KickStarter Funding Plans

In the world of KickStarter and other group funding projects; it is all or nothing.  You get it or you don’t get the funding.  Likewise, you only get one time to put your funding plan together.  It’s very unlikely that you will get a meaningful chance to change the reward structure once the project has started.

  • Marketing Plans
  • Funding Plans
  • Fulfillment Plans
  • Reward Planning

Be more successful!  Make a Plan!

After you have completed your product/service offering, build a financial model for it.  What is a financial model?  It is simply describing the cost/revenue structure in a spreadsheet.  You can use the back of an envelope, but you will be adjusting it as the project gels.

Crowdfunding Rewards

Figure out what you want each reward to be.  Then figure out how much it will cost you to fulfill that goal for only one unit.  Don’t forget shipping, any packaging or any set up fees!  If you have a question for your potential suppliers; this is the time to ask.  It’s right about now that seemingly low price seems to disintegrate.

Subtract 10% for kickstarter and merchant fees.

Plug the numbers into the spreadsheet.  Is that one unit profitable?

Repeat until all the rewards have a calculation for one unit.  It’s important to make sure that every unit that you ship is profitable.  Remember this is funding your business plan, not providing a loss leader situation.  While there have been projects that have started profitable businesses; there are also successful projects that are one offs.  The project is the entire lifecycle of the product.  Some examples?  Visit the art and crafts section.

Reward/Product Mix

Okay, so it’s going to be successful, you will be sending out more than one reward.  Let’s get a probable product mix going.

You are going to need three outcomes.  Low, Medium and Awesome.

Look at other projects that are similar to your project.  See what rewards are popular and which ones not so much.

Do you need to limit some of the rewards because of a lack of availability or time?  Put the maximum amount that you can deliver in the reward.  Remember that this amount will be tweaked as you go through everything.  It’s the rare project that is completely profitable the first go around.

Overhead

Just about any business has overhead.  Consider if you have to rent space, need to hire an assistant and any other non-personal expenses.  An example would be renting a storage unit so that the packages could be sorted for shipment.  Other projects have needed to hire someone just to answer Kickstarter comments or emails.

Taxes

Kickstarter income is taxable.  Remember to budget enough to pay for your taxes. Taxes are entire dependent on how you are structuring the project.  In the United States, you could run it as a sole prop, a partnership, LLC, S-Corp or C-Corp.  Please talk to your tax professional about which would work the best for your situation.

For business structure, consider writing up a formal plan and document the expenses, income, and ownership of the idea, profits and expenses.  It’s common to have Kickstarters run by friends or teams.  Eliminate some potential problems by writing up an ownership plan, partnership agreement, or articles of incorporation.  An attorney would be happy to help you out.  If you think that’s not necessary, remember that Gary Gygax, the creator of Dnd, spent a lot of time defending his company’s income from his former friends. (And he usually lost those cases.)

Marketing Expenses

While I would love to tell you that all kickstarter projects are shared like wildfire on social media, sadly I cannot.  Your mother might share your project; however, your old highschool buddy who has received 3 different crowdfunding project requests that week; will not.  Here are some tips to consider:

  • A Great Video – Yes, a cell phone produces a video.  However, if you have a lousy script, sad call to actions, poor lighting, do not describe the project, or meet some other expectations; it will not be a good cell phone video.   Look at some other project videos for ideas.  Example:  Many table top game projects will run through the entire game.
  • Great Graphics – If you create your own graphics, ask for feedback before posting them to live.
  • Branding – All marketing should have a similar look and feel.  Much as has been written on this subject and it can be easily googled.
  • Pricing – Do people feel like they are getting a good deal?
  • Three Levels of Pricing – One should have at least three levels of pricing:  Low, Medium, and High.  Why is this in marketing?  It’s about giving people a choice between options.  When you have pricing options, people are more likely to purchase the products.

