Crowdfunding as a Financing Tool for NGO Projects. An Analysis of Motivational Factors for Contribution


Bachelor Thesis, 2015

43 Pages, Grade: 1,7


Excerpt

Table of Contents

1. Introduction

2. Crowdfunding for German NGOs
2.1 From Classical Fundraising to Crowdfunding
2.2 Features, Advantages and Limitations
2.3 A Comparison of German Crowdfunding Platforms
2.3.1 Betterplace.org
2.3.2 Helpdirect.org
2.3.4 Ammado.com

3. Classification of Donors
3.1 The Donor Pyramid
3.2 Donor Segmentation
3.3 German Donor Statistics and Developments

4. Motives for Donating to Crowdfunding Projects
4.1 Motivational Theory
4.2 General Motives for Charitable Giving
4.2.1 Socially-oriented Motives
4.2.2 Identity-oriented Motives
4.2.3 Development-oriented Motives
4.2.4 Morally-oriented Motives
4.3 The Motives’ Relevance for Crowdfunding

5. Creating Incentives for Contribution to a Crowdfunding Campaign
5.1 Influencing Donor Behavior
5.1.1 Commitment
5.1.2 Reciprocity
5.1.3 Social Comparison
5.1.4 Tangible Incentives
5.2 Incentives in Applications and Features
5.2.1 The Community of Funders and the Meaning of Social Media
5.2.2 The Fun Factor: Gamification
5.2.3 The Democracy in Crowdfunding
5.3 Incentives in Content
5.3.1 Storytelling
5.3.2 Credibility and Transparency
5.3.3 Updates and Further Contact

6. Conclusion

References

1. Introduction

The ongoing development of the internet and web-based processes causes radical changes in business and everyday life. Also the financing sector is experiencing a revolution. The internet allows everyone to get involved into other people’s projects and to invest in those. The “crowd” can share, control and edit information published online. These new forms of participation change fundraising and marketing processes sustainably. Crowdfunding platforms give space to private persons and organizations to publish their projects online and ask for financial support. These projects can be either for profit or non-profit.

Although data can, once put online, go viral in no time and become known to many people, there is still much effort needed to create an outstanding project which provides added value to the donor and is thus worth supporting and sharing. By far not every crowdfunding project is successful, and many fundraisers do not yet have the know-how to reach enough funders for their projects. Others even neglect to engage in crowdfunding in the first place, as new possibilities always come along with confusion and insecurity. The central aim of this thesis is therefore to examine how web-based crowdfunding projects must be designed and presented in order to satisfy prospective donors’ needs. The main focus lays on the initiation of the funding process. Prospects shall be convinced to become contributors to a crowdfunding campaign in a sustainable, long-term oriented manner. All aspects discussed will exclusively deal with donation-based crowdfunding for charitable purposes. The rewards for possible donors are therefore limited to small signs of gratitude and intangible benefits.

In order to come to the right conclusions, it is necessary to analyze both the fundraisers’ and the funders’ point of view. First of all, it needs to be clarified how crowdfunding works and what possibilities there are for German fundraisers to realize their campaigns in the most satisfactory manner. Several donation-based crowdfunding platforms in Germany offer different tools and features for their users, being both fundraisers and funders. Furthermore, it will be defined who must be addressed by crowdfunding campaigns and whether these people differ from regular offline donors. The donor pyramid as well as carrying out a donor segmentation are a tools to classify contributors to charity. To become more specific, the German donors and their preferences in giving will be investigated, concerning both offline and online fundraising. For a more profound analysis of the donors’ insights, one has to go back to the very roots of charity and philanthropy: What motivates people to donate to charity in general? Apparently, there is no mentionable countervalue for a donation. However, there are various motives to give, mainly of a psychological and social nature. Motivational theory helps to understand how the decision to donate evolves and can be influenced.

Both the funders’ characteristics and the fundraisers’ possibilities will be brought together when elaborating the incentives to contribute to a crowdfunding campaign. The design and content of the project page as well as the features of the crowdfunding platform should match the basic motives for becoming a donor. Some of the features already being offered by the platforms fulfill this precondition. In addition, there is potential for new tools making a contribution more probable and assuring long-term relationships to donors.

