What Does it Cost to Run a Crowdfunding Campaign?
While crowdfunding on platforms like Kickstarter, Indiegogo, and TILT are seen as ways to bring in money, any good entrepreneur knows that you need to break a few eggs if you want to make an omelet. If you want to launch the next great consumer product, make sure you budget for the following things to ensure you can afford the entire process.
Getting ready for the campaign and getting a prototype, if you need one
Anyone looking to back a crowdfunding project wants to know what they’re getting into, and this step has become even more important with the addition of rules on the more popular platforms that require the project creator to show a functioning prototype in order to protect their backers from a bait-and-switch.
You’ll need to consider a few steps to get a prototype made, depending on how far along you are as well as what skillset you have and what equipment you own.
The first step in bringing your idea to life is to hire a product design company to create a 3D rendering and specifications for the parts that you need. In order to source a good company, ask around in your local startup group to find the most reputable one, or reach out to a group of crowdfunders online on LinkedIn or Quora to point you in the right direction. Some product design companies will have a 3D printer as well, allowing them to create a tangible rendering and make prototype changes on the fly.
Expect to pay: $3,000 – $7,500
It’s become more and more common for products to launch on Kickstarter with only 3D printed models for reference, but having a set of actual samples from a manufacturer will give you three advantages:
- It will show backers that you’ve already made greater strides in bringing the product to life.
- It will photograph much more nicely than the typically rough 3D printed models.
- You will have samples to send to the press when they inevitably ask to try it before they’re willing to write about it.
Expect to pay: $5,000 – $10,000
Photography and Video
Having good photos and a good video is the lifeblood of a campaign’s message. Since your backers will have no way to “try it before they buy it”, the only way they can experience your product is through visuals.
If you’re lucky, you or a friend are handy enough with a camera to keep this job in-house. Alternatively, see if your videographer also shoots photos. While many campaign owners will just pull still frames from their final video, often times these still aren’t high enough resolution for some blogs or any print material that requires a 300 dpi photo. Furthermore, without a plethora of photos, you’ll quickly run out of assets to share with bloggers and on social media.
You’ll want to get the following three types of photos:
- Product shots on white: these will give a designer the greatest flexibility to put your photo on different backgrounds, and they also show off your product’s detail with the least amount of distraction. They’re an extremely flexible type of photo to have.
- Teardowns: This mostly applies to highly technical products, but your savvy backers will want to see the guts as well as the exterior.
- Lifestyle shots: Potential backers focus on one thing, and one thing alone: what is the problem in their lives that your product is going to solve? Hitting this point home is crucial, so make sure to put your product in situations that the end user will find it helpful in, and illustrate through photos how your product works and how your backers’ lives will be better because of it.
Expect to pay: $500-2,500 for a professional photographer
For the purposes of this blog, you’re going to want to hire a solid videographer, preferably one who works with startups, products, or crowdfunding campaigns. Photos are something that you could potentially do yourself but don’t try to skate by on a webcam video or with iPhone product shots. You want to hire someone who can craft a narrative, explain a problem that your target market has, and sell your product as the solution. A good videographer is also a great storyteller, and that’s what you’re ultimately paying for.
Expect to pay: $1,000-$5,000+, depending on where you live. LA and NYC videographers charge a premium over videographers outside of the major startup hubs of the country.
Expos, Trade Shows, and Pounding the Pavement
Factor in the potential benefits of trotting your prototype out in front of your intended consumer at a trade show in your vertical. For electronics, the granddaddy of them all is the Consumer Electronics Showcase in Las Vegas, better known as CES. The prices to travel to these shows, rent a booth space, have a display developed, and other costs you’ll incur is too varied to give a range. But understand two things: first, anything like this is going to be expensive to attend and second, the conversion rate from an in-person event to a crowdfunding backer is very low for the money. While they’re a great way to make industry contacts and meet bloggers, this shouldn’t be a financial priority if you’re not working with a sufficient amount of capital.
Expect to pay: varies too much.
We have found Facebook Advertising to be a remarkably effective way to build an affordable group of highly-targeted supporters in advance of a Kickstarter or Indiegogo campaign that are likely to back your project on day one. Additionally, Facebook has made it harder and harder to beat their algorithm organically, so you’ll need to pay for eyeballs once your campaign is running as well ensure that these people see the content that you want them to see. $50-$100 per day is sufficient to run leading up to the campaign (at least a month), with the same spend throughout.