Fulfillment Plans

You should be able to answer the following questions:

  • Who is making the products?  You are?  A outside manufacturer?  A contractor?
  • How long will it take to make them?  This can be a tough one.  If you have a one off project, the manufacturer might be able to finish in 20 days, however, they will fit you in their existing project mix.  In other words, the manufacturer will prioritize ongoing customer work over a one time project.
  • How much will it cost to make them?  Pore over any contracts and look for loopholes.  If you make multiple design changes, is there a charge for that?
  • What is the shipping time frame?  This is a big thing for people receiving rewards.  Used to instant delivery or burned by projects that never delivered, it is a sensitive problem.  One needs to be real about delivery times.  For instance, a nameless project that was three years late posted an update that a Chinese factory would ship right before the Chinese New Year.  I felt sorry for them because obviously the factory told an untrue goal.  Everyone in China leaves the factories so they can visit their families.  They work hard, they deserve it.  However, any manufacturing scheduled for completion time period, is not going to be finished.  Think about how productive you are on Christmas Eve, do you leave unfinished projects at your work?
  • Will the products be dropped shipped?  Or will the products be shipped to you and then you will send them?  Why would you pay to ship them twice?  Because of quality concerns.  Third party shipping is great; however, they will not know if a product is substandard.  Kickstarter projects need to be as perfect as possible.  Being a perfectionist will make further projects happen plus provide a great platform to start a business.  You would not think missing a single dice in a massive game would cause a negative comment; but I assure you many pixels have be devoted to describing that problem on Kickstarter.
  • Packaging – How will it be packaged?  Does this packaging showcase your project? Do you need to order custom boxes for shipping the items?  Uline and other box distributors would be happy to create custom shipping boxes.  However, could you save some coin by designing a product that ships flat or will fit into flat rate shipping boxes?
  • Shipping and Fees – This is the area where most creators have issues.  One, postage is always increasing.  Two, much of postage expense is based on weight and size.  Therefore, if you have additional rewards that trigger when reaching funding levels, the once great postage calculation is not enough.  It can be $20.00 or more to ship a box over 9 pounds.  Do you have a separate shipping fee?  Or do you bury it in the reward?  On my first project, I had it separate.  I received a lot of complaints about international shipping.  International shipping will often cost $15 to $20 for the same package that would cost $5 to ship domestically.

Putting it all together

Now put all this information together:

  • Total Estimated Revenue:  Calculate your max rewards and revenue.  There are quite few projects that don’t have rewards that would fund the project.  Algebra.
  • Total Estimated Cost:  Add up all the manufacturing, design work, fulfillment costs, and shipping costs.
  • What one unit would cost to make.  Do you have a breakeven point?  An example of a project without a breakeven point are some of the artist projects.  They plan to send out a drawing for a dollar.  Each additional drawing that they send out is profitable.  However, a large scale manufacturing project is more complex.
  • Time Budget or Critical Path management.  What is the start to finish time frame?  Absolutely critical for project management.

How much money is left over?  Subtract 10% for Kickstarter fees.  Subtract any tax amounts that will be due.

Hopefully, this is now a positive number!  If not, start from the beginning.

Total Reward Amount?

I guess you are probably wondering why I haven’t mentioned that.  During your research and computations, I’m sure you have a number that you are reaching for.  If you are ordering a product from a manufacturing plant, I’m sure you have been stunned at arriving at a number that is tens of thousands of dollars to cover your basic costs.  Perhaps you have tried to cheapen the manufacturing process.  An example is using stickers on blank dice vs. having custom dice made.  Putting stickers on blank dice might cut costs; but does it lower the enjoyment of the game?  Would it be better to raise the reward by $10?  What about a print and play version?  Moving from meeples to square blocks are normal compromises during game design.  Plus with all those cost cutting decisions, you are also changing the weight of the package.  I encourage a full mockup of what you want to make, weigh it and measure it.

Laura Dodson
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Laura Dodson

Laura Dodson, CPA is a Seattle Financial Planning & Analysis consultant.She has attended Western Washington University, Pierce College and Bates Technical College. She has written four accounting instructional books. She has worked for small family businesses, mid-sized businesses and a Fortune 500 company.She founded and operated Blue Stone Accounting LLC for five years.She currently runs Paper Butterfly Forge LLC.
Laura Dodson
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