2. Crowdfunding for German NGOs

2.1 From Classical Fundraising to Crowdfunding

The distinct meaning of the term “fundraising” is unclear to many people and therefore often reduced to the simple “raise of funds” (Urselmann, p.1). However, it is in fact the procurement of all resources needed for a non-profit organization to fulfill its mission at the lowest costs. The aim is to allocate not only financial donations, but also volunteers, material donations and other complimentary support. This is done by adjusting fundraising activities to the resource providers’ convenience (Urselmann, p.1). For contribution, the donor or volunteer mostly receives only a non-tangible reward, whose forms will be discussed in chapter four of this thesis. Next to private persons, other resource providers can be companies, foundations and public institutions.

When it comes to marketing strategies, contributors to charity are similar to consumers. Instead of the marketing mix for salesmen, fundraisers may orientate their measures on the seven golden rules of fundraising presented by Peter Buss (p. 252ff.):

1. Recognize the donor as a human being
2. Motivate the donor
3. Give the donor a good feeling
4. Ask the donor for a donation
5. Let the donor pay their preferred amount
6. Open up the donor towards the organization
7. Win the donor for multiple donations

All of these rules need to be obeyed in order to make a prospect a loyal donor.

Fundraising is never completely cost-free: Personnel, marketing activities and administration have to be financed. This is why one third of all donations to non-profit organizations is not used for the actual purpose, but to pay for the acquisition of new donations (Sommeregger, p.71). A less costly and rather new form of fundraising takes place online. Since the new millennium, the internet influences nearly every part of live, especially when it comes to obtaining information, communication and shopping. There have been 61.6 million internet users in Germany in 2014 (Statista 2015), which amounts to 76% of the whole population. More and more people do their banking business online, already 54% of the Germans (Statista 2015b). Thus, it is only a logical consequence that donating to charity online becomes normal, too. Also material donations and voluntary services can be allocated online. These aspects will however not be covered in this thesis.

The term online fundraising applies, as soon as the donor uses the internet as a “distribution channel”, meaning the money is transferred online. Bank transfers do thereby not count as an online donation in its pure sense. The internet does not necessarily need to be the source of information on the respective project. The gathering of information can also happen via an offline channel, for instance a poster referring to a website. (Urselmann, p. 245f.)

A clear advantage of online fundraising is the possibility of using different media to present a project. Videos, photos, music and texts can be used to convince the prospect of a need - with the help of facts, but also emotionally. Moreover, it is time-effective. This makes online donations exceptionally relevant for urgent needs, for instance after a natural disaster.

Around 2025, the internet generation that is now under 30 years old – the so-called digital natives - will have reached an age when donations become more probable and more extensive (Urselmann, p.247). Thus, the best times for online fundraising are yet to come.

A clear signal for the development of the internet as a channel for financial transactions is the establishment of crowdfunding websites. Crowdfunding is a general term describing that the “crowd” – the online community in this case – helps an individual, a company or an organization to finance a certain project being presented on a crowdfunding platform. The “crowd” gets all the information needed to become a donor and can share the project with their peers, as the platforms are mostly linked to social networks.

There are basically four categories of crowdfunding, which are distinguished by the kind of compensation contributors receive:

- Reward-based Crowdfunding: Material or immaterial rewards, for instance receiving the new product which is the outcome of a successful campaign or being named in the credits of a movie
- Donation-based Crowdfunding: No direct reward, the funder donates the money for charity purposes (also: Crowd-donating)
- Equity-based Crowdfunding: The funder earns revenues from the project (also: Crowdinvesting)
- Lending-based Crowdfunding: Reward in form of interest, the funder claims the money back after the project has been completed

(Carstens & Schramm, p. 7)

The number of crowdfunding web pages is rising constantly and their concept is known to more and more people as a way of financing startups and projects. There are also several donation-based crowdfunding platforms supporting German non-profit organizations and their projects. For simplification, the term crowdfunding will be equivalent with crowd-donating throughout this thesis.

Launching a crowdfunding campaign is possible with only few costs, depending on the chosen platform. How fundraisers can present their projects to the “crowd“ will be explained in the following paragraphs.

