Issues to Consider When Crowdfunding Your Art Work

artist looking at the sky while next to a coloured wall on a staircase

Whether you are a creative artist or a business, a crowdfunded art project can be a great way to raise funds. While there are some benefits to this type of funding, there are also some issues to consider. These issues include Asymmetric information problems, Free-riding incentives, and Assurance problems.

crowdfunded art work

Budgeting for your project

Getting your crowdfunded art project off the ground requires a little planning, research and a dash of luck. Fortunately, there are plenty of resources out there to help. Some of the most useful are online communities devoted to different crowdfunding categories. A quick Google search can also give you the names of many local companies that specialize in crowdfunding services.

The Kickstarter Project Budget tool can get you started on the right foot. Use its calculator to estimate the costs of various items, including platform fees and payment processing fees. You can also use it to identify the true cost of fulfilling donor benefits.

The best part is, you don’t have to go to an expensive consulting firm to get a budget figured out. The trick is to hone your plan of attack by talking to local providers.

Bundling of goods and services

Using bundling to promote products has proven to be a profitable strategy across a variety of sectors. Consumers appreciate the opportunity to buy more in a bundle. It can also free up warehouse space and lower inventory costs.

E-commerce businesses need to learn how to properly bundle their products. The right bundle can help the business stand out, increase average order value, and clean out dead inventory.

Product bundling pairs products with complementary goods. For example, a computer package includes a mouse, keyboard, monitor, and preloaded software. This package is priced lower than a similar computer sold separately.

Product bundling also helps clean out inventory, reduce depreciating assets, and manage inventory. The technique also saves time and money in marketing and distribution.

Free-riding incentives

During a crowdfunding campaign, a variety of incentives are at play, including free-riding incentives. Crowdfunding allows artists and inventors to test the market for their work before incurring production costs. In order to maximize the chance of success, backers pledge to contribute money or goods. However, if founders appear to be profit-seeking, success probabilities may dwindle quickly.

Getting the most out of a crowdfunding campaign requires ignoring the free-riding incentives. A savvy founder will offer incentives that help overcome this shortcoming. This can be achieved by offering a variety of goods and services. This will also make a more compelling case for the value of crowdfunding to creators and potential backers.

Asymmetric information problems

During crowdfunding, there is a risk of information-related market failure. One reason is that early funders generate a noisy signal for later investors. This signal causes confusion, which can lead to a failure in the value creation process. The problem is exacerbated in early-stage ventures, where funders are limited in their opportunities to perform due diligence in person with the creator. But rules and regulations help to overcome the problem.

Another example of asymmetric information is in the insurance industry. For instance, a consumer who is careless with their money and fails to pay their premiums would not be an ideal consumer for an insurer. The lender will look at a customer’s history of paying their bills and at any evidence of a stable salary. The lender will then charge a higher rate of interest to compensate for the risk. This is because the lender cannot predict the future behaviour of a borrower.