- Campaign Creation: An individual or organization with a business idea, creative project, or product to launch sets up a crowdfunding campaign on a platform like Kickstarter or Indiegogo.
- Contribution Expectation: The campaign creator offers backers a tangible reward, such as a product or service, in exchange for financial support. Backers expect to receive something in return for their money.
- Backer Involvement: Backers pledge a specific amount of money to the campaign. They may choose from various pledge levels based on the rewards offered.
- Funding Goal: The campaign typically has a specific goal to reach within a set timeframe for the project to proceed. If the goal is not met, backers are not charged.
- Financial Transaction: Backers’ credit cards are charged only if the campaign reaches its funding goal. If successful, the creator receives the funds, and the project moves forward.
Example: Imagine a tech startup seeking to develop a new smartphone. They create a Kickstarter campaign, offering early backers the opportunity to pre-order the phone at a discounted price. Backers pledge funds, and if the campaign reaches its funding goal, the startup uses the funds to manufacture and deliver the smartphones.
- Cause Presentation: A non-profit organization, individual, or charitable cause presents its mission, objectives, and funding needs to potential donors.
- No Expectation of Return: Donors are not promised any material return on their contributions. They are motivated by empathy, compassion, or a desire to support the cause.
- Donation: Donors voluntarily contribute money, goods, or services to support the cause without expecting personal gain. The donations are typically made to a charitable organization or a fundraising campaign.
- Use of Funds: The funds collected are used to further the cause or support initiatives, such as providing medical care, disaster relief, education, or community development.
Example: A non-profit organization dedicated to wildlife conservation creates an online donation campaign to raise funds for protecting endangered species. Donors contribute to the cause because they are passionate about wildlife preservation, with no expectation of receiving anything in return.
In summary, the key difference lies in the expectations associated with financial contributions. Crowdfunding involves backers expecting a return, while donations are contributions made without anticipating material gain, often supporting philanthropic or charitable causes.
Overview of Transactions and Fees work in a donations-based crowdfunding platform?
In a donations-based crowdfunding platform, transactions and fees are fairly straightforward.
Here is an overview of how these aspects work:
1. Donation Transactions:
- Donors: Individuals or organizations who wish to support a particular cause or campaign make financial contributions to the platform.
- Payment Methods: Donors can typically use various payment methods, such as credit cards, debit cards, PayPal, or other online payment gateways, to make their donations.
- Amount and Purpose: Donors can choose the amount they want to contribute and the specific campaign or cause they wish to support.
2. Allocation of Funds:
- Once a donation is received, the funds are allocated to the respective campaign’s account. The total amount raised is updated to reflect the new contributions.
- The funds raised are usually held in a secure account (e.g., escrow or merchant account) until the campaign reaches its goal or until the set campaign duration expires.
3. Fund Disbursement:
- After the campaign’s completion or when it reaches its fundraising goal, the funds are disbursed to the campaign organizer or beneficiary.
- Campaign organizers typically provide their bank account or payment details to transfer funds.
4. Transaction Fees:
- Most crowdfunding platforms charge transaction fees, a percentage of the total amount raised in a campaign. These fees help cover the operational costs of the platform.
- Transaction fees vary from platform to platform, and they are typically transparent and disclosed to both campaign organizers and donors.
5. Additional Fees:
- In addition to transaction fees, other fees may be related to using the platform. These could include payment processing fees (charged by payment gateways like PayPal), currency conversion fees (if donations are received in multiple currencies), and third-party fees (e.g., wire transfer fees).
6. Net Amount to Campaign Organizer:
- The campaign organizer ultimately receives the funds collected from donors minus the platform’s transaction fees and any other applicable fees.
7. Platform Operations and Services:
- Crowdfunding platforms use transaction fees to cover operational costs, including hosting, security, customer support, and platform development.
It is crucial for campaign organizers and donors to be fully aware of the fee structure associated with the donation-based crowdfunding platform they are using. Transparency in fee disclosure helps build trust among users and ensures they clearly understand how these fees impact the total amount raised and received by campaign organizers. Campaign organizers should also consider these fees when setting their fundraising goals to ensure they receive the funds needed to achieve their objectives.
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