, according to me:

• With a big number of low budget backers you still can get a significant part of the fund raised…
• The price has no real link with any value. But it’s an important reward. It’s the one that get’s the author tied with his audience, where he builds a network, his crowd, … That is a value in itself.
• And it is a door open. These low budget backers cans spread the word about your great project to their network and this will bring more backers and more funding… Using your crowd during the funding period is something no one has done well in the 10 projects I backed. But I’ll come to this part in an other post.
• The number of persons who have backed your project is important. The more you have, the more backer on the project, the bigger my confidence will be, and the lower the hurdle to backing will be. And I found this to be independent from which reward the others have selected.

But for the other rewards? Now the question really is :

At what price do you sell your rewards ? Yes sell !

That’s my point. I’m in the third circle, I don’t know you, the author, the project owner. I like your project. I’m interested in a specific reward. But is this worth my money ? Remember, I’m one in the third circle. I don’t give a damn about you and your project.

Because for me, the guy in the crowd, far away in the third circle, when I see your rewards, my question is: Is it worth the money ?

The crowdfunding websites are very unclear on this. They try to tell you, the project owner, (and me the potential backer) that crowdfunding is “a mix of commerce and patronage, and the numbers bear this out”, but also encourage the authors to “ stay reasonably close to its real-world cost” (Kickstarter). What does this mean ? You can sell your rewards a bit expensive, but not too much? Most sites don’t event tackle this issue, and stay in the easy vocabulary of “attractive”, “progressive”… bla bla… and on the statistics of the most common and the average reward levels. Kickstarter communicates in each of their reports on their average reward level, most frequent reward levels. Indiegogo shows statistics too. Only Ulule gives some hints at what they think the pricing should be (and they are in the “a bit above market price” philosophy…).

But all this is statistics, nice principles, without going into the real issue of  how to set a price (excepted ulule as mentionned). This is because they are blocked in the semantic problem, they are embaarrassed. Is crowdfunding a donation or a good or an investmentµ. They don’t take a clear position on this. (and hope to get away with it…)

My approach to rewards price to this is quite radical, and quite different. I wrote that backers must sell their “rewards”. and you can only sell rewards at the price they’re worth. Even in crowdfunding !

Rewards are goods. Goods have a market price.

If you sell a book, the book has a price in a library. You can’t just sell it more expensive and think I will be so happy to support your great project. rewards must be priced at the market price of the good and service you offer. Not more, not less. Otherwise your potential backers won’t buy it ! Otherwise I won’t buy it. And there, you have 2 options :

It’s exclusive, the only opportunity to have this good is to back the project. Its original, nobody else will have it… So this has a specific value. You can sell it a bit above “market price”. I mean I may be ready to spend more than the normal price, you can make a better margin.

In the projects I’ve searched for, this was sometimes proposed, but not too often, usually as as the proposition of a private meeting (of photoshoot) or as the possibility to get the « clap » of the movie. Some go further. GMB Akash in his survivors project on emphas.is proposed signed thank by some of the survivors. That’s good ! This has value added by the rewards to a good project!

Sacha GoldBerger’s Mamika project on kisskissbankbank is a very good exampe too (in french). Indiegogo presents the example of the spark arts project which funded the most part of the project through the “creative / orginal” reward (a personalized comedic song/performance performed for you).

Otherwise, when you decide to only propose something normal, then you should even sell your reward cheaper than the usual public price.

Cheaper ? But I said “at” market price a few lines above?!… Yes, but: I’m your backer. I don’t know you. I take a risk. Why should I buy your reward ? Shouldn’t I wait and see ? That would be less risky ! I could decide after I see it if I like it and if want to buy your reward (book…). Actually, when talking about rewards, I donot see much diffirence with book subscriptions. And some sites actually propose pre-sales/subscriptions process (ulule does, and emphas.is announced on l’atelier des medias de RFI (in french) that they will soon do it)…

Yes I know, crowdfunding should not be reduced to rewards, it’s sharing an experience, its… I know. It’s true (I’ll come back to this in another post), but it’s bullshit. I’ll put my money in your project only if I consider the value of the rewards to be good.

I know what I’m saying is frightening ! Based on this you can do your math again and again…

You will need much a lot more backers than expected

Define your rewards, take your usual sales price for those (or the market price), deduct 10-15% for the website and transaction fees, make a special discount for the crowdfunding campain (« pre-sales » approach), then look what your margin remains for you. That’s the funding you get from a backers when they selects your rewards… and it means you will need a lot of backers.

You will have to increase your funding target because the weight of the cost of the rewards in the project are increasing significantly.

And if you reverse the math, coming from the margin to the revenue you need to make from your crowdfunding campain, you will conclude you need to set a significantly higher than expected funding target… It means a lot of backers, but also a a psychologic effect on the potential backers: Why is so much money needed ? Will the project make it to th funding level ?…

And that’s where the crowdfunding websites should be very very clear, they must clarify the semantic issue. It seems there is some sort of taboo on the budget project. It should be clear and transparent. Let’s write down clearly that the budget is (for instance) 50% for rewards, 10% for the website and 40% for the production of the work!… Shocking ? Embarrassing ? No !

Let’s finish on 2 positive words :

• One can hope that setting more attractive prices will generate more volume. I mean more backers but also backers selecting higher priced rewards.
• The solution is in the exclusive rewards… (see above)

To be continued…

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