The difference between Crowdfunding and P2P Fundraising

Jesper Juul Jensen
CEO
Min to read

Crowdfunding is a term that is tossed around very liberally, and it is often confused with Peer-to-Peer Fundraising. The concepts are often used interchangeably, with one term being used instead of the other. At BetterNow we have often seen eager charities launching into one of these methods of fundraising, but with poor results due to misunderstanding of the two concepts. This is an attempt at clarifying what the differences are and in what situations it makes sense to leverage these two fundraising methods.

What is crowdfunding?

Crowdfunding is the gathering of a large crowd who wishes to fund a project by each person giving relatively small donations. Crowdfunding is often associated with the funding of tangible objects that require a specific threshold amount before it can be realised. An example of this could be the funding of a new soup kitchen, help for establishing a theatre play or a new facility to the local sports club.

Read more about crowdfunding here: Crowdfunding charities and public goods

When crowdfunding is done correctly there is a strong viral element. It doesn’t need to be a global internet phenomenon; a campaign can go viral to varying degrees. The important part of a sound campaign is that the average supporter shares the campaign with her or his friends enough so that it generates at least one new supporter.

A good crowdfunding campaign has, in theory, unlimited potential, and as long as each donor recruits an additional one it lives on; often however there is a quick drop off rate and it goes to a standstill.

A crowdfunding campaign can come with rewards or incentives to supporters. Certain donation sizes may give rise to certain benefits to the supporters. These are often tangible, but can also be intangible objects like recognition and prestige.

The initial work is done by the charity and the likelihood of its success is based on size and quality among the network in which it is initially spread, together with how likely it is to be shared by the donors. In the end, it is the charity's job to gather the initial crowd, and the degree to which it goes viral depends on how well executed the campaign's communication and marketing is.  

Crowdfunding: The charity creates the campaign and spreads it among its network of supporters. The initial donors spread the campaign to their friends and so forth - creating a ripple effect and a campaign that ideally goes viral.

What is P2P fundraising? 

The difference between P2P fundraising and crowdfunding is manyfold. The biggest is though how you gather the crowd.

The name almost tells the story. P2P fundraising leverages your existing support base to gather the crowd. It is your supporters who do most of the hard legwork. This is comparable to when charities recruit volunteers for door-to-door collection, and many of the same tools and skills can be leveraged here. 

Rewards and incentives are often given to the fundraisers rather than the donors. This can be free merchandise, tickets for events or free bibs for sporting events. The charities’ job is to recruit these supporters to fundraise and equip them with the necessary knowledge and tools to fundraise.

A P2P fundraising campaign is rarely spread outside of the fundraisers own personal network and donations are often a result of the personal connection between the donor and the fundraiser. It is the fundraiser who is the centre of focus, not the charity, and many donations are motivated by the personal relation rather than the cause itself.  

The fundraisers recommend the charity personally, not unlike when friends recommend great products to each other. Charities are lucky to have a way of systemising this word-of-mouth marketing - and it is called P2P fundraising.

‍[Illustration description] Peer-to-peer- fundraising: The charity recruits and educate fundraisers. The fundraisers then spread the campaign among their personal networks and collect donations among their peers. 
Peer-to-peer- fundraising: The charity recruits and educate fundraisers. The fundraisers then spread the campaign among their personal networks and collect donations among their peers. 

Summary of the difference between P2P fundraising and crowdfunding

In the below table there is a summary of the key differences.

Crowdfunding P2P Fundraising
Potential In theory unlimited potential, in practice limited by the quality of the campaign. Limited by size and quality of the fundraisers' personal network.
Who gathers the crowd? Charity and viral sharing. Individual fundraisers.
Task of the charity Communication and initial spread among its supporters and members. Recruit and equip fundraisers.
Rewards and initiatives May be given to donors. May be given to fundraisers.
Target for funding Specific objects or projects. General causes.
Time frame Campaign focus and limited in time. Either ongoing throughout the year or event-specific.


When to use the two - 4 rules of thumb

As can be seen from the above table, there are some major differences between the two types of crowdfunding, which makes the models suitable for different purposes. To figure out when to use which model, I will present some general and crude rules of thumb. 

Rule 1: If you want to avoid earmarked funds - then go with P2P fundraising.

As donations coming in P2P fundraising are often motivated by the personal relationship between the donor and the fundraiser, the cause itself is not as important for the donors as with crowdfunding. P2P fundraising is thus especially good as an ongoing all year activity, and not just as single campaigns.

Rule 2: If the cause is difficult to explain, consider crowdfunding first.

With P2P fundraising the charity needs to equip the fundraisers with tools and knowledge to retell the story to their personal network. If the target of the funding is a specific difficult area to explain (e.g. new therapeutics or institution building), your supporters will probably struggle explaining it to their personal network. Since the storytelling is so decentralised with P2P fundraising, this also makes it a difficult method for communicating subjects that are sensitive, either politically or ethically.

Rule 3: If the cause is easy to relate to emotionally, consider P2P fundraising.

Some causes generate an instant emotional response from people, simply because the person has a personal experience with it. This is often the case for health-related causes, such as cancer, multiple sclerosis and heart diseases. This makes them easy to tell and explain for individuals, and it makes them easy to relate to on a personal level.

Experience with a cause, either through volunteering for it or from suffering from the illness, makes exemplary fundraisers. This makes these causes perfect matches for P2P fundraising. 

Rule 4: If you are a small charity or organisation with a limited supporter database - use crowdfunding.

Crowdfunding can help you build a supporter database, whereas P2P fundraising in essence requires that you have one (P2P fundraisers can be recruited outside of your existing supporters, but it will require a unique event or campaign where people join because it is fun to do so). So if you have a limited supporter database, crowdfunding has first priority.


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