Understanding Crowdfunding Fees
Crowdfunding donation based platforms Kickstarter, IndieGoGo, and Rockethub are causing a stir in the news lately with million dollar projects and other impressive stats, but what percentage of these impressive amounts makes it to the platform and their operations costs?
Let's take a look at the-big-three's fee structures and find out:
Kickstarter: charges a 5% fee on all funds raised during an all-or-nothing campaign, but, if the funding goal is not reached, no fees are charged. Simple enough... That means for every million dollar project, Kickstarter is taking in $50,000. That may not seem impressive, but keep in mind, Kickstarter reported on its blog that it had $99,344,382 pledged in 2011, of which roughly 40% went to successful projects and was collected. 5% still not seeming like a big deal?
IndieGoGo: allows two options, Fixed Funding and Flexible Funding. Fixed Funding applies the all-or-nothing model to your campaign, so if you do not meet your goal then you are not charged any fees and the funds are sent back to the contributors. Flexible Funding charges a 4% fee on all funds raised during a campaign, but if the goal is not met, a 9% fee is charged.
Rockethub charges a 4% fee on all money raised for successful campaigns, and an 8% fee for campaigns that do not reach their goals. Additionally, it should be noted, that Rockethub charges a 4% transaction fee for contributions made through the site in order to average the amount charged by credit card companies.
Offering tax deduction to backers can be an appealing way to draw in more funds. But, you can only offer tax deductions if you are a tax-exempt non-profit organization (501©(3) organization), otherwise backers funds are not tax deductible.
If a backer is giving money through a 501©(3) organization, make sure the money is funded under the name of the organization, if it does not go through the organization the money will not be tax deductible. For Kickstarter, you must fill out the 1099-K tax form and, for IndieGoGo, the organization must have a PayPal account that the money can go to.
After you've read this article and got your head around the fee's involved in crowdfunding, keep your eyes out for an article on crowdfunding and taxes in our newsreel.
Have anything to add? We'd love to hear it in our comments section below, or send us your own suggestion for a piece during Crowdfunding Month.