Indiegogo: Fixed vs. Flexible Funding

Crowdfunding platform Indiegogo has differentiated itself from the other rewards-based crowdfunding platforms by offering two distinct funding schemes that projects can choose between to use as the basis for their campaign.

Fixed Funding, also commonly known as all or nothing, follows the same scheme as Kickstarter and other platforms whereby you set a funding target prior to the start of your campaign, and if you reach that goal you are funded with the contributions from all backers less Indiegogo’s 5% cut and transaction fees. If you don’t hit your target however, you get nothing at all but are not on the hook for any fees either. Backers are refunded their money in this case and the project is not obliged to provide any of the perks/rewards promised.

Flexible Funding (a.k.a keep it all) on the other hand allows the project to keep all money raised regardless of whether or not the target was achieved. Indiegogo charges a higher 9% fee in this situation and states that this is to encourage people to set reasonable goals for their campaigns. In other words, there’s a 4% penalty to campaigns that don’t meet their target, but they otherwise get paid even if it’s a small fraction of what the original goal was.

Indiegogo appears to be actually encouraging campaigns to opt in to the flexible funding scheme. I believe there’s two reasons for this: It is primarily a means for Indiegogo to differentiate itself from it’s primary competition, Kickstarter, and the higher fee brings in additional revenue for them as well.

I believe this encouragement should be taken cautiously however. There are two main pitfalls that must be considered before taking the flexible funding approach:

  1. Projects need to carefully consider whether they can actually meet their commitments to backers, and more importantly successfully complete their project even if the target is not met. This is more of an issue for product-development type projects, where there will actually be a production run, compared to say a charitable cause where any amount of money will help the situation.
  2. The all or nothing fixed funding scheme provides a level of encouragement to backers that they will not be throwing their money at a project for naught. They have comfort in the fact that if the project funding goal isn’t achieved, they won’t be faced with a campaign that failed to consider point 1 and ultimately not receive their perk reward(s).

My recommendation therefore is to make sure you very accurately determine what your true minimum requirement is to meet your commitments to backers. There may be a bit of iteration required (use a spreadsheet) because your minimum cost may change depending on the number of backers, etc. This can be complicated even further if you have complicated rewards tiers with vastly different unit costs depending on the reward level.

Once you have a true understanding of your absolute minimum funding requirement, you need to attempt to make a risk assessment as to what the likelihood is that your campaign will raise between $0 and the minimum amount you determined above.

Some questions to consider to this point: How much buzz and excitement do you have around your campaign before launch? Are people waiting at the door for you to hit the launch button? If so, you may not have much cause for worry. How well have similar projects to yours done in the recent past? It’s impossible to assess the risk with certainty (that’s why it’s called risk) but you should be able to make an educated guess. These things all need to be considered before committing to the flexible funding option.

It should be clear from the narrative above that I am quite strongly opposed to the flexible funding approach except in cases where there truly is no minimum funding requirement to be able to meet your commitments to backers and otherwise.

By sticking with the tried and true fixed funding scheme you will minimize the fees payable to Indiegogo, install a higher degree of confidence in your backers, and unless you’ve underestimated your actual funding requirements, won’t find yourself in a position where you are unable to meet your commitments.

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