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They Raised $1 Million and All I Got Was This Lousy T-Shirt

Offering rewards -- iPad cases, dinner with the founders -- helps attract people interested in funding a new business. Here's a guide to fund-raising giveaways.
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In her book Cash From the Crowd, Sally Outlaw, founder and CEO of crowdfunding website peerbackers, reveals the secrets of funding your business with help from colleagues, peers, family, friends and even perfect strangers through a crowdfunding campaign. In this edited excerpt, the author offers advice on what rewards will attract funders.

Many items go into a strong crowdfunding campaign. You'll be required to write a project title, upload an image that best represents your venture, create a project pitch that persuades, add thank-you perks for those who contribute, shoot a video, and more.

Pricing your rewards is one of the first steps because if you haven't designed and priced your rewards, setting your funding goal will be difficult because you can't project costs and revenue.

Although most crowdfunding sites encourage entrepreneurs to always use their own product or service as the primary reward, some commonly used approaches include tangible and intangible rewards.

Popular intangible rewards include:

  • Lessons -- cooking, photography, foreign language, etc.
  • Behind-the-scenes photos or video footage
  • Skype calls (for non-locals) or meals with founders
  • Early access to your offering, such as an app, software or other product
  • Credit, such as naming a menu item after a backer or posting their names on your website, product or "donor wall"
  • Exclusive access to a person, place or event, including a launch party for your venture
  • Limited-time discount on products or services

Too often crowdfunders either offer lame rewards or such over-priced incentives that it's hard to imagine what they're thinking. Remember, the goal here is to motivate folks to open their wallets. Making sure you charge the right amount for what you're giving for each pledge level is the key to a successful campaign.

Is it fair to offer a pre-sale reward at $50 when you intend to sell the same item for $30 once the campaign ends? Will your supporters want to pay $25 for a Facebook shout out? Do you really believe backers will feel it is worthy to pay $75 for your T-shirt?
Crowdfunding is a value proposition. You need to offer something worth attracting support. Rewards also reflect the level of creativity and effort that's gone into the project, so backers will quickly judge your campaign by what perks are being offered.

You can create thank-you perks like T-shirts using online resources that enable you to design and price them before launch (and even get "pictures" of them before they exist). Websites such as Zazzle or Vista Print allow you to create and download your designs so you can show your backers what they'll receive. Companies such as Tee Launch can create and fulfill your T-shirt orders directly to your backers.

When devising your rewards, here are two effective approaches to motivate backers to donate:

1. Limiting rewards. Offer a restricted quantity of an item or experience, for instance, only the first 10 people who back your project at a certain pledge level get the perk.

2. Early-bird pricing. Structure reward tiers so that the price of an item being offered increases over time. For example, offer 20 of a specific perk at significant discount, like $50. When those sell out, the next pledge level, for the same item, is $75. Keep in mind, the lower, initial pricing must truly be a discount on the market price so that the additional pricing levels, once the early birds are sold out, are still attractive.

It's quite common for your rewards' fulfillment and shipping costs to be much more than you counted on. While often the primary reward can be the product or service you plan to create, one of the biggest challenges is to devise rewards that won't be too pricey to fulfill in both time and cost. Most backers spend between $20 to $50 per pledge on a campaign, so keep this in mind when devising your rewards.

Product pre-sales aside, some of the most common reward offerings -- such as behind-the-scenes visits, exclusive experiences and donor credits -- don't have out-of-pocket costs for the entrepreneur. For instance, there was an entrepreneur who was raising money for his coffee business and alongside his reward of coffee shipments, he offered backers the chance to be a "barista for a day" and have a coffee drink named after them, as well as a coffee tasting evening in his shop. These are great reward ideas because they're not costly to provide, yet give the backer a special experience and connection to the business. It's ideal if you can offer funders to join in on something you're already planning -- such as spending time with you in your studio as you build your product prototype -- so fulfilling those rewards don't take you away from running your business.

Here are the top reward best practices:

  • Tailor your pledge reward levels to backers of all budgets.
  • Remember to calculate things like cost of packaging and shipping the rewards.
  • Avoid rewards that will be too burdensome or costly to fulfill.
  • If you want to attract backers outside your network, the cooler the reward, the better. That will attract press as well.
  • Backers like unique and shared experiences, so don't just focus on tangible products.