Tag: Strategy

When someone backs your project and selects a reward, there is a cost associated with producing that item. The difference between what it costs you to produce the reward, and the amount of money a backer pledges, is the profit margin. Kickstarter projects aren’t really about making a “profit,” but it’s one of the most important metrics in business and can help you structure your project effectively.

Lets say you are offering a DVD and DVDs cost about $5 to produce. It also costs a dollar to ship the DVD to your backers. That means the total cost to produce the DVD is about $6. If you sold a DVD for $10, and it coats you $6 to produce then you are making $4 of profit. This profit is going to be used to complete the rest of your project, and having a poor profit margin can hurt your ability to complete it.

If the example project got 100 backers who chose the DVD, then one might think the project creator has received $1000. However, when the cost to produce the DVDs is removed, the creator only made $400 in profit. You need to make sure the profit margin is great enough to honor the reward system and still cover the project’s cost. I will get into how to price rewards later, but right now, you need to know what it will cost you to produce all the items you want to make.

Not every Kickstarter venture is launched with the intent of making money. However, if you want to launch a project as a business, having a healthy profit margin is important.

“‘If I was being realistic, we probably needed $10,000 to $15,000 to get started, and these things should cost at least $750,’ she added. ‘Below $750 is a losing enterprise.’” – Paula Patterson On Kickstarter, Designers’ Dreams Materialize, NY Times

Fixed Costs and Variable Costs

When creating your budget, you need to account for both the fixed cost and variable costs.

Fixed costs – The costs that will not change as the number of backers increases. This could be the cost of supplies, travel, or any other expense related to the creation of your project.

Variable costs – The cost that will change depending on the number of backers you receive. These costs can go up or down, but the important thing is that they change. For example, if you’re making a book the more backers you receive, the more shipping costs you have. However, it will be cheaper to produce the book since many publishers give discounts for larger orders.

A Kickstart’s Guide to Kickstarter TOC:

pssst…you can read all of this offline by downloading the e-book.

One aspect of the project that you probably already have in mind is how much money you’re going to go for. It’s time to dig a little deeper and figure out exactly what it’s going to cost to do your project. Your costs will come from the project itself and in fulfilling rewards. You will want to have a good idea about how much money you will need for each of these areas. They will play an important role during the next phase when you must set your funding amount.

For the product, look up different prices related to the item you are trying to produce. For example, if you are making a book, look online at all of the different printing options. What is the cost of a hardcover? What is the cost of a softcover? How much does it cost to ship the item? How many do you need to produce before you get a discount? What supplies or materials do you need to complete the project? Do you need specialized instruments or tools? Make a list of everything that you will need and how much it will cost. You will need to come back to this list later.

For rewards, make sure you research shipping costs as well as production costs. If one of your rewards is going to be a T-shirt, then you will need to know how much it costs to make and ship the item. Often people don’t factor in the cost of rewards into their funding and then are left without enough money to complete their project.

One example of someone who might not have put enough time into researching her costs is Paula Patterson. According to a New York Times article, On Kickstarter, Designers’ Dreams Materialize, her V-luxe iPad entertainment accessory ended up costing a lot more time and money than she originally thought.

You may already have an idea of what your project is going to cost in total. However, now is the time to refine that estimate.

A Kickstart’s Guide to Kickstarter TOC:

pssst…you can read all of this offline by downloading the e-book.