How Do CrowdFunding Websites Make Money?

Crowdfunding is the art of financing a project, venture or a cause by pooling together small contributions from a large number of individuals.

People use crowdfunding to finance all kinds of ventures and activities like making a film, launching a tech startup or simply raising money for a social cause or charity.

Crowdfunding websites like act as an interface between the individuals/organisations with a cause or idea and the potential investors. In this post we will discuss how Crowdfunding Websites make Money.

How Do CrowdFunding Websites Work?

As discussed above, a crowfunding website helps individuals/organisations raise money for a cause or an idea by providing them a platform to showcase the cause/idea before a large group of potential contributors.

One simply has to create a campaign on a crowdfunding website, introduce the concept (i.e the cause or idea) in a way that it appeals to the potential contributors and explain how he/she plans to utilize the funds raised.

In case the campaign appeals to a contributor, he or she will make a small contribution online towards the cause.

It is the crowdfunding website which collects the online contributions on behalf of the campaign owner and releases the funds to him/her at the end of the campaign.

How Do CrowdFunding Websites Make Money?

Now that we know how CrowdFunding works, let us attempt to understand how the crowdfunding websites make money.

As I have stated above, a crowdfunding website collects contributions from individual contributors on behalf of the campaign owner. The funds are released to the bank account of the campaign owner after deducting a fee which is expressed as a fixed percentage of the amount of money raised for the campaign. 

It is this fee charged which forms the primary source of revenue for Crowdfunding websites.

Certain crowdfunding websites also provide additional services like assisting campaign owners in creating and marketing a fundraising campaign. These additional services are on chargeable basis and also forms part of the revenue of crowdfunding websites.

Note that the crowdfunding websites incur payment gateway charges for collecting online contributions on behalf of the fundraising campaign owners. The payment gateway charges are also recovered from the campaign owners.

Hope you liked our discussion on how crowdfunding websites make money.

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