How To Prepare Your Product For A Crowdfunding Campaign
Some say crowdfunding can be traced back to the 1700s, while others credit the first crowdfunding project to Joseph Pulitzer, who raised more than $100,000 to help pay for the pedestal that holds the Statue of Liberty. Most people agree, though, that crowdfunding as we know it began in 1997 when fans of British rock band Marillion donated more than $60,000 to fund a reunion tour.
Since then, crowdfunding has emerged to what we know it as today. Indiegogo, one of the leading crowdfunding platforms, was founded in 2008, and Kickstarter, another popular platform, was founded in 2009.
These days, there are many types of crowdfunding – rewards-based, donation-based, equity-based and debt-based, or peer-to-peer lending. However, in this ebook we’re going to focus on rewards-based crowdfunding, since this type of crowdfunding is incredibly popular.
Rewards-Based Crowdfunding
Rewards-based crowdfunding is when project creators offer perks or rewards to backers, or consumers who give money to your campaign, in exchange for helping them fund a project. Backers are offered different tiers of rewards based on the amount they pledge.
However, before you can ever get to the point where backers can choose their rewards or perks, you’ll need to thoroughly prepare for your crowdfunding campaign.
Is Your Idea a Good Fit for Crowdfunding?
Crowdfunding is not easy – you won’t just get money for creating a campaign page. It takes a great idea, a lot of hard work and a little bit of luck. And even with all of that, you may not see the results you want, but as long as you were prepared and took the right steps along the way, you’ll be able to say that you did what you could to help your campaign succeed.
Before you even begin getting your idea ready, you need to make sure that your idea is a good fit for crowdfunding, and that your team can take on the large amount of work involved with running a campaign.
Crowdfunding is a great way to raise capital in the digital age, but crowdfunding is not a good fit for every project. There are a lot of angles to consider when looking at your project or idea.
Begin by asking yourself the following questions:
- Does my idea solve a real problem that people have?
- Is my idea specific rather than something more general?
- Can I easily explain it to others in 1-2 minutes?
- Is my idea unique, distinctive or different?
- Will my idea be valuable to others?
- What do my friends and family think of my idea?
- What do people who are NOT my friends and family think of my idea?
- Am I willing to ask my family and friends as well as complete strangers to fund my project?
- How much time am I willing to put into crowdfunding my idea?
- How passionate am I about my idea?
- Does my idea follow crowdfunding platform rules?
So, what really makes a project a good fit for crowdfunding?
First, crowdfunding projects need to be very specific, or have an end goal.
Only having a general idea of something you want to do isn’t going to work – you’ll have a very hard time finding backers when you can’t easily explain what you want them to back.
The idea needs to offer some sort of value to others.
A simple way to gauge value is by telling your friends and family, and even acquaintances, about your idea to gauge their reactions. If they are not genuinely excited after hearing about it, then, again, you may have a hard time finding backers.
Keep in mind that some categories tend to do better when crowdfunding, while others don’t.
For example, tangible products tend to do better than intangible projects or services. On Kickstarter, categories including games, big-budget films, design and technology usually do best.
Successful crowdfunding project creators meet certain criteria, as well.
First and foremost, they absolutely must be passionate about their idea. Remember, crowdfunding takes a significant amount of time and resources and is not for someone who isn’t 100% committed to seeing their idea come to fruition.
Assembling the Perfect Crowdfunding Team
Having a strong team behind you is a critical part of a successful crowdfunding campaign. You’ll need a key group of people who are as passionate about your project as you are. It’ll help you break up the workload and expand your reach to potential backers, and, if that’s not enough of a reason to have a great team, team-based campaigns tend to raise more funds.
As you build your team, make sure you’re choosing passionate people you can rely on. Create a corporate culture around your project or startup, and bring people on board who fit into that culture.
Where should you find your team? Including your friends isn’t always the best idea, though you can take advantage of your friends’ networks. Focus on finding people who have the skills you need and a passion to match yours. Look for those who fit into your team’s culture and who have crowdfunding experience – and a large, developed network is a bonus! You can use your own personal network to find your team members, go through a recruiting agency, or even place an ad. Just make sure that you determine exactly what skills, experience and requirements you’re looking for before you even start looking.
We suggest having a team with at least the following four players:
MANAGER
First, you’ll need a manager to be your team leader. This can be you, the project creator, or someone else you trust to run the campaign. This person will push the campaign forward, taking on much of the communication responsibility, planning the project and making big strategic and financial decisions.
ADMINISTRATOR
Second, you’ll want an administrator who can act as the manager’s right hand man or woman. This person will help take care of all the behind-the-scenes work, coordinate schedules, track progress and keep everything organized. This person can also help maintain the actual crowdfunding page, answer backer questions, create new perks, run cross promotions and generally manage the campaign.
COMMUNICATIONS EXPERT
Third, find a marketing, PR or communications expert. A crowdfunding campaign requires a hefty amount of digital communication, from managing social media accounts to pitching journalists and bloggers, and you’ll want to fill this role with someone who has relationships in place with top journalists and experience writing high-quality and engaging content. This role is critical to your success and it’s also a lot of work, so you may want to consider hiring an agency to take on this part of the campaign.
DEVELOPMENT EXPERT
Fourth, you’ll need someone to be in charge of development and production for your campaign. This person will help develop your product or service, mock up and test prototypes, find manufacturers, coordinate distribution and more.
Now keep in mind, we suggest filling these four roles at a minimum. Depending on your project, you may have more roles to fill than these four, or you may need multiple people filling one role. Conversely, you may be able to combine some of these roles into a two or three person team. The most important thing to remember here is that it’s hard to run a successful crowdfunding project without a well-organized team that you can count on to support your efforts and goals.
Picking A Platform
Choosing a platform for your project is the first major decision you need to make in relation to your actual campaign. There are many different options for crowdfunding platforms, so it is important to consider each platform as it relates to your project, specifically. We suggest looking at both Kickstarter and Indiegogo.
It’s worth launching on Kickstarter if:
- Your project is eligible (we’ll get into Kickstarter’s approval guidelines in this section)
- You’re reasonably confident you can rally the funds together within the 60-day timeframe
- You are based in a Kickstarter-eligible country
It’s worth launching on Kickstarter if:
- Your project is eligible (we’ll get into Kickstarter’s approval guidelines in this section)
- You’re reasonably confident you can rally the funds together within the 60-day timeframe
- You are based in a Kickstarter-eligible country
Other Crowdfunding Platforms
It’s also worth noting that other than these two crowdfunding behemoths, there are many other sites available to set up more personal fundraising campaigns, such as GoFundMe. GoFundMe focuses on more personal, life-funding campaigns in categories like education funds, medical expenses and charity initiatives. The distinctive thing about GoFundMe is that it is not an incentive-based platform, so there is no space to offer rewards or perks to people who donate. This model lends itself to more campaigns for personal causes, rather than campaigns to fund products. For this reason, you will almost certainly not want to use GoFundMe to raise funds