By now, everyone knows about Kickstarter (and similar crowdfunding services). These crowdfunding services are so ubiquitous that a simple Internet search for “Kickstarter” is going to yield pages and pages of results on how to set up, organize, and run your kickstarter. They’ll list groups you can get in contact with, tell you to broadcast news about your kickstarter everywhere, and even give you hints about how often and what tone to take with your updates (very often, truthful, yet cheerful). But more often than not I’ve noticed they miss a key point: finances. Especially in regards to smaller kickstarters run by, at most, a handful of people. The whole point of kickstarters is to gather the funds you need to complete your personal project, and there’s this perception that running a kickstarter is free money. It’s not. You owe your backers rewards, and those rewards cost money. If you haven’t budgeted your goal vs your costs properly, you’ll find yourself in a deep hole of complaints and unfulfilled kickstarter promises. Fortunately, I’ve run a few kickstarters myself (with the help of Elaine Tipping), some more successful than others, and I’m going to break down how to stay financially afloat when you run a kickstarter.
Step One: Setting your Goal.
Everything costs money. It sucks, but it’s true. Even if you don’t actually expect to make any money off of your kickstarter, creating and fulfilling those rewards is going to cost you money. If your kickstarter money doesn’t cover that you’re going to end up paying out of pocket, which I’m assuming you can’t afford or you wouldn’t be running a kickstarter. So let’s do our best to avoid that by making sure your kickstarter goal is appropriate. For my kickstarters, I used a very basic formula:
([Total Cost of Each Unit] + [Amount of Money You Want to Make per Unit])*[Number of Units You Want to Produce].
A word of warning: When I say, “Total Cost of Each Unit” I mean it. Include everything, materials, shipping, shipping materials, labor, etc. If it’s involved in making and shipping your product, it goes into the cost of each unit. Also, “Amount of Money You Want to Make per Unit” should be slightly lower than what you plan on making out in the retail market proper. It’s a kind of kickstarter incentive to help people back you.
So for my Kickstarters, the breakdown would look something like this:
Cost per book to print: $6.00
Average Cost per book to ship: $10.00
Cost of shipping materials per book: $4.00
Total per unit cost: $20.00
Money made per book (Kickstarter): $5.00
20+5 = $25.00
Number of unit’s produced: 200
25 X 200 = $5000.00
I should note that I had to look into all of these numbers. In later Kickstarters I could look at the costs from previous kickstarters. But on my first kickstarter I had to sit there and get pricing from printers, see how much it cost to ship a book to various parts of the world, etc. The only two numbers I “made up” were the amount of money I wanted to make per book, and the number of books I wanted print. Even then, the $5 amount for ‘money made per book’ was a discount from the $10 I usually made per book, and 200 books is typically the number of books I can sell in a year of traveling to different conventions. So all these numbers are coming from somewhere and it’s important you find out where for your project.
Some of you may have projects that are still being developed (video games, movies, neat pieces of tech). And some of you may be planning on living off of all that fat cash you’re expecting from your crowd funded project. If that’s the case you’re going to have to include both your cost of development and cost of living into your goal calculations. So you’re new formula is going to look like this:
([Total Cost of Each Unit] + [Amount of Money you want to make off of each Unit])*[total number of units you want to make] + [Cost of Development] + ([Cost of living per month]*[Total number of months you estimate it will take you to develop and ship your product])
This is obviously going to add up really fast and I highly suggest you plan on keeping your day job and work on the kickstarter part time. That way you don’t also including paying yourself to live in your goal calculations.
Now remember that both the crowdfunding services and the money transfer services they use are going to take a percentage of what your backers give you. Usually it’s about 10% of your total take, and you’re going to have to adjust your goal based the percentage taken. Finally, don’t forget to include taxes; whatever your country, state, or province, you will be charged taxes on your kickstarter income.
Second Step: Tier and Reward Levels.
The bread and butter of any crowdfunded project. These are how you get people to back you, and what they expect in return for their money. I’m going to be giving bits and bobs of general advice here, but if you’re only going to take away one thing, let it be this: Every tier level has to pay for itself. Let me repeat that: Every tier level has to pay for itself! If I’m spending $35 every time I fulfill a $25 reward tier I’m going to run out of money fast. Don’t let that happen to you.
That being said, remember the ([Total Cost of Each Unit] + [Amount of Money you want to make off of each Unit]) calculation I had you make? Congratulations! That’s now your third tier reward level. I like to call this the “pre-order” tier. Kickstarter hates that terminology, but it’s what most people are thinking of when they back your project. They want the thing, how much will it cost them? This is where most of your backers are going to sit.
Below that tier level you should have two what I call “Low Ball” levels. These level should be really easy to access financially, and cost you basically nothing to produce. In my kickstarters these levels tended to the backer’s name on a special thank you page, and a digital copy of the book. You want these levels for two reasons: 1.) They let people who want to support you, but are otherwise strapped for cash, help you out. 2.) They present a build up to the “pre-order” tier. Watching things go up incrementally makes it easier for people to accept the value of a tier.
