Editor’s Note: We thought it would be interesting to show, in detail, how a Kickstarter is run. Natasha has agreed to document her entire process in a 6 part series so you can see what is involved with setting up your own crowdfunding campaign.
I’m Natasha, the designer behind TechnoChic DIY tech-craft kits at TechnoChic.net. In just 3 weeks I’ll be launching my new DIY light-up paper bow tie kits on Kickstarter (That’s March 7th!), and the campaign prep is moving full steam ahead. Last week, I focused on getting quotes, figuring out how much money I will need, and setting a schedule for when everything can happen. I came up with a formula to calculate the Kickstarter shipping costs and even a conversion rate from my online influence to Kickstarter backers. This is the third week on my journey to launch – if you missed last weeks post, check it out here.
The big question: How much money do I need?
Kickstarter is an all -or -nothing funding platform. That means that if my project doesn’t hit my goal, I get nothing. So it’s so important to correctly estimate the costs of the project and if the campaign can attract in enough backers to be successful. On their website, Kickstarter shares their tips on setting a goal and recommends that:
“Your funding goal should be the minimum amount you need to make what you promised and fulfill all rewards.”
But how do you figure out that number? This week, I dove in deep to figure out what the future holds for the financial success of my campaign. Here’s how I did it.
First, I made a spreadsheet.
My campaign expenses fall into three categories:
- Product Costs (Die Cutting & Printing, Paper, Kitting, Accessories, Packaging)
- Shipping Costs (Both shipping services and supplies)
- Campaign Costs (Items needed to make the campaign happen but don’t go directly into the product)
You can view the spreadsheet larger here.
PRODUCT COSTS
To estimate the cost of producing the product, I’m looking for two numbers:
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What is the lowest price I could have my product produced at?
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How much could it cost if things didn’t go my way (A worst case scenario)?
The idea is to get a feel for the range of possibilities that my project could endure. To do this, I listed every piece that goes into making my product (sometimes called a BOM or Bill of Materials). I filled in the left side of the spreadsheet (the best source side) with the cheapest sources I could find (disregarding any sources that looked like a scam). Then, I filled out the right side of the spreadsheet with the safest option (companies that I have either done business with in the past or are in the USA and offer reliable shipping and payment.) This will give me a realistic idea of what the product could end up costing – both good and bad.
Getting Quotes
For the electronic components, I looked at prices for components on Alibaba and direct manufacturers in China and I also looked for resellers here in the USA. As a general rule, the larger the order the cheaper it gets, and components direct from the factory in China will be cheaper than a reseller here. But there is greater risk involved when working overseas including money transfer issues, shipping issues and timing. I have to admit that my initial search on Alibaba was a bit intimidating. It’s a huge marketplace and most of the communications are translated from other languages. I found a very helpful article with some good tips on navigating the site here. After jumping in, it felt pretty easy to communicate on the site and I got several quotes.
For the paper shapes, I also returned to the printer I used for my last Kickstarter (TechnoChic light-up paper flower kits) to get quotes for the die cutting and foil stamping. I prepared the files in illustrator and also specified the paper colors and foil colors for the job. The good news is, at this point in the process these decisions aren’t set in stone – sharing the file is only to get an idea of the cost, so I could tweak the design or change colors later if needed.
One thing I like to do when sending a request for a quote (or RFQ) to any company is to ask for a quote for two different quantities. Kickstarter is so unpredictable that you really don’t know exactly what amount you need, so knowing how the price differs between 1000 and 10,000 units helps to get a sense for how the cost will change at different volumes.
Specify all the details – and timing.
With each piece of the puzzle, timing is a major factor, so it’s also important to ask if and when an item can be available and /or how long it will take to produce. Its very important that everyone involved in supplying a piece to your product knows your deadlines and you know theirs. Before the campaign launches you need to set the date you will deliver your rewards — and you want to deliver on time! And, it always helps to add an extra month or two to the date you promise to allow for any setbacks along the way. Under-promise, over-deliver! It’s the key to customer service success.
Shipping – It’s some serious $$$
Shipping has been called a “Kickstarter budget killer” – and for good reason. It’s hard to calculate and easy to undestimate. The problem is, shipping isn’t something you can profit on, so it’s just money that will leave as soon as it reaches you.
When people pledge to your campaign, the total amount plus shipping is included toward helping you hit your goal (which sounds great right? You’ll hit your goal so much faster!) But that doesn’t mean you take home more money, and it could mean you take home much less than you were expecting.
For example:
Let’s say you have a reward that costs $100, it costs $50 to ship, and you need to raise $1000 to put the product into production including all fees. You may think “I just need 10 people to back my campaign at $100 and I’ll have my $1000.” But if only 7 people back your project you will be funded (7 x $150 = $1050), spend $350 on shipping and only have $700 left. (Yikes!)
In this case you should have made your Kickstarter goal $1500 to raise $1000.