Expect to pay (for a 35-day campaign with a 30-day ramp-up): $3,000-$10,000
Press Release Distribution
Getting your message in front of bloggers is important, and one of the best ways to hit a number of them at once is with a press release distribution. You don’t want to use it is a spam technique or a spray-and-pray technique, but getting a release on the wire is a good way to get more eyeballs on your release. For the purposes of pricing it out, avoid the cheap release distribution sites and opt for a reputable wire that journalists and bloggers subscribe to, like PRWeb, PRNewswire, AP Newswire, and Businesswire.
Expect to pay: $300+ depending on platform and distribution options.
Hiring a Marketing Consultant
Hiring a Kickstarter marketing expert can be a great advantage, whether this is your first campaign or you’ve run campaigns in the past. A dedicated agency can open up additional skillsets like a graphic designer, dedicated PR person, or website developer for one fee as well. The most important consideration is that an agency that has run a large number of campaigns likely has relationships with bloggers that will also be interested in your product, they’ll have a lot of empirical knowledge on what messaging does and doesn’t work, and they may even have access to identified crowdfunders who have backed other projects in the past. Additionally, an agency can take a huge amount of work from you by running your social media campaigns and reaching out to bloggers, freeing you up to pursue aspects of running the campaign. The agencies at the top of the game have a variety of different pricing structures that vary too much to provide a range but expect to spend a good amount of money for a reputable company with a winning track record.
Expect to pay: varies too much
Paying the Platform
All of the big platforms have their own fees associated with running on their platform, with Kickstarter and Indiegogo being the most popular. We also wrote a more detailed article on at how Kickstarter and Indiegogo pay funds.
Prepare to pay the following fees following a successful campaign:
- Platform Fee: 5% of total funds raised
- Payment Processor Fee (Stripe): 3% of total funds raised, plus $0.20 per pledge
Indiegogo Fixed Funding Campaign
- Platform Fee: 4% of total funds raised
- Payment Processor Fee (PayPal): 3-5% of total funds raised
Indiegogo Flexible Funding Campaign
- Platform Fee: 4% of total funds raised if successful, 9% if unsuccessful
- Payment Processor Fee (PayPal): 3-5% of total funds raised
Rewards, Manufacturing, and Fulfillment
During the process of sourcing a manufacturer, you should know how many units you’ll need to order in a minimum quantity, so you should have that figured out already. After you’ve run a successful campaign, you’ll also need to pay for packaging design, shipping, customs (if applicable), as well as the production and shipping of any ancillary rewards that you need to have produced like T-shirts or stickers. Your cost here will depend widely on what you’re running a project for, but it’s extremely important to figure this out as the baseline for setting your funding goal. Be especially aware to factor shipping into your reward price so that you can calculate your overhead correctly.
Bonus: What you shouldn’t pay for
There are a number of scams out there that try to take your money in exchange for more eyeballs, but keep an eye out for these as they pertain to Kickstarter and Indiegogo campaigns.
- Email Lists: Purchasing an email list may seem like a surefire way to save yourself the hassle of building your own audience, but these lists are usually full of dead or unqualified email addresses that want nothing to do with your product. Additionally, sending unsolicited emails violates the Can-SPAM Act against email spam, and as such, most large email providers won’t support the import of a purchased list.
- Facebook Fans or Twitter Followers: It may not be easy to tell as a consumer, but as a marketer, having fake social media followers can throw your metrics way off. If you have 5,000 fake fans, you’ll never be able to evaluate what works and what doesn’t with your marketing, since your engagement rate will permanently be low.It will also be difficult to target your advertising for the same reason.
- “Guaranteed” GoGoFactor or Kickstarter Algorithm boosters: You can typically find these on Fiverr, and they’re almost always running a script to simulate page traffic. Don’t spend your money on them – they don’t work.
- Google AdWords: Avoid these for two reasons. One, people googling for products expect to be able to purchase it at that instant. That’s their intent behind the search, and clicking on that ad, and therefore, they won’t want to wait several months for your product. Second, and arguably more important, is that Google forbids running ads for a fundraising campaign.
So as you can see, running a crowdfunding campaign can be very expensive. Luckily, you can adapt this formula to figure out what your goal should be in order to cover your expenses for getting your campaign running. I’ve included an example below:
- Find out how many units you need to order from your factory and the cost of doing so. If the minimum order is 5,000 units at $5 per unit, you need to raise $25,000 to cover this cost.
- Get quotes for additional marketing, video production, photography, etc. and add them to your goal. Let’s call it $15,000 for this example.
- Add the two up to figure out what you need to cover production and marketing. In this case, it’s $25,000 production + $15,000 marketing = $40,000.
- Factor in an additional 10% to cover the platform fees – in this case, $4,000.
- Add all of that up ($25,000 production + $15,000 marketing + 10% fees ($4,000)) and bingo, you have a reasonable goal for your crowdfunding campaign: $44,000.