Beyond your “pre-order” tier you need to create multiple tiers that I like to call, “Hardcore Fan Tiers.” These tiers are the ones that are going to cover the “cost of development” and “cost of living” part of your goal. For these tiers it’s okay to go up exponentially (in fact it’s preferable). My own tier levels tended to something along the lines of: $25 -> $35 -> $50 -> $75 -> $150 ->$250. The rewards at these levels are going to vary depending on what your project is, but generally they should be things related to your project that you think your fans would enjoy. If your project is creative based then you can actually tap into your creative process. Old scripts, sketchbooks, concept art, these are all things that have a high emotional value to fans, but don’t cost anything produce. Just remember the cardinal rule when matching rewards to tier levels: EVERY TIER HAS TO PAY FOR ITSELF! In this case, you want to be actively making money on these tiers.
The only other bit of advice I have for you on creating your tier levels is don’t go with compulsory add ons. That is to say, things you’re going to give your backers, whether they asked for them or not. Most kickstarters have a “a reward tier contains all rewards from previous tiers” system going. And that’s great to do, you get more bang for your buck, and people really like knowing they’re getting value for their money. But on my final kickstarter I added in a question on the survey, “Please check off the rewards you actually want. I will ONLY send you those rewards.” It turns out that 90% of the time is someone pledged at “comic book + poster level” they just wanted the comic and poster. Yes, they were entitled to the comic book, the poster, the bookmarks, the keychain charms, etc. And yes, many people did ask for all the rewards they had access to, but most just wanted two items. And if all someone wants is the comic and a poster, why not save some time and money by only making and shipping them the comic and a poster?
Third Step: Stretch Goals
Stretch goals. Oh boy, stretch goals. If there’s one place I see many kickstarters fail, it’s stretch goals. Don’t get me wrong. I love the concept of stretch goals. Seeing a community come together and go above and beyond what someone is asking for is an amazing thing to see, and they deserves to be rewarded. But the usual implementation of stretch goals is lacking. Generally, they end up bankrupting the project before it gets off the ground.
Here’s the thing about stretch goals. They cost money to produce, because everything costs money to produce. The whole point of my advice on how to decide what your goal is, and what your reward tiers are is to ensure that you have the money to give your backers what you promised. That’s why every reward tier has to at least pay for itself. A poorly thought out stretch goal breaks that rule; it costs you money you aren’t getting from your backers. In broad terms, a poorly done stretch goal is going to drain money from other reward tiers. And too many poorly done stretch goals will leave you scrapping for cash when you try to ship out your product.
Generally speaking the thing to avoid in stretch goals is physical objects offered to everyone. Things like, posters, key chains, dust jackets, carrying cases are all terrible stretch goals. Physical objects that every one of your backers is going to get for free. These types of things are like the compulsory add ons from the reward tiers on steroids. The problem is these compulsory add ons cost you money, and since there’s no “tier” that people are backing you at to help pay for them, the money is going to siphon from the other reward levels. Think of it this way. I say at the $5000 stretch goal is a free poster for everyone. Well that poster is going to cost me $6 dollars to make per back, and another $10.00 to ship anywhere in the world. So now everyone’s reward costs me an extra $16.00 to produce and ship. But no one’s reward tier includes that extra $16.00 dollars. I COULD include it when I’m first planning my kickstarter, but then every reward tier would be $16.00 higher, and the odds of me getting funded just dropped to almost nil.
What you want are things that you can build directly into your product, or that you can create and distribute for little cost. That why the cost is either nearly zero, or can be included in the initial calculation of your goal. Here’s a couple of examples:
Character Bios included in the comic itself.
Reason It’s Good: Because they’re included in the base product itself the cost is minimal (maybe an extra two cents a comic for printing and shipping). This also upgrades the product itself making it more valuable on the retail market.
Releasing all my scripts for digital download.
Reason It’s Good: I’ve already written the scripts so it won’t take me any time or money. Because I’m digitally releasing them I should only have to pay for a file sharing service, which can be a one time fee. There’s a minimal drain on money that should be going toward the entire rest of the kickstarter.
Seeing a theme here? Avoid overtly expensive stretch goals. I know most kickstarters have stretch goals like, “New figurine for everyone,” or “Dust jackets included with every book.” And it’s tempting to follow suit because that’s what people expect, but I’ve noticed those kickstarters fall into two categories: 1.) Established companies that are moving hundreds of thousands of units, and can thus take advantage of the economy of scale. 2.) Kickstarters that fail and run out of money long before they can give any of their backers the promised rewards. If you’re reading this blog, you don’t qualify for group 1, and we’re trying to avoid falling into group 2. Don’t offer compulsory add ons as stretch goals.
Some general advice before you leave:
1: Estimate high. Things are always going to end up a little more expensive than you think they’ll be. Especially shipping.
2. Do your research. Don’t “guess” how much a t-shirt costs to make. Go out and actually find someone who does print screening and ask them. It’s super easy to look at retail items to decide how much things cost. Well, those companies are ordering in huge quantities, which means they’re paying a fraction of what it’ll cost you to produce the same item.
3. Be absolutely sure you’re willing to put in the time and effort to make and ship every reward. It doesn’t matter what ever other similar kickstarter is offering. If you don’t want to make buttons of your characters, don’t offer it as a reward. Otherwise fulfilling your kickstarter pledges is going to a horrible, miserable ordeal.
Finally, remember, the point of a kickstarter is to get the funds you need to complete a project you otherwise can’t afford. Every part needs to be paid for by the money you’re getting from your backers. So if you haven’t included a way to get your backers to pay for a reward, don’t offer it. Otherwise, you’ll find the kickstarter money gone before you’ve even started production and no one is happy.