Don’t ask for what you want. Ask for what you need.
— CROWDFUNDING 101
Kickstarter is a “win-all/lose-all” platform. If you reach 99.99% of your goal you don’t get anything. ZERO. On the other hand, you could raise more than 100% of your goal. Think back to Reaper Miniatures who raised 10,565% of their initial goal, more than 100 times what they needed.
Despite the long list of Kickstarter successes, there is one piece of information rarely made public. Many entrepreneurs lose money on Kickstarter, even when their campaign is successful, or–should I say–because their campaign is successful. Unexpected international shipping costs and inconsistent quotes from manufacturers are the main two reasons for this failure.
Here is a list of costs to consider and some tips for reducing your risk.
1. Manufacturer cost (of course). If you haven’t used the manufacturer before don’t assume that their time and cost estimation is anywhere near the truth. Befriend and ask other entrepreneurs producing a similar product instead. Websites like Alibaba could be particularly helpful.
If you have a digital product, you don’t have traditional manufacture problems or a shipping issue. But unless you develop everything by yourself you will still have to deal with programmers and such. Try to involve an experienced project manager, or–if you don’t have the budget–befriend and chat with a couple of them. Buy them dinner or a drink; this will be one of the best investments of your campaign (and eventually you may make a new friend).
2. Shipping cost. Hint: don’t consider the weight of your product alone. Consider the wrapping and the box, plus any other gadgets you promised to include.
3. Duties. Don’t forget that many countries will charge duty on imports. Digital products don’t usually have this issue and it’s the same for books and comics (but beware of shipping a comic which contains nudity to some countries; the consequence can be much worse than a duty tax). The websites and local branches of UPS, DHL, or other providers can be very helpful. It’s a complex matter, so it’s better to check different sources.
4. Storage. A warehouse could be more expensive than you think.
5. Kickstarter commission and other fees. When your project reaches its goal, Kickstarter takes a 5% fee for each successful charge. If you go through Amazon Payments you will get charged another 3%-5%.
6. Credit card refund. If the charge is unsuccessful because the backer has an issue with his credit card or simply decides to cancel his support, you don’t get anything from them. Between the Kickstarter commission, Amazon and/or credit card fees, and unsuccessful charges, you should consider a total cost of 15%-20%.
#TIP — As a rule of thumb, calculate all necessary costs and add 20%. That’s your initial goal.
CALL TO ACTION. Do you have any other experiences not included in the list? Contact me and I’ll update your suggestions in the book, citing your name (if you like). The best way is through Twitter @startupagora or my website http://startupagora.com/help.
Don’t Ask for More But Aim for More
If you don’t reach your goal even by one cent you don’t get anything. Aim low and ask for exactly what you need to cover your costs. You can always raise more than your goal.
In fact, a limited goal could help you to raise more. It’s easier to reach 40% of a small sum and this percentage is usually the trigger that pushes more backers to support your project–nobody wants to side with losers. Once these backers help you reach 100% of your (limited) target it’s easier to convince bloggers and online magazines to write about you – and that drives even more backers to your project.
Exception to the Rule
Kickstarter is not just a fund raising platform but also a great marketing tool. If you plan on developing your product anyway it could be convenient to set a goal smaller than you need.
If you “just” reach your goal you’ll have to put your own money into the product, but you would have invested your money anyway. Kickstarter provides a down payment and an incredible marketing window. And if you raise more than your goal, you can eventually cover all the costs.
The opposite is also true although unusual. In some rare cases, the project creator sets an impossible goal to reach in order to create buzz and free promotion. They are not ready to create the product so they use Kickstarter to “test the water” and create some buzz for the future.
I’m not recommending this strategy; I just believe that it has been used before. Ubuntu Edge—a campaign I supported on Indiegogo—raised more than $12 million and still failed. They set an impressive goal of $32 million. I don’t know if they planned on a high chance of failure from the beginning, but they got impressive coverage throughout traditional and social media.