It’s time to start planning your rewards. Rewards (or perks if you’re on Indiegogo) is the one item that all visitors must experience as they convert into a backer for your project. Needless to say, it’s a huge deal.
So when it comes to planning rewards, where do you start?
Today, we’ll talk about what you have to keep in mind as you’re creating your rewards. The bottom line: it’s vastly important to know what cost calculations go into pricing your rewards. It’ll allow you to go into your campaign understanding how everything you offer affects the bottom line.
For one, you truly don’t want to skip this part and find out after the campaign that you’ve forgotten to take into account platform fees for running the campaign. Something like that can mean that you’ve incorrectly planned for the campaign aren’t able to fulfill your rewards.
Make sure to go through the points below and get cozy with all the numbers associated with your campaign. That way you’ll go into your campaign with the comfort that you’re not pricing your project into a huge negative.
6 Figures To Keep In Mind When Pricing Your Rewards
When you’re ready to create your rewards, cost and pricing are huge factors. But what costs and prices do you have to take a deeper look at?
1. Product cost – what it actually costs for you to create the product.
This is a big one. It’s probably the biggest one you have to think about when you’re setting out to launch your project. You always need to have an input to create an output for your crowdfunding rewards. In any scenario, you have to pay to get supplies and pay to get the thing made, produced, printed, recorded, etc.
This is true even if you’re working with a digital product. Let’s think about an audiobook for example. You’ll need to pay for someone to reward that audiobook. Even if you’re recording it yourself, you’ll probably have to get access to some low-professional equipment so the audiobook sounds right.
With physical rewards, things get even trickier. Again, you’ll need to find those supplies. Just this one step alone can be a big source of headache. For your project, usually, there will be numerous suppliers for the raw material – make sure to contact multiple suppliers and get quotes from many different parties for different quantities of production. Beyond supplies, you have to keep in mind the cost for prototypes and what it will cost you to actually scale up the production.
With this all in mind, you’ll need to calculate your product cost into a per-unit basis. That’ll give you the information you need to more accurately price the item so that you don’t come out at a loss to make each one.
2. Shipping/fulfillment – what it costs to get that product to backers.
This is the one place many entrepreneurs and businesses find the most trouble with. They either completely forget to take this into account as they’re working on their costs. Or, they think that they’ll “figure it out” later after the campaign ends.
In short: please take this into account for your project way before launch.
The world of shipping and fulfillment can get incredibly messy and convoluted (yay to shipping rules and regulations), but I will try to simplify this as best as I can for you here.
With any crowdfunding project, you have the option to allow backers from a few certain countries to pre-order your product. Or open the campaign to the whole entire world. Each option comes with its own set of benefits and obstacles, so be sure to think back on what success means to you and what your goals are for the project.
An important piece of information to keep in mind is the top 5 countries that back on crowdfunding. Beyond that, also take a look at how a similar campaign found its backers. Maybe the project was especially well-received in a country you didn’t even think about. A tool like BiggerCake will let you dive into the behind-the-scenes of other similar projects (note that this only works for Kickstarter campaigns).
When thinking about shipping and fulfillment, it can be what it costs for you to get the thing packaged and shipped via UPS if you’re working on a small scale. Or at the other end of the spectrum, what it costs for freight to maneuver pallets across international waters and then split into many distribution centers. The scale of this varies across different projects.
The best thing to do here is to reach out to as many shipping and fulfillment companies as possible and get quotes from them. What will it cost to get the item to a backer in Spain? Australia? Canada? Ethiopia? Singapore? USA? Chile? It’s going to be drastically different for each product due to the size of your package, the contents and weight of the package, and shipping rules and regulations that govern that particular product niche.
3. Fees – what are the fees to crowdfund.
This one is an easier one to wrap your head around.
Kickstarter and Indiegogo make money off of every project that runs on their platform.
Well to be more accurate, Kickstarter makes money off of every successful project (since unsuccessful projects get all funds returned to backers). On the other hand, Indiegogo can make money off of successful or unsuccessful projects depending on what option the campaigner toggles. With a Flexible Funding campaign, even if the campaign doesn’t reach their goal, all backers get charged and Indiegogo takes a cut.
In a Fixed Funding campaign, backers only get charged if a project is successfully funded; they get their money refunded if it isn’t a success. In this case, Indiegogo only takes a cut if the project is fully funded.
To get back to the main point here – these crowdfunding platforms make money off of campaigns. They each charge 5% of the top-line revenue. Beyond that, the credit card processor integrated with the campaigns also charges approximately an additional 5% of each transaction.
