How much should you charge for a crowdfunding reward?
A common mistake people make when doing crowdfunding, is to massively under-charge for their rewards. That’s bad news for several reasons.
Which is to say, I’ve made a lot of mistakes myself, and I’ve seen others do the same. One of the things I often notice, is that some people don’t really think about what their campaign is for — which is funding their project.
I’ve seen people who have promised hand-painted postcards for their Kickstarter backers, at $15. The problem with this is that the postcards weren’t core to the Kickstarter project. Time is a zero-sum game, so in practice, every second spent on those post-cards, are seconds not spent on the main project.
So, what would happen if this person received 200 backers for that award level? That would be amazing! They’d have $3,000, right? Awesome!
Except Kickstarter takes 5%, and so does the payment processor, so we’re down to $2,700 before the money arrives.
Some rewards cost your campaign dearly — either in time, in money, or both.
Then the work begins
Remember that every reward you offer comes with a very real cost, whether that is time, money, or both. In the example above, the person in question was promising to paint watercolor postcards for people.
Let’s do the math. A quick Google search tells me that you can buy watercolor postcards for £5/$7.75 for 20, so that’s £0.25 per sheet. You’ll also need the paints themselves, so let’s call that another £0.05 per sheet. In addition, she’ll need an envelope (because you can’t send a watercolor postcard unprotected — say, £0.05), and postage (let’s say £0.29 per postcard). That brings the total to £0.64 / $0.99 per post-card. So, to create 200 postcards, you’d be spending $200-ish in actual expenses.
In addition, I know this person is a bit of a perfectionist. They’ll spend at at least 45 minutes on average to paint a watercolor, write the address on an envelope, stick a postage stamp on there, completing the task. To complete 200 of them, that’s 150 hours. If she works 40-hour weeks (she doesn’t; she tends to work less, because creating art drains her energy), that’s 3.75 full weeks worth of work.
So, the entire postcards project would cause nearly a month worth of work, paid at a reasonable $19.33 per hour. However, that’s not how it works: The money is meant to be funding the project, so the right way to think about it is that she is paying herself minimum wage ($8 per hour, in California), and will in fact have invested nearly $1,400 in this project (her ‘wage’ + materials).
Is it worth it?
So, for a whole month of working her arse off, this Kickstarter project creator will only have a total of $1,300 to spend on her project. Worst of all, she’s going to spend a whole month of her time doing all of this, without even spending any time on the main Kickstarter project… The reason why she was doing all of this in the first place!
In other words, the truth is that some rewards cost your campaign dearly — either in time, in money, or both.
All of this was a hard-learned lesson during my first Kickstarter project: I promised people signed books, but when I did my calculations, I had only calculated shipping them to them directly from Amazon. This, obviously, was a huge problem: Now, instead of drop-shipping the books directly from Amazon, I had to ship them to me, sign them, put them in envelopes, and post them again. It cost me a day’s worth of time, and the postage cost of heavy photography book wiped out a large chunk of the ‘profit’ I could have invested into my project.
So: Before you pick a Kickstarter reward, think about whether it scales well (can you deliver 5? 100? 1,000?), whether it helps the core project (giving away a download code for your film project is ‘cheap’, in terms of time and money. Having to ship a DVD box set to the other side of the world is really expensive — and you have to calculate in that at least some of the things you ship will be lost in the mail.), and whether you think that the final ‘profit’ you get to invest in your project is worth it. If it’s not, then you either need to increase the cost of the backer reward until it IS worth it, or scrap the reward altogether.
Haje is a pitch coach based in Silicon Valley, working with a founders all over the world to create the right starting point for productive conversations with investors — from a compelling narrative to a perfect pitch. You can find out more at Haje.me. You can also find Haje on Twitter and LinkedIn.