After you learned how to be a better business owner by reading about everyone’s experience on topics like First Step For Your Coffee Business and What I Wish I’d Known Before Starting My Coffee Business, we are sure you are ready to move on to the next level. Getting clever financing is what we are up to today.
CoffeeShoprs agree that securing financing is one of the biggest difficulties they face – but luckily, there are a few solutions! Let’s explore 3 fantastic crowdfunding options to get pretty much “free” money for your idea. Forget the bank loans for now and read on. This guide just might save you a fortune.
1. The Basics
Crowdfunding is raising money for a project, business or a cause by reaching out to online community and asking for financial support. Although the rules differ from site to site, generally you would pitch an idea, decide on a fundraising goal and set a campaign duration. You can fundraise for a new or an already existing business, and people can donate any amount they choose.
Coffee shop startups are quickly catching up with the idea. We have already covered a number of shops that were successfully sponsored via this route. Click here to read our story on Andrea de Francisco and her business Cafe St. Jorge in San Francisco. 285 backers pledged $30,381 of her $30,000 goal. Also check out businesses like Public Brew House and Coffee ($37,739 raised) and Double Decker Coffee Shop ($30,851 raised).
2. The Benefits
1) No Debt. Crowdfunding is a great way to fund a project without giving up equity or going into massive debt. Usually, funds are raised in exchange for gifts, future products, or other small rewards.
2) Tandem Financing. You can use crowdfunding campaign to raise funding in tandem with bank and family loans.
3) Valuable Feedback. During the campaign, you’ll have the ability to engage the crowd and receive comments, feedback, and ideas that can help understand some aspects of the project that were previously un-thought of.
4) Early Fans. People who decide to contribute are, in essence, early adopters that are likely to be loyal customers throughout the life of your business.
5) It’s FREE! On “all-or-nothing” crowdfunding platforms (meaning that you receive the funds only if you reach 100% or more of your funding goal) there is no fee to participate. If funding isn’t successful, there is no penalty. In that case none of the contributors get charged, you don’t get anything and neither does the platform. If the fundraising is successful, the platform charges a certain percentage of the total funds raised.
6) It’s LOW RISK! Once you reach your fundraising goal, the only obligation you will have is fulfilling the rewards for project backers. It’s very different from getting stuck with a bank loan and its mandatory monthly payments.
3. The Challenges
Eye Catchy Campaign. The hardest challenge of crowdfunding is creating a campaign that will get backers’ attention. There are hundreds of projects posted every day, and yours has to stand out. Be sure to present your idea as being innovative and valuable to the community.
Compelling Incentives. You will have to offer different rewards to project bakers, so it’s going to be necessary to think them through really well and to make sure they are catchy enough. Also don’t forget that once your successful campaign is over, you will have to start fulfilling those incentives right away.
The Time Factor. As soon as your campaign is online and public, real work begins – marketing your campaign to as many people as possible. Make sure you or your partner will have enough time to dedicate to that.
4. How to Start
- Choose the right crowdfunding platform, set up your project with details of your proposed coffee business goal, make a video, and establish some attractive rewards.
- Begin spreading the word about your campaign.
5. Choose The Platform
Although there’s plenty of overlap in many of the crowdfunding sites out there, each caters to a specific audience. You should try to match your objective with the most appropriate platform. We suggest taking a look at the following crowdfunding options. Each has its own benefits and restrictions to consider.
Since Kickstarter launched in 2009, more than eight million users have pledged over $2 billion, funding everything from a potato salad to Oscar-winning documentaries. Kickstarter is probably the best-known crowdfunding site out there, but there are a few important things you should keep in mind:
- You’ll only receive the money, if the campaign is fully funded. That means that if you raise $29,999 out of your $30,000 goal, you won’t get anything.
- Kickstarter charges a 5% aggregate fee to funds collected. There is also a 3-5% payment processing fee, which leaves you with approximately 90% of the total funds raised.
- You’ll always keep 100% ownership of your business or project.