2.2 Features, Advantages and Limitations

Crowdfunding websites offer several possibilities to fundraisers and also private persons to raise money for their charity project. In this thesis, the role of private persons will however be limited to the funding site. Especially for small non-profits with a lack of IT knowledge and simple websites, crowdfunding platforms help to take the step from online marketing to online fundraising. Locally or regionally active NGOs get the chance to reach way more people than with classical fundraising methods. Crowdfunding also enables them to connect with other NGOs and build networks (Sommeregger, p.79). When crowdfunding platforms are linked to social networks and offer integrated donation forms, one also speaks of social donation platforms. Some do also create an own network, where users can evaluate projects and fundraisers share updates with the community. The donors’ contact information is usually submitted to the fundraisers, so that internal databases can be expanded. The donation itself is possible via several payment methods, like PayPal, credit card or classical bank transfer. From most of the platforms, the donor automatically receives a donation receipt. A distinguishing feature to other types of crowdfunding is that it does not matter if the target sum of the campaign is reached after a certain time span or not. The money goes to the project initiators in any case.

Table 2.1: Features of Crowdfunding Platforms for Fundraisers and Funders

Abbildung in dieser Leseprobe nicht enthalten

Table created by the author

Crowdfunding also underlies some limitations. First of all, it is typically only adequate for temporary projects, not for general donations to the organization. It can therefore only be a supplement to regular fundraising activities. However, crowdfunding campaigns can cause the awareness level and popularity of an NGO and thereby also support the whole organization.

Secondly, the work is not done with the creation of a crowdfunding profile: if not marketed well, the project has no chance to stand out. The marketing for a crowdfunding project must take place on- and offline in order to exploit the full potential. It is safe to say that a campaign requires at least one employee dealing predominantly with that topic in order to make it popular and prevent mistakes. According to the Altruja Online Fundraising Study 2015, there is no extra job position for online fundraising in over 50% of the organizations. 76% invest only up to 5,000 Euros per year in online fundraising, although there is a clearly positive correlation between investment and the share of online donations (p.19&21). A lack of employees, time, know-how and budget are the most common reasons for non-profits not to engage in online fundraising (p.26).

An obvious limitation is that the target group of many non-profits, people in retirement age, is not comfortable with the internet and its new possibilities of participation yet. A considerable number of 50% quits the online donation process prematurely because they find it too complicated (Fabisch, p.221). This clearly reveals that there is much more potential if the processes are held as easy and transparent as possible, and as soon as the internet generation has reached the best donor age. On the other hand, almost half of the Germans beyond the age of 60 years are already internet users (Statista, April 2015) and do at least theoretically fulfill the preconditions to become an online donor.

2.3 A Comparison of German Crowdfunding Platforms

The crowdfunding trend has recently reached Germany and more and more crowdfunding platforms have been founded. However, most of them focus on start-ups and reward-based crowdfunding or crowd-investing. Music and arts projects build a big market share. Donation-based crowdfunding is a less overflowing business. Most of the projects are rather small and initiated by private persons or small groups. The Donation-based crowdfunding platforms presented in the following are the ones relevant for professional fundraisers from German NGOs aiming at exploiting the full potential of 21st century financing and marketing.

2.3.1 Betterplace.org

Founded in 2007, Betterplace.org is Germany’s biggest donation platform with currently around 14,000 projects (Status: July 2015). It is mainly financed by its mother company gut.org gAG, several private sponsors and companies aiming at improving their corporate image. Moreover, with every donation comes a request to give a percentage of the amount to support Betterplace.org itself, a so-called “Mitspende”. For instance, a donation of 100 Euros and a 15% “Mitspende” amounts to a total of 115 Euros payable. With this profound financing strategy, 100% of the donations can be transferred to the projects in need.

Two other parts of the company group are Betterplace Solutions and Betterplace Lab. Betterplace Solutions generates profits by offering consulting services to companies concerning their corporate social responsibility. Betterplace Lab on the other hand works on developing new ideas and forms of online fundraising to ensure the long-term success of the organization. (Betterplace.org)

Betterplace developed the so-called web of trust, where the donors can evaluate a project or an organization and state their approval or disapproval. Thereby the network controls itself and ensures the credibility of the published projects (Sommeregger, p.65). Besides that, users can comment on news and share their favorite project in social media. Fundraisers give detailed information in form of texts, photos and videos. They can name several distinct purposes for the money and the respective amounts needed. The current number of supporters and the status of the campaign are transparent. Widgets can be embedded into other websites or social media. Statistics and donors’ contact data are created automatically and accessible at any stage.

