Crowdfunding vs Peer-to-Peer Fundraising: Key Similarities and Differences
Is your nonprofit just starting out or is it in its early stages? Perhaps a funding source fell through? Or maybe you’re simply looking for a financial backup for your organization’s growth and development? Decades ago, the choices were limited. Many nonprofits were going door-to-door to thousands of potential donors or reaching out to major…
Is your nonprofit just starting out or is it in its early stages? Perhaps a funding source fell through? Or maybe you’re simply looking for a financial backup for your organization’s growth and development?
Decades ago, the choices were limited. Many nonprofits were going door-to-door to thousands of potential donors or reaching out to major trusts and philanthropists. Now, this exhausting process of raising funds has reached a dead end.
The rise of the Internet and the sharing economy, in particular, has created a world of opportunities for organizations of all types and sizes. One of such exciting developments is alternative financing – with the two most common types being crowdfunding and peer-to-peer fundraising.
While many people use these two terms interchangeably, they are actually two separate (albeit, similar) fundraising techniques. This ambiguity around the phrases “crowdfunding” and “peer-to-peer fundraising” make the topic hard to navigate.
What is Crowdfunding?
Like the term suggests, crowdfunding refers to sourcing funding from the crowd. Crowdfunding sees many individuals giving small donations each — $5, $10, $50, $100, or more, for a specific cause or project. With the proliferation of various online platforms for fundraising, crowdfunding has become extremely popular and is used by individuals, corporate organizations, and nonprofits to raise funds.
Individuals & Crowdfunding
Crowdfunding is used by individuals around the world to raise money for health expenses, tuitions, mission trips, and plenty of other different projects, ideas, and initiatives.
Here’s an example of how an individual could use crowdfunding. Let’s say Amy wants to raise money to help pay for her graduate school. To ask for donations, Amy sets up a crowdfunding campaign.
The campaign has an end date and a financial goal as well as a description of what Amy is raising money for. Then, she shares her fundraiser via social media sites like Facebook and Twitter and sends out emails to her friends and family members. Her friends and family members then donate to her crowdfunding campaign, leave messages of support, and share the campaign with their own networks. Amy keeps them updated by sharing messages, photos, and videos
While nonprofits and corporate organizations might take this process up a notch, that is crowdfunding in a nutshell.
Corporations & Crowdfunding
You’ve probably heard of or perhaps even contributed to a fundraiser on Kickstarter, where someone with a project, such as launching a special planner or the ultimate travel jacket, looks for like-minded individuals who can help fund that project (for example, to cover the printing or production costs).
In return, they’ll usually get some form of reward, and the reward varies from one price tier to another.
Additionally, for-profit organizations also use equity crowdfunding. This type of fundraising is closer to an investment in shares – also known as equities, hence the name.
Backers who fund businesses through equity crowdfunding get a stake in the business. It might fail, in which case the investor could lose their investment, or it might thrive, in which case the investor could be in line for a return on their investment.
Nonprofits & Crowdfunding
A nonprofit’s crowdfunding campaign is typically tied to a specific project or an event. Let’s say Nonprofit XYZ wants to help build a new water purification system in one of the communities they’re serving.
Just like Amy, Nonprofit XYZ sets up their own crowdfunding page and includes information about the project or event.
And just like Amy, Nonprofit XYZ then shares the campaign across their social media profiles and emails their current donors and prospects about the fundraiser. As individuals donate, a fundraising thermometer fills up (usually an integral part of crowdfunding platforms), showing how close the nonprofit is to their goal. Nonprofit XYZ also provides updates and gives thanks to their donors as the donations come in.
There are various large sites for hosting crowdfunding campaigns, such as GoFundMe, IndieGoGo, or even the Facebook Donations app. On crowdfunding sites, your nonprofit’s fundraising campaign is accompanied by dozens of other campaigns for varying causes, so the donors could get distracted.
But Donorbox lets you set up a dedicated crowdfunding page for your nonprofit along with some truly effective features such as an ‘updates’ tab, a donor wall, a goal meter, and social media buttons. It’s free to start with. Plus, there’s no distraction for your donors.
Here’s a video to show you how crowdfunding works on Donorbox – explained with simple steps!
What is Peer-to-Peer Fundraising?
Peer-to-peer fundraising involves supporters of a cause or nonprofit to individually raise funds for the cause. It is somewhat of a sub-category of crowdfunding. Instead of having a single crowdfunding page where everyone donates, with peer-to-peer fundraising, individual fundraisers set up personal fundraising pages to accept donations, and ask people in their networks to donate. Any funds raised are then received by the nonprofit.
Unlike crowdfunding, which is used by individuals, corporates, and nonprofits; peer-to-peer fundraising is usually used only by nonprofits.
