Launching a white label crowdfunding platform can be one of the most powerful ways to connect projects and opportunities with eager and suitable investors - but it’s crucial to understand the full costs of operating such a platform.
While the software licence for your crowdfunding platform is often the first cost you’ll consider, it’s typically only part of the financial considerations.
With costs related to compliance, payment processing, marketing and more all needing to be accounted for, this piece provides an insight into some of the core expenses involved in running a successful crowdfunding platform, helping you to make smart budgeting decisions.
At the core of your crowdfunding platform is the software itself. Whilst it’s a possibility to develop a platform from scratch, licensing a white label version is by far the most common option.
Providing you with a robust, flexible, and secure platform, you are given the ability to serve your users effectively and importantly, scale as your crowdfunding platform grows.
Typically, platform licensing costs are based on the complexity of features, user volume, and the degree of customisation you need. As such, the pricing can vary, but there’s almost always an option available to meet your specific requirements from both a feature and a budget perspective.
Importantly, although the upfront licensing cost may seem notable, investing in the right crowdfunding platform can offer a substantial return over time.
With the right software, you can benefit from aspects such as:
A critical component to any crowdfunding venture, the software licence is very often the lowest-cost element with the highest return, as a quality platform lays a foundation that supports all other aspects of your operations.
Handling funds between investors and projects is a core function of any crowdfunding platform.
On one hand you have investors wanting to invest, and on the other you have projects or opportunities raising capital. On the most basic of levels, you need to act as the conduit between the two, and from a financial perspective, this brings with it a raft of potential fees.
Before we get into this, it’s important to note there are numerous options that sit above the actual transaction fees, which need to be considered, and all of which have varying associated costs - for example, are you going to be operating a nominee structure to facilitate the processing of funds and holding the capital? If so, this brings with it a variety of fees related to regulation and compliance, for instance.
But if we just look at what most operators of crowdfunding platforms are going to be experiencing as a minimum - payment processing fees - these are the charges associated with each transaction (and critically, apply not just for investments, but fees and payouts, too).
Every payment processors fees are different (although similar), but whether you’re looking at household names such as Stripe or PayPal, or more specialist providers, you will generally be charged fees on a percentage of each transaction.
This could look like:
Particularly in the early stages of an organisation’s crowdfunding operations, it can be difficult to be specific with budgets for payment processing fees - the difference between facilitating £5 million in investment and £15 million investment could be a difference of £300,000.
However, whether you raise £5 million or £15 million could realistically be out of your control and dependent on an array of factors such as the size of your investor network, your investors’ appetite and the projects that are put forward for investment.
With this in mind - and since crowdfunding generally involves high-volume, low-value transactions - payment fees can add up quickly and you need to be accommodating of them in your budgeting.
Whilst difficult at the start, it can become easier when you understand the volume of payments you process on average - and especially when you become in a position to negotiate better rates with your chosen payment processor based on volume.
Now having a crowdfunding platform in place is somewhat irrelevant if you aren’t directly focused on the compliance and regulatory elements. Without a clear understanding of, and abidance by, your jurisdictions regulations, your platform will not be able to launch or scale effectively.
And with such abiding by the regulations comes a number of associated costs.
Compliance varies depending on several factors, such as your jurisdiction and the requirements, but they generally include:
Whilst compliance costs may feel burdensome, in many instances they are a non-negotiable option. Regulatory fines are severe, and the damage to your reputation can be irreparable.
But although they are non-negotiable and compliance and regulation in itself can require a significant amount of time, much of the time-related costs can be managed, and the processes streamlined and be more efficient, with the right crowdfunding software.
As with every other business, building, running and seeing success with a crowdfunding platform requires an active sales and marketing strategy.
The competition in the crowdfunding space can be intense, so investing in marketing can help differentiate your platform, and attract the right users and encourage your audience to truly engage.
Marketing costs can undoubtedly vary - widely so, too - and there are so many variables to consider. For this reason, it can often be best to assign a budget for your marketing spend based on what is realistic for you to afford once you understand just what’s required.
Take a look at some of the components you might want to consider as an example:
An ongoing investment, whilst your sales and marketing efforts can be one of the more variable costs, most agree it is essential for driving platform growth as simply put, strategic marketing that aligns with the unique strengths of your platform will deliver results.
For any crowdfunding platform to thrive, it needs sufficient supply on both sides - you need investors wanting to invest and opportunities, projects or deals for said investors to invest into.
Building the second part - deal flow - requires an array of aspects, including in-person networking, relationship-building, and often partnerships with trusted sources.
With marketing also a valuable aspect, that can focus very much on the same components as above and so if we focus on the areas areas, you’re likely going to want to consider the costs of:
Your deal flow generation and processing costs are critical to the success of your platform as high-quality projects are critical to attracting and retaining investors. Having well-regarded, profitable projects on your platform increases credibility and gives you a strong foundation for growth.
As the above highlights, not only are there a significant number of budgetary elements to consider when launching and operating a crowdfunding platform, but there is wide scale as to what these costs are.
Depending on everything from your technological needs and jurisdiction requirements through to marketing capabilities and deal generating processes, costs are going to realistically enter the five-figure park as a minimum.
And whilst a robust, versatile software platform that offers scalability, compliance support, and an excellent user experience can provide the highest return on your investment, it's clearly just one cost to consider as part of your entire project.
Launching and operating crowdfunding software and all of the associated components can be rewarding in a variety of ways, but it undoubtedly requires a substantial amount of planning and preparation - and available capital - to see immediate and long-term, sustained success.