For those completely new to crowdfunding, you probably don’t realize that there is a lot of number crunching involved. I’m going to be totally frank with you, I initially didn’t have much of a clue either.
As someone with a marketing background, I was mostly interested in numbers like cost per email lead, cost per acquisition, page conversion rates, email open rates, and the like. In my happily ignorant bliss, I kept things like shipping costs at arm’s length.
I quickly came to my senses and dove in. And oh boy was I in for a treat.
It took me months before I finally understood how everything fit together – from COGS (cost of goods) to packaging to reward pricing to last-mile delivery and more.
Today I’ll go through the numbers you need to know as you move towards launching your project! Hopefully, by the end of this, you’ll have a better understanding of all the costs involved in bringing your idea to life and how it all fits together. By writing this, I hope to best prepare you so that you aren’t caught paying additional money out of pocket to make ends meet at the end of a campaign.
Cost of Goods
I can’t say this enough: you need to know exactly how much it costs to make your product. This not only means shopping around from different suppliers, but it also means knowing if you get things like bulk discounts.
Are there electronic components to what you’re creating? Are there variable costs that might change with additional SKUs you might add? Does your entire cost buildup change as you hit a different order quantity? Basically you need to be sure every step of the way what your raw material costs are. Packaging
Your product isn’t going to get shipped without some sort of packaging to keep it safe. What does each box cost you to make? Are you adding extra liners to your packaging? Does your product need additional bubble wrap to get it shipped safely? What does that cost?
Shipping And Fulfillment
There’s almost an unlimited number of ways you can put together your process for shipping and fulfillment. No two campaigns are the same (in component, backer, location, etc.) so it’s not enough to just “copy” what someone else does for their Indiegogo or Kickstarter shipping cost.
Maybe your product is made in a factory in China and you need to get it moved to a warehouse in middle America before you distribute the product to end-users.
Maybe your product is made somewhere in Vietnam and you want to complete final assembly in Europe (to get the “Made in EU” certification) before moving it to different warehouses you have around the world.
Or maybe your project is as simple as getting a bunch of flat-rate boxes from the local USPS, packaging it, and dropping it back off at the post office.
No matter what you decide, there are associated costs with that option. Be sure that the method you choose is what you want for the price that you can handle. Remember that you don’t have to bear the brunt of all shipping costs; it’s possible to share the burden of shipping costs with backers.
Duties, Customs and VAT
This is usually a set percentage depending on where you are shipping to. For example, shipping from the US to the EU incurs a large VAT (the exact number depends on the country) that either you or your backers must support. Let’s take an example from Jamey Stegmaier:
Say that someone in the EU backs a $40 reward and pays $30 in shipping from the US to the EU (we’ll assume that the reward includes a built-in shipping subsidy of $10 so that the creator can say that there’s “free” US shipping). Legally, the declared value must be the reward price plus shipping.
When the courier delivers the package to the backer, the backer must pay VAT (~21%, depending on the country). So a $40 reward could end up costing the backer nearly $85. Sometimes there’s even an administrative fee on top of that.
As you can see, this can present itself as a horrid experience for some backers if not dealt with from the beginning. Going through these numbers early can eliminate surprises for your backers and make the entire experience more favorable.
The numbers above come together to form the product-side costs of your project. Here’s what it looks like for those of you out there who are visual learners:
Manufacturer Suggested Retail Price, or MSRP, is the price you’ll be selling your product for after the crowdfunding campaign ends. This will help you determine your possible discount price, reward tiers and ultimately which retail stores you want to be selling in after your launch.
Campaign Pricing Tiers
Yes, you already have exactly what you’re offering, whether it’s a book or a portable projector or a board game. However, the true test that separates a phenomenal campaign from the rest is how you set up your Launch Special, Super Early Bird and Early Bird tiers.
You must set it up so that visitors who come to your page immediately want to back your project. And really, the best rewards blend a touch of human psychology and a bit of creativity.
This one is pretty simple and straightforward. Kickstarter and Indiegogo will charge you a fee for using their platform and harnessing their audience.
Kickstarter and Indiegogo both charge a 5% fee to each successful campaign.
Payment Processing Fee
Every transaction that uses a credit card has a fee associated with it. That’s what payment processors charge in order for their technology to run. Both Kickstarter and Indiegogo use Stripe to process credit card transactions. This is what your processing fee is for each platform:
3% + $0.20 per pledge
Pledges under $10 have a discounted micropledge fee of 5% + $0.05 per pledge
There’s a flat rate on Indiegogo and processing fees are 2.9% + $0.30 per contribution.
Marketing And Promotion Fees
This is somewhat of the wild card in your campaign.
For this, put your Project Manager hat on and factor in constraints for success. You must consider scope (how much you need to raise), timeline (how long you have to raise this) and budget (how much money you have to spend to get to your goal). As with all other things in life, you can’t have your cake and eat it too; you are only ever able to control two of three factors.
For example, if you want to raise $1 million in 30 days, you probably will be spending a lot of money in order to make that happen.
So your marketing and promotion fees will probably be completely different than it is for another campaigner. Here are some things to consider in this category:
- Hiring a marketing agency
- Hiring a PR agency or freelancer
- Paying to be promoted by an influencer
- Paying out referral fees to successful referrers
Building Your Indiegogo And Kickstarter Shipping Costs And Rewards
Here’s how it all comes together for each product:
There’s a bright star in the chart above for whatever margin you might have after you subtract costs from reward prices. But keep in mind that with all the cost projections we just went through, you must add in a buffer in case anything goes awry.
Think about it this way: what if the price of recycled paper for your packaging goes up by 5%? What happens if there are legal changes to customs charges and it increases by 10%? What if there’s a copper shortage that drastically increases costs for your PCB?
So that bright star, that margin, might even be zero at the end of the day after everything has been accounted for.
This is an exercise that I encourage every single person to go through before they launch their product. Start a spreadsheet to document all of your findings.
As a campaigner, you must know exactly what it all costs to create, launch and distribute your product. Not doing so might mean that you end up burning in flames like the infamous Coolest Cooler. They incorrectly budgeted for manufacturing and shipping their product, delayed shipment for years, went through intense legal battles, and ended up going out of business.
Share this article on Twitter if you got value from it 🙂 Would mean a lot to me.