This strategy makes use of donors’ existing networks. It encourages supporters to reach out to their peers, friends, coworkers, and family members for donations.
Peer-to-peer fundraising is effective because it builds on relationships and utilizes the already-existing donor base of a nonprofit, and it also helps build social proof.
When shared by a friend or family, people are more likely to trust a publication.
A peer-to-peer fundraiser is often tied to an event, such as a walk-a-thon or a marathon.
Donorbox helps you create quick peer-to-peer campaigns and invite your earnest supporters to fundraise for you. All it takes is toggling of a switch and you’ll be all set to leverage the power of your community and their network. Here’s a promo to help you understand Donorbox peer-to-peer fundraising.
Here’s how a typical peer-to-peer fundraiser works:
Nonprofit XYZ chooses a project/cause/event and identifies key supporters. Then, it reaches out to those supporters to see if they’d be interested in helping out by doing fundraising.
Nonprofit XYZ trains the interested supporters, either in person or by sending them an online manual. Then, the fundraisers set up their own individual fundraising pages.
Fundraisers then solicit donations from their friends and family members, who donate via the supporter’s individual fundraising page. The funds from each individual supporter go to the Nonprofit XYZ’s main fundraising page.
Nonprofits usually have their own websites and host peer-to-peer fundraising campaigns on it. Donors are less likely to find distractions by other causes when visiting a nonprofits’ website. This might not be the case in a crowdfunding campaign.
Crowdfunding vs Peer-to-Peer Fundraising: Which Should I Use?
Both fundraising techniques are convenient ways to raise funds. However, which one you choose will depend largely upon the resources available to your nonprofit organization.
Crowdfunding is a simpler strategy than peer-to-peer fundraising, seeing that you only need one donation page. Promoting that page to your donors and followers will require the largest investment of time and energy.
Peer-to-peer fundraising is more complex and requires more time and planning. Since it’s your supporters who will be raising money for you, you’ll need to find them and train them. And they’ll need ongoing support too.
However, since peer-to-peer fundraising is exponential – all the individual campaigns by your supporters ripple outwards and bring you more donors – it can generate more attention and raise more than a crowdfunding campaign. Peer-to-peer events require more planning, execution time, and direct engagement with participants than crowdfunding campaigns, but the payoff can be incredible.
Choose to crowdfund if you:
Have a small staff;
Have a large audience of engaged followers on your social media channels;
Want to keep it simple;
Don’t have much time;
Have a moderate fundraising goal for a specific goal or campaign.
Peer-to-peer fundraising is a great choice if you:
Have enough staff to support your fundraisers;
Can rely on a base of loyal supporters and evangelists;
Have sufficient time to plan and execute the campaign;
Whether you choose peer-to-peer fundraising or crowdfunding, don’t forget the below common points:
Goals: Goals will vary from organization to organization, but in general, they should be realistic and achievable.
Supporters: Identify supporters who regularly give to your organization, take part in your volunteer days, and attend your fundraising events. They are your best bet for peer-to-peer fundraisers. If you decide to go for crowdfunding, get clear on your marketing strategy.
Branding: For crowdfunding, ensure you design and launch a branded site. Donors are more likely to trust a page with official branding to handle their payment information. For peer-to-peer fundraising, prepare branded materials to send to your fundraisers.
Pictures and videos: Compelling pictures and videos will attract visitors and keep them on your page.
Social media: Both techniques rely on social networks to spread, so make it easy for your donors to tell their friends about your campaign by using pre-written social media templates.
Updates: Constantly post updates about the campaign.
Thank you: Once you have reached your fundraising goals, it’s time to celebrate and thank your donors for their contributions and your supporters for their hard work.
Both are types of alternative financing.
They both source a large number of (usually) smaller donations rather than a few larger ones.
Both crowdfunding and peer-to-peer fundraising require specialized technology.
Usually, a single website hosts Crowdfunding campaigns. Whereas, peer-to-peer fundraising uses multiple websites to promote and share.
Individuals, corporations, and nonprofits may go for crowdfunding to raise funds for a specific cause; nonprofits and organizations go for peer-to-peer fundraising by involving supporters.
Large crowdfunding sites provide the platform to conduct crowdfunding campaigns; to host peer-to-peer fundraising campaigns, nonprofits usually use their own website.
Crowdfunding can offer more control over messaging and brand consistency.
Crowdfunding and peer-to-peer fundraising are both useful fundraising techniques for nonprofits.
Each has its own merits and drawbacks, but both can bring in results if done right. Evaluating your goals, resources, and audience will help you decide which one is best for your individual situation!
We hope the article helped you note the clear differences between crowdfunding and peer to peer fundraising, so you can choose the best fit for your organization or cause and run a successful fundraising campaign!
If you’re interested in more nonprofit tips and resources, check out our Nonprofit blog.