- There is a review process for every project by Kickstarter’s staff. Kickstarter only wants “creative projects”, and thus will not approve your campaign, if they consider your project not being creative enough.
Indiegogo is another popular crowdfunding site with some major differences from Kickstarter:
- Indiegogo has a much smaller community of backers (think 4-5 times smaller), and there is much less buzz around Indiegogo.
- However, many users choose Indiegogo over Kickstarter because Indiegogo gives you choice between Fixed Funding (like on Kickstarter) and Flexible Funding. Flexible Funding allows creators to keep the funds they have raised for a 9% fee, even if the fund raising campaign is ultimately unsuccessful in reaching its set goal.
- Another cool thing about the Flexible Funding is that contributions get deposited right into your account as the campaign goes on. Kickstarter is “all-or-nothing,” and you have to wait until the end of the campaign to get any of the money.
- If the funding is successful, with both Fixed and Flexible Funding, Indiegogo takes a 4% cut from a total amount, making it a slightly cheaper alternative to Kickstarter. There is also a 3-5% payment processing fee.
- Plus, unlike Kickstarter, you can post your project right away, without waiting for someone at Indiegogo to review it.
Foodstart is designed exclusively for the food-and-beverage industry, which means it has a motivated community of backers who care about food, coffee shops and restaurants.
- Kickstarter only funds “creative projects.” So if you’re starting something creative, they’ll let you on. But if you’re a restaurant owner who wants to build a back deck, for example, you might be out of luck on Kickstarter, but not on Foodstart.
- However, Foodstart is much smaller than both Kickstarter and IndieGoGo. Foodstart’s most successful campaign so far was $12,420 funding of a bistro in Honolulu, HI. In comparison, the most successful campaign on Kickstarter raised $13,285,226.
- As with Kickstarter, you must reach your full funding goal to get any of the money. For established restaurants, though, Foodstart waives that requirement, so they transfer the funds raised, even if they fall short of the goal.
- Foodstart charges 4% for its service and requires an additional 2.9% for credit card processing. So the business owner nets 93.1%.
6. Setting Up Your Campaign
After you choose a platform to submit your project to, it’s time to work on the following four key elements of your campaign.
I. Project Goal
The funding goal is the main purpose of your campaign, so make sure to carefully investigate the final amount that you’ll need. Of course, the number will differ depending on the scale of your objective and the amount of other financing already available. If you’re expecting crowdfunding campaign to cover your costs entirely, analyze future business expenses really well and include them all in your goal.
While figuring out the goal amount, keep in mind the location and potential outreach of your business. If you are based in a small town, no matter how good and valuable your idea is to the local community, it will be much harder to secure large financing than if you were in a big city. In addition to a difference between pure quantities of people who could contribute, big city folks are a little more aware of the crowdfunding concept.
Be sure to include platform’s final fees as well and don’t forget about miscellaneous expenses for fulfilling rewards and gifts (shipping, wrapping, etc.).
II. Contribution Amounts & Incentives
Once you decide on your goal, break it down to fit any budget. If you goal is $15,000 for example. Offer $25, $50, $100, $200, $500, $1000, and even $2,500, $5,000, $7,500 rewards.
For incentives, your major one will be related to giving away free coffee related products. If you are a coffee shop, go for free coffee cards with number of giveaways depending on the contribution level. If someone donated $5,000, $7,500, for example, consider “lifetime” perks – “lifetime espressos”, “lifetime lattes”, etc. If “lifetime” is too much, go for “yearly”. For mid-level contributions you can offer master classes with your baristas and roasters. People love that! For all low-level donations you can be creative and offer real hugs (like Andrea de Francisco from Cafe St. Jorge did) or simple coffee, tea and dessert giveaways will do.
By the way, if your idea is catering to a local community only, you can still go national with your campaign. Just offer tangible goods that you can ship – mugs, t-shirts, posters, roasted coffee bags, bumper stickers, etc. (Don’t forget to include their production and shipping costs in your campaign goal).
