Referral marketing for crowdfunding

Doing an equity crowdfunding campaign means talking about themselves, that is, about the company, the project behind it, and the values that drive it. Crowdfunding, in fact, is first and foremost a marketing operation. Among the strategies one can adopt is what is known as "referral marketing", which is nothing more than a sophistication of the famous word-of-mouth mechanism.

Recall that the ideal target of a crowdfunding campaign is the company's customers or potential customers. To reach them, the main tools available are those known to all: online advertising, possible offline advertising, SEO, social media, lead magnets, events, etc. The variables are many and depend on the type of company, the product or service proposed, and the target audience being addressed.

Referral marketing is an additional resource, not replacing the others but adding to them to increase the communication firepower available to grow a crowdfunding campaign by leveraging one's network of contacts as a megaphone.

What referral marketing means

"Referral" means "recommendation": in business, it indicates a customer acquired through someone's personal recommendation of a certain product or service.

Referral marketing, then, consists of inviting one's customers to promote the product/service they have enjoyed with people they know by word of mouth. This "invitation," to be effective, must of course include an incentive: a discount, an extra service, some other kind of reward for customers who participate in the initiative and possibly also for newcomers through their referrals.

We are talking about a strategy that was not created specifically for crowdfunding; rather, it is an "everyday marketing" tool to be used to sell one's products or services. But as we like to reiterate, doing an equity crowdfunding campaign always means selling something: a piece of society.

Using referral marketing for equity crowdfunding, however, is not as simple as doing so to sell products/services in a company's day-to-day operations, because there are more bureaucratic/legal aspects to consider.

Crowdfunding and solicitation of public savings

Equity crowdfunding, as a proposal to the public to purchase company shares, is a form of solicitation of public savings/investment, with its attendant risks for savers. For this reason, in Italy, Consob immediately regulated it back in 2013, and the European Union, today, has established a common regulation for all member states.

It therefore turns out to be possible to promote an equity crowdfunding campaign only by referring to the Consob-authorized platform that must host the campaign itself. The platforms, in fact, are in charge of requesting from the bidding companies all the necessary documentation to comply with disclosure and transparency requirements and audit and certification rules (first and foremost the offering memorandum). Authorization for promotion, however, does not extend to third parties other than the bidding company.

Consequently, it is not possible to simply ask clients and/or investors who have already participated in the campaign to promote it directly to their friends, relatives and acquaintances, otherwise they incur the crime of investment solicitation for sponsoring third-party financial products. Secondary and less explicit avenues must be pursued.

How to apply referral marketing to crowdfunding: the front-end product

In order to do referral marketing to promote an equity crowdfunding campaign, you need to use an enabler: the frontend product.

The frontend product is a kind of "Trojan horse." it is necessary to provide customers/investors with something to sponsor instead of the crowdfunding campaign itself. It must be a product/service related to the one normally offered by the company, easy to make and explain, and preferably one that can be offered at an attractive price. The sale of the frontend product need not generate actual revenue margins for the company, because it is "only" a tool for hooking new potential customers and investors: any losses will be offset by the end goal.

Customers/investors involved in the referral operation can promote the frontend product to people they consider to be in the target audience, remaining perfectly legal. Once the product is purchased, the company's database will have the contact information of a new customer, that is, a new potential investor!

At that point the company can use that data to propose the investment in the equity crowdfunding campaign, thus meeting the constraint that it is itself sponsoring its own campaign and not a third party.

How to bring customers/investors to participate in the referral marketing program

Once the frontend product has been identified, the next step is to convince your customers and investors to become promoters by initiating the referral program.

To do this, you need to thoroughly analyze the characteristics of your target audience (but this is work you will have mostly already done by setting up the preparatory phase of the crowdfunding campaign!) and figure out what might leverage sharing the experience with others.

Based on the conclusions reached, it will be necessary to package an exclusive reward for the referral: it can be a product, a service, a discount, an experience. The important thing is that it should be something truly attractive, a real, must-have privilege.

Lastly, it is necessary to communicate all of this to future promoters. The best approach is to create a dedicated Referral section within the company website or on the landing page built for the crowdfunding campaign. Here, the following information should be clearly presented:

• how referral marketing works
• what the frontend product consists of
• what is critical to communicate about the product and the brand
• what the rewards are and how to avail them.

Lastly, it is always helpful to invite existing customers to leave positive reviews and testimonials online to strengthen the effectiveness of word of mouth.

The company, then, will have to do its part: it is important to have impeccable customer service for newcomers (and not only, of course) and to offer a pleasant and incisive shopping experience. This will lay the groundwork for taking the new relationship forward and gaining new investors as well as new customers.

Turbo Crowd is also responsible for supporting the construction of secure and effective referral campaigns and related frontend products!