When you’re setting your crowdfunding budget, it’s easy to fall into some traps. It needs to walk that line between being achievable, while still being able to complete your purpose.
A budget is absolutely mandatory for crowdfunders.
As much as I believe that the biggest benefit of crowdfunding comes from the crowd, and not the cash, you wouldn’t be here if you didn’t need the cash.
It can be a bit of a catch-22.
If you ask for too much, you risk falling short and getting nothing at all. If you don’t ask for enough, you shoot yourself in the foot and fail to achieve the very goals you set out to reach – and possibly gain an angry mob in the process.
So let’s look at a few tips for setting a budget that will achieve your goals, without shooting you in the foot.
1. Set the right target
You have a number in your head, I know you do. Write down all the things you plan to do with that number. Put a price on each of those things. Do the numbers stack up?
Now, look at that list and ask yourself if you need to do all of these things to reach your minimum viable product.
A minimum viable product is a bare-bones offering. It is the least you can ask for to get this thing off the ground. No bells and whistles, just your idea as a thing, alive in the world. It’s version 1. You can build on it later if you want to.
Cross out anything you don’t need to do to get to your minimum viable product. Move them to a new list, and call it “stretch goals“.
This includes marketing – crowdfunding in and of itself is a marketing activity.
Now, look at your list again. Does anything on that list mean “I get paid”?
Frankly, it’s not the crowd’s job to pay you. It’s the crowd’s job to help you get your project out into the world. Taking a profit is not a good idea unless it’s built into the reward-cost of a product. A profit should never be built into your goal amount. Crowdfunding should get you to the point where you are able to make money off your idea, not pay you in order to execute it.
If you’ve built in a profit margin, cross that off the list as well.
This is your base budget. That’s the amount you actually need to raise.
2. Cost your rewards
Write out each reward level, and how much you plan to charge for it.
Now work out how much each reward level is going to cost you to create, above and beyond anything that is already covered in your base budget. For example.
- You can make your movie for $3000 – this is your base budget
- You can stream that movie to an unlimited number of backers via Vimeo for $199/year – this becomes your reward cost.
Next, for each reward level, figure out the postage cost.
I recommend you spend some time figuring out postage because this is what often comes back to bite creators on the ass. Better to over-research than under-research.
If you’re charging too much for your postage, it’ll put backers off. I frequently choose not to support campaigns simply because I hate the postage cost they’ve gone with. But at the same time, you don’t want to undercharge.
Undercharging for postage is a quick way to lose money.
If you are making a product (and particularly if you are managing a manufacturing process that occurs in China), I highly recommend you look at shipping specialists like Shipwire and Fulfillrite. They can help centralise the shipping process and make it more affordable than regular postal or courier services.
Look at the difference between the amount of money you are charging for the reward, and the amount of money it will cost to produce and post. This is the amount of money, multiplied by the number of backers you get, that will ultimately go towards your base budget.
According to Michael C. Neel‘s research, $25 is the most popular reward. That’s followed by $50, $100, and $10 in that order. You can use that information alongside this Kickstarter calculator (it’s sufficient for other crowdfunding sites too) to help you work out what your total funding goal looks like, and how many backers you need to achieve it.
3. Remember the fees
Each crowdfunding platform is different, and I’m not going to get into the specifics of fees in this post, but be aware that they exist.
The only platform I am aware of that charges absolutely no fees (to anyone) is GiveALittle. If you’re not running your crowdfunding project there, then there is going to be a slice of the pie taken from you.
Do your research – there are three different kinds of fees you need to be aware of:
- Platform fees – charged by the platform itself. Typically these are between 4% and 5% of each pledge.
- Payment provider fees – charged by a third-party payment gate like Amazon or PayPal. Typically these are between 2% and 4% of each pledge.
- Transaction fees – again, these are charged by the payment gate and range between 20 and 30 cents per transaction. These will sting most on the $1 pledges, so it’s a good idea to have a $5 minimum pledge if you can.
In general, you’re looking at around 10% of your funding goal going on fees.
Pulling it all together
There’s an art to setting the right funding goal. Those high-value rewards might cost a lot to fulfill, but in reality they are unlikely to be taken up. The trick is to create rewards that cost little or nothing to pass to backers.
There is real value in digital rewards for this reason. The best reward will cost absolutely nothing beyond your base cost to create and fulfill.
Remember that you are making a promise to your backers that you can do the thing for this amount of money. Also remember that the less you ask for, the more likely you are to get it.
Ask yourself if those high-cost rewards are really required?
Try and replace them if you can. If not, be aware that you’ll probably only sell a lot of them if you’re horrendously successful, so budgeting 10 $5,000 rewards will actually work against you.