Therefore, if you’re aiming to reach a certain funding goal to inject into your project, you have to keep this in mind. Raising $100,000 on crowdfunding already means that $10,000 goes into platform fees and you’re left with $90,000.
4. Margins – what margin are you comfortable working with.
Your margin is the difference between the price you’re selling and the price you’re paying to get it made.
Let’s go through a thought exercise. Imagine a product that costs you $40 to make. You wouldn’t want to price it at $50 on crowdfunding. With the fees (see number 3 above), you’ll be taking home $45. Then you pay $40 to get the thing made so you have $5 left.
Is $5 enough buffer room if costs of supplies change on a whim? Or if tariffs change in the next few months? Or if a storm occurs and derails your shipment and extra funds are required to get it to its final destination? Or if there are more defects than you originally planned for and have to produce even more extra units?
Through all of this, is $5 enough? In this thought exercise, we haven’t even taken into account what it will cost you to acquire a new customer. Are you spending any of these funds on advertising? Press contacts? Influencer relationships? All this is extra “costs” for the product that you have to keep in mind. Sure, you can be a well-funded startup and are able to acquire new customers at whatever costs, but most of us going into crowdfunding isn’t in that same position.
5. MSRP – what is the expected retail price for your product.
People will always value a product by how it is priced. Make sure to price according to the value you’re providing and also how it measures up against everything else in the industry.
This is where your initial market research comes in handy. You want to be sure that how you price the MSRP allows your product to sit comfortably against other competitors within your niche. If everything else within the same niche is priced at $75, you don’t want to price at $25 or $325. Those two numbers elicit disbelief in their own ways – $25 is much too low that it can cause skepticism and $325 is much too high that people might divert to your competitors instead of your product.
The MSRP also helps as an anchor point for people coming to your crowdfunding campaign. Since these backers are supporting you on crowdfunding, they’re putting money into a product that doesn’t even exist yet. They should be rewarded for the risk they’re taking in funding your project before it comes to life. Therefore, the MSRP is important in setting expectations. Through this number, backers will know that they are getting a great deal for supporting your project early and their purchase risk is being offset by that price point lower than the indicated MSRP.
6. Crowdfunding discount – the discounted price for the product.
As mentioned in the point above, crowdfunding projects are usually offered at a discount. Again, that is to take into account the “risk” people are taking in supporting your project early before it even goes to the market.
When looking at what type of discount you want to provide for your project, really take into account your costs above. Again, if it will cost you $40 to make a product, you don’t want to set your Early Bird tier at $35. At that price point, you won’t even be able to cover your costs.
The percentage discount is different across crowdfunding categories. Check in with other projects in your own category to see what is acceptable. For example, if it’s a hardware project, that number can be up to 50%.
These are the core numerical costs and numbers for your project that you must know. I’d recommend you get acquainted with these numbers and knowing them inside and out as soon as you can.
Although these numbers might be a headache for some, understanding them means that you’ll always create plans, strategies, and tactics that keep your crowdfunding project financially viable for you. Really, you don’t want a project where you forget to take into account shipping and fulfillment and get slapped with another additional $15,000 that you have to pay at the end of the campaign to get the project sent out to backers. That’ll really throw a monkey wrench in your plans.
Throughout the process in which you’re building out your rewards strategy, check back in often with these core numbers to make sure that they still make sense for your project. If you’re thinking about too many add-on features for stretch goals that will drastically increase your base product cost, it might not make sense with the way you’re pricing your crowdfunding rewards or setting your MSRP.
3 Steps To Get Started With Pricing Your Rewards
Now that you had the opportunity to dive into some of the nitty-gritty details of reward pricing, it’s time you get started for your own project. Here are the steps:
1. Read the in-depth strategy on the psychology of rewards. I’ll guide you through what makes for a good rewards strategy. Hint: it’s one that combines a touch of human psychology with your own creativity.
2. Ask those who have done it before. One of the greatest things about crowdfunding is that everyone who has launched a campaign before also wants others to succeed. If there’s been a campaign you’ve been looking at for inspiration, I’d highly encourage you to reach out to the campaigner. Ask them about their rewards and things they had to take into account when pricing it. Inquire about what things came “out of left field” that might have derailed their project. Kickstarter and Indiegogo entrepreneurs are more than willing to help each other out. Really, you don’t have to go it alone.
3. Make a copy of this spreadsheet that I’ve created for you to start planning your rewards. It’ll distill some of what we’ve talked about above into numbers that can make sense for you as you work through your projections.
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