III. Campaign Proposal
Campaign proposal is a written description of what you’re trying to achieve. The best way to get an idea on how to write a good proposal is to look at some of the successful crowdfunding campaigns for coffee businesses. If you haven’t already, take a look at Kickstarter campaigns for Cafe St. Jorge, Public Brew House and Coffee & Double Decker Coffee Shop.
Basically your campaign proposal will have the following structure:
1) Objective. What you are trying to achieve with your campaign? How will you make it all happen once you receive the money?
2) Amount. How much money do you need? How will the money be used?
3) Your Story. Who are you (and your partners)? How did you get to be doing this project? What kind of qualifications do you have to be in the coffee industry?
4) Progress. What kind of progress have you done so far? Is your business already running and customers can’t wait for that new idea to be implemented? If you aren’t open yet, how long will it take to open the doors after you win? People aren’t interested in something that will keep them waiting.
5) Donation Options And Rewards. How much can backers donate? What kind of tangible and intangibles incentives can they get?
6) Risks And Challenges. Keep this section short and don’t be overly negative, but talk about the major risks involved in funding your campaign. For example, you might not have a Grand Opening on time or delay some of your services due to challenges in construction, health inspections and other common factors. Better safe than sorry.
7) Video. Adding video to your campaign is optional, but it’s something that we highly recommend. Kickstarter claims that video projects have a higher success rate than projects without one (50% vs 30%). Video adds a personal touch to your campaign. It’s your opportunity to shine and get up & close with each and every backer.
Tip. We know that pro videographer could cost hundreds, sometimes several thousand dollars, so don’t necessarily employ one. Keep it simple. Even a quality phone video can work just fine. The most important aspects are your idea and your authentic “You” to present it. Just be yourself.
7. Marketing Your Project for Success
Friends & Family. Spread the word about your campaign among all relatives and ask them to donate through the platform’s website. This way, everyone will see that your campaign is quickly gaining momentum and others have already donated. Use that peer pressure to your advantage. The same goes for cash donations inside your shop, if you already have one. Ask customers to donate on the platform instead.
Be Careful With Updates. You will be able to update everyone as your campaign goes along. Make sure not to overindulge in soliciting people to contribute. Reserve updates for news about adding new incentives and completing major milestones.
Don’t Be Put Off By A Pause. Expect donations to stop at some point; it usually happens sometimes in the middle of the campaign duration. Consider it as if your campaign’s curve reached the top of the graph. Don’t panic. Just be creative and think of some “fresh” gifts. Also it would help to add more paragraphs about why this project must succeed.
Ask Your Supporters To Share. People who have already donated most certainly want to see you succeed. Don’t be shy about asking them to share the campaign on all of their social networks and among friends and family. On all-or-nothing platforms, it’s good to constantly remind everyone that your project will be funded only if you reach your goal. Don’t assume that everyone knows it.
Explore Other Marketing Outlets. Look beyond Facebook and Twitter engagement. If your idea is unique enough, you should have no problem getting mentions from local news stations and newspapers. You can be interviewed as a prospective coffee shop owner or as the entrepreneur behind a crowdfunding campaign. Just contact them and see.
8. Ready to Go
You’ve written an awesome campaign proposal, decided on irresistible incentives and devised a genius marketing plan? Excellent – you’re ready to launch! Don’t forget to thank your fans and supporters at all times throughout the campaign. Do that in all of your written materials, video and donations page, of course.
When the campaign ends, be quick in thanking everyone once again and begin fulfilling backers’ rewards a.s.a.p. People who donated are already some of your biggest fans and you must keep them happy. Remember that everyone involved deserves your utmost attention and gratitude!
Your campaign page will remain online after the project ends (with success or failure). This page will become nearly as important as your website. Many will see it while searching for you on Google. That shows just how much care you should put into it right from the very beginning. You will also be able to post updates on how the business is going years after. Do that to keep the engagement with your business going.
Best of luck!
We hope you enjoyed this guide. Of course, successful crowdfunding campaigns require hard work and a strategic step-by-step preparation. We will be discussing everything related to running a successful crowdfunding campaign in detail in our magazine. Subscribe below to receive major updates as they come. Thanks for reading!