Here’s what I did to estimate my own Kickstarter shipping costs this week:
- I used a scale to weigh the product and shipping materials (if I don’t have finished prototypes yet, I use similar objects and round up)
- I estimated the percentage of international vs domestic (based on previous backers, social media accounts, etc)
- I used shipping software to research the cost of shipping to both international and domestic locations, then found an average price using my international/domestic estimation
- I looked at my most popular reward and figured out what percentage the average shipping cost is of the total cost of the reward
- I added that percent to the Kickstarter goal
Explained: So in my case, my most popular reward should be a single product that costs $25. The average shipping cost of that product is $5. So 5 / 25 = 20%. I need to add 20% on top of my original goal to account for shipping and still take in the amount of money I need to do the project. You could use this as a formula and plug in your own numbers:
estimated average shipping cost / most popular reward cost = % of shipping original goal + (original goal * % of shipping) = final Kickstarter goal
Of course, you can get way more complicated (if that wasn’t enough!) but the point is to make your best estimation of shipping costs, round up, and be aware that this is a place that may cost some extra money. Also, I always figure in the cost of the shipping box, bubble wrap etc.
Campaign Costs / Thinking of everything.
As you can see by my posts, some of the money I hope to raise has already been spent. I want to make back the money spent prototyping and developing the campaign, and plan for all future costs associated with fulfilling the campaign. So, I make a list of everything I can think of that may need to be purchased to get the job done. I even try to think about what personal expenses may increase because of the campaign. I could imagine a Kickstarter creator spending more money on daycare, end up UBER-ing everywhere they would normally walk or even just buying way more coffee and headache medicine. Little things add up!
Here are some things I ended up buying but hadn’t budgeted for in past campaigns:
- Portable / Folding Tables & Chairs
- Food & Drinks for friends who help with shipping
- Extra Tape Dispensers
- Plastic Bins / Paper trays for organization
- Business Cards / Stickers / Logo Stamp
- Way more Packing Tape than you would think
- Test Mailing materials (Retail price, before buying in bulk)
- Postage Software
- DYMO label printer
- Labels for shipping and labeling boxes
- Rental office / storage space for inventory
- Thank You cards / gifts
- Transportation / Rental Car
- Folding Hand Truck
- Larger suitcases
- Notebooks & Printer Paper
- Large Ziplock Bags
- Storage Shelving
Calculating your reach.
With everything calculated and a goal set, I have to wonder – is my goal too big? I’m just one person with a limited influence on social media, my email list, friends family and social groups. It may not be enough.
For my last Kickstarter campaign, I did the math to figure out my goal – it needed to be $10,000. I looked at my outreach strategy and calculated a conversion rate by looking at how many video views vs. comments, website views vs. sales, newsletter opens vs. clicks etc. (This was something you can calculate, or if you know your brand and customers well, you can make a good guess at what your conversion rate can be.) What percentage of people like, comment and share your stuff? Can any of those people influence another group?
I figured that I could only bring in $5000 worth of backer pledges, so I looked at the numbers and decided that I could cut half of the production costs by not including foil stamping. I set $5000 as the goal and presented a “stretch goal” (something creators often offer an extra feature or perk if the campaign goes above and beyond the goal) of producing the flowers with foil if I reached $10,000. Well, I was right. I didn’t have the influence to push the campaign over then $10,000 mark and I probably would have gone unfunded.
In hindsight, however, I don’t recommend this. I was so committed to making the product to the standards of my original vision that I ended up taking out a Kiva loan to fund the rest of the money. I also wonder if I had made the goal $10,000 to start, would I have gotten it? Backers may have stopped backing because they didn’t think it would reach the stretch goal, and maybe they only wanted the product if it came with foil.
The Bottom Line
Since my last campaign I have been doing my homework – attending events, growing my email list, meeting more makers and customers. I have a my largest Kickstarter goal yet, and I think I will go for it. My calculated reach is not as large as I would like to feel safe, but it’s close. Only time will tell if it will be worth it. (Wish me luck!)
Planning For The Future
I would feel silly not mentioning another thought that was constantly in my head last week. What’s after Kickstarter? I can’t say that all this planning is just for the campaign. For example, because my bill of materials costs less to make in larger quantities, I’m thinking about producing retail packaging and enough inventory to sell my products at Maker Faires and in stores.
It’s worth mentioning because most Kickstarter (especially products) are hoping to be, well, Kickstarted to a place where they can continue on their own. So budgeting and creating a business plan for the future now is a great idea.
A personal note
Since these posts are like a Kickstarter reality show, I thought I would end by sharing my feelings about the campaign and how the process is going:
This week, I’ve been working overtime, having stayed at my studio past dinnertime 2 days and worked on Sunday. The work from the past weeks (social media, prototyping, sourcing) is ongoing and piles on top of the new tasks, so I’ve been needing extra time to get everything done. I’ve been getting a normal amount of sleep. I ordered takeout 1 times. Let’s see how I do next week! :)
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Other helpful articles:
Kickstarter creator handbook: Funding
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