Apr 24, 2012

Crowdfunding: Sweet Swag vs Crap

So, I’m working on a “little” tangible narrative project to fund on Kickstarter – little in that, it’s half couture accesssory line launch, half collection of short stories. A lot of thought has gone into planning the rewards for it, so I thought I’d share some of those thoughts, and walk you through some of my logic.

My campaign is a mixed bag of mass produced stuff, handmade stuff, and services. In my spreadsheet, each reward has an efficiency score.

Unit Price x (1 – (Sales Tax % + Kickstarter % + Amazon %)) – (Material Cost + Shipping Cost)

Unit Price

Efficiency =

This is basically like a profit margin that leaves out certain costs. The score shows how much of the revenue actually goes toward paying the project’s fixed costs, and (maybe! even!) making a profit.

Mass-Produced Stuff

(Average Efficiency: 61%)

This includes t-shirts, posters, hats, stickers, magnets, copies of a book – basically anything you take out of a box from a supplier and put into a box going to your backer. The upside to these is that they’re easy; but they also come with their own pitfalls.

There’s nothing wrong with mass-produced stuff, but it’s worth it to think through how that stuff is going to relate to the project as a whole. Copies of your book are highly relevant; t-shirts featuring the logotype for your horror movie aren’t, even if it’s a very pretty logo. Which I’m sure it is.

In my experience, things with logos printed on them are for giving away at events, not for making money. I’ve taken breaks from planning my rewards several times; when I come back to them, anything that doesn’t “fit” with the project jumps out at me right away and I can nix it.

Batch size is also a critical consideration, and you should budget things differently depending on how many of them you need to buy. It’s not wise to count the cost of anything you’ll be buying in the hundreds or thousands as costing you “$1 per unit” if it costs $100 whether you sell one or 100. The best way to stay safe on your budget is to pick a likely number of orders and roll the cost of covering them into your fixed costs.

Finally, anything mass produced has a market value. No matter how awesome it is, a t-shirt is basically worth somewhere between $10 and $30 to a consumer, which means that charging $100 or $1,000 for it won’t seem fair. In the end, that means you are only creating a small amount of the value on that item, which means you’ll only get a small amount of the money.

Handmade Stuff

(Average Efficiency: 73%)

This is the central model of my project; people pay me money to buy supplies, turn those supplies into finished goods, and mail those to them. Handmade items require a lot of your time, but they also net you more money because you’re creating the bulk of their value.

I highly recommend counting time as part of your unit cost when you go to determine your reward prices. Put a reasonable dollar amount on your time, and estimate how much of it you’re using to make your rewards.

This is important to do because all the time you spend on reward fulfillment is time you could be spending on larger project goals. It’s easy to discount the time commitment when you think about making one or two reward items, only to find yourself overwhelmed when you have to make hundreds.

I keep my labor and materials costs separate, and assume that all or most of the labor costs until I fund are going into paying off the project’s fixed costs. The other advantage to assigning a budget for time spent, is that if your project overfunds, you have the budget to hire skilled collaborators. For money. That’s very helpful if your kickstarter ends up being a runaway success, as it should be.

Remember, signing posters and writing thank you cards takes time, too.

I find it’s easier to keep handmade things relevant because of the time commitment; I want my time spent to overlap with the main goal of the project as much as possible.

Also, unless you plan to close up shop and never offer these products again after the Kickstarter, you should also plan to stock yourself for retail or online out of your Kickstarter funds. Raise the money to make more product than you’ll sell in the campaign.

Services

(Average Efficiency: 74%)

These are the things that usually live below the fold on any Kickstarter page; they’re usually reserved for backers who pledge a lot of cash. In fact, I could overfund my campaign just by selling one of each of my services! Wait, is that right? *Doublechecks the spreadsheet.* Wowza!

I may differ from others on my philosophy for high end rewards; I’m looking to sell high end work, rather than get a large grant from a generous donor. I want my high end offerings to sell, and sell well. Someone out there would actually be giving my the listed amount, so I want to offer something that’s worth that much to them.

Determining their value is kind of a fuzzy proposition, but generally the following things increase the value of a service: luxury, personal attention, exclusivity, collaboration, credit, and relevance to the project.

The classic example of a good upper level reward is inserting your backer as a character in your book/movie/game/comic. That’s exclusive, requires personal attention, gives credit in a spectacular fashion, and is deeply relevant.

You may notice that their efficiency is only marginally higher than handmade items. I tweaked my services a lot to keep them close to the median efficiency, even though that has meant offering more stuff. If the efficiency is much higher, it means I’m offering too little and won’t likely attract a buyer; and if it’s much lower, it means I’m spending too much time or cutting too deeply into my funds.

Of course, this doesn’t just apply to services on the high end of the reward spectrum.  Make sure all of your services have concrete limits and deliverables. The more specific the service is, the better you can set a price for it.

Crunching Some Numbers

So, to figure out all of this, I built a set of spreadsheets. I won’t go into ALL of the details, because it’s pretty detailed. Here are the sheets I built:

Costs – The costs of all common materials, including labor, printing, time on CNC machines, paper, boxes, bubble mailers, etc. It calculates the total for each. This sheet takes also tallies the fixed costs for the project.

Each item in the sheet has a package price, and units per package. The average number of backers for a project of my size is about 250, so for anything that comes in boxes of more than 250, the costs sheet calculates the unit cost as the package price divided by 250, to keep costs from getting “hidden” in large package sizes.

Services – On this sheet, I enter the time it takes to perform each service offered, and it calculates the total cost.

Parts – I enter the materials used and labor time needed to make each part, and it calculates the material and labor costs for each.

Packaging – Each type of packaging has fields for the cost of its base unit (such as a box), parts that need to be printed and cut, shipping, and assembly time. It calculates the materials and labor total for each. This includes both retail packaging and shipping methods.

Kit Builder – In this sheet, I mark off which parts, services and packaging I need for each reward, and assign it a price. It calculates a whole host of different things about each reward, including profit margins, net pay, and how many I’d need to sell to fund the project with just that reward.

This sheet also averages the calculations for all of the “active” rewards, so I can see the average profit margin and average amount needed to pay for the fixed costs.

Campaign Modeler – This works much like the Kit Builder; you can set numbers of sales for each reward and see how you’d do in different scenarios. For each scenario, it tells whether I’ve funded, and whether I’ve met my net goal and overfunding goals.

This may be more complicated than you want to get into, but I’ve found it extremely helpful in eliminating areas of doubt in my funding plan.

So, that’s essentially how I’ve gone about developing this.  Of course, everyone’s projects are going to reflect their needs, strategy and philosophy.  And after all, I’m describing a project that hasn’t even launched yet.  I’d love to hear your advice for me, too!

UPDATE: I felt this needed an addendum, so I wrote one.

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