2.3.2 Helpdirect.org

This is Germany’s first online fundraising platform established already in 1999. Helpdirect supports international humanitarian projects and is financed by sponsors and direct donations to the organization. One offering is the first social gift card, the “Helpcard”, and the integration of links into partner websites, so-called white label portals. (Helpdirect.org)

The project sites are illustrated with photos, information on the organization and contact persons. No target amounts must be named. However, in order to keep the project transparent, various donation seals and Helpdirect’s own control tool, the Help Rank, are visible to the funder. Moreover, supporters have the possibility to share the project in social media or via e-mail and to embed a widget in their own website. One can choose between a single or periodical donation and is furthermore asked to support Helpdirect with a small amount. An exceptional feature is the possibility to donate not only to the project itself, but also to the organization as such.

2.3.3 Spendenportal.de

A wide spectrum of projects to donate for, from local to global, can be found on Spendenportal.de. Competent body is the Sozial-Aktien-Gesellschaft Bielefeld. (Spendenportal.de)

The projects are described in texts without extensive use of other media. There are no target amounts mentioned. The website is very basic and no additional services, for instance concerning social media, are available to the users.

2.3.4 Ammado.com

Working in worldwide offices in 130 countries and with over 1.6 million NGOs, this website is a real global player. It is possible to donate in 75 currencies and with 20 different payment methods. Its seat in Germany is located in Düsseldorf. Ammado.com is mainly financed by private investors. (Ammado.com)

Ammado is not directly linked to social media, but provides a social network in itself. Users can create an own profile and connect with friends, other supporters of the same project and fundraisers. It is possible to share experiences, questions or comments in a community. Organizations raise funds for their own projects on Ammado or private persons start campaigns on their behalf. One can moreover access several types of media including articles, photos and videos.

All of the named platforms offer various services to fundraisers and donors, which can be distinguished by their characteristics, extent and costs. Figure 2.2 shows how the different crowd-donating platforms charge their users.

Table 2.2: Fees for the Use of Selected German Crowdfunding Platforms

Abbildung in dieser Leseprobe nicht enthalten

Table created by the author, sources: homepages of the respective organizations

3. Classification of Donors

A successful fundraising campaign is highly dependent on how well the NGO knows its contributors. The more information there is, the more focused and effective is the marketing and fundraising communication. A typical crowdfunder does however have other characteristics than an offline donor and must also be classified differently.

3.1 The Donor Pyramid

Donors do not only need to be approached as prospects, but also at later stages of the relationship with the organization. Therefore, in classical fundraising one distinguishes between different categories of donors concerning the extent of contribution.

First precondition to become a contributor to a certain NGO is to be aware of its existence and secondly, to trust in its integrity (Urselmann, p.13). When these terms are given, the fundraiser’s task is, to offer possibilities of engagement to the prospect which should lead to an upgrade to a first-time donor (Urselmann, p.16). The amounts of money contributed and also the degree of personal involvement and commitment to the organization increases with the development of the donor to a multiple, regular and lead donor. Major donors who pass away might eventually name “their” non-profit in their last will. This would be the highest contribution possible to charity, according to the donor pyramid displayed below (Figure 3.1). The pyramidal form indicates that the amount of contributors decreases with every upgrade, as the degree of financial input and time exposure increases – not only for the donor, but also for the non-profit itself. On each level, the receiving organization needs to offer the donor an upgrade of their status as it is unlikely that they will make the next step all by themselves. This procedure is called relationship fundraising (Urselmann, p.16). It can be noted in this context, that prospects should not be asked for contribution straight away, but rather be informed about the work of the organization. The degree of fundraising approaches can then increase with the levels of the pyramid, while marketing activities can be brought down (Bailey & Barrett, p.2). Moreover, the messages to persons at a low level of the pyramid are rather standardized and become more personal with an increase in contributions.

By far not every donor climbs up the whole donor pyramid or even parts of it. If someone refuses to increase their level of giving, this has to be accepted (Urselmann, p.16).

[...]

Excerpt out of 43 pages

Details

Title
Crowdfunding as a Financing Tool for NGO Projects. An Analysis of Motivational Factors for Contribution
College
University of Applied Sciences Bielefeld  (Wirtschaft und Gesundheit)
Grade
1,7
Author
Year
2015
Pages
43
Catalog Number
V336774
ISBN (eBook)
9783668266766
ISBN (Book)
9783668266773
File size
982 KB
Language
English
Tags
crowdfunding, financing, tool, projects, analysis, motivational, factors, contribution
Quote paper
Katharina Hauck (Author), 2015, Crowdfunding as a Financing Tool for NGO Projects. An Analysis of Motivational Factors for Contribution, Munich, GRIN Verlag, https://www.grin.com/document/336774

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