Toronto - In a world of choice, is there such a thing as too much?
Apparently so. Researchers studying the particular case of crowdfunding have shown that there is a sweet spot in the number of options dangled out to potential contributors. Go beyond that, and the chances of a project’s reaching its fundraising goal (or being successful) peter out.
The researchers find that the tipping point for maximum fundraising success at the popular crowdfunding website Kickstarter is to provide 33 different choices for contributing to somebody’s project. The number itself however is less important than the finding of “overchoice.” Even in crowdfunding, there’s a limit to the number of choices you should have, a problem found in many other settings.
“I am always struck by restaurants who have a huge menu,” said researcher Ramy Elitzur, a professor of accounting at the University of Toronto’s Rotman School of Management. “I am sure that as consumers, we would like to have some choices, but it gets to the point where we get overwhelmed by it.”
Crowdfunding websites have been used to raise money for everything from emergency funds for a needy family to seed funding for a live theatre event or a new start-up business. Prospective contributors are typically offered many choices for how to contribute.
Projects on rewards-based sites like Kickstarter may offer different kinds and amounts of merchandise related to the project or tickets to a planned event – but only if the project reaches its fundraising goal. If it doesn’t, no money changes hands. Not even half of Kickstarter’s projects are successful under this all-or-nothing model. Since it started in 2009, Kickstarter has attracted $7.65 billion in pledges – but nearly $600 million of those were for projects that failed to meet their goal.
Analyzing Kickstarter’s data from March 2013 to May 2016, Prof. Elitzur, Prof. David Soberman, who is the Canadian National Chair of Strategic Marketing at the Rotman School, and Peri Muttath of the Israel Innovation Authority found that theatre projects were most successful on the creativity-focused site. More than two-thirds of them hit their target. Journalism projects were the stragglers however -- only 20 per cent made it.
Graphing success rates to the number of contribution choices offered among the more than 100,000 different projects, the researchers found an upside-down U relationship. That means that the success rate initially rose as more contribution choices were added. But after hitting a peak, the success rate gradually dropped among projects with additional contribution choices.
“We need however to keep in mind that the number of reward options is only one of the variables affecting the probability of success,” reminded Prof. Elitzur. “Others include the monetary goal of the campaign, the price attached to each reward option, the duration of the campaign, the social network of the project creator and the creator’s history in previous campaigns.”
The advice for future crowdfunding project creators? Tap those social media channels, play up your project’s popularity in your pitch and know that when it comes to contribution choices, “more” can sometimes equal less.
The study appears in the July 2024 issue of the Journal of Business Venturing Insights.
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Ken McGuffin
Manager, Media Relations
Rotman School of Management
University of Toronto
E-mail:mcguffin@rotman.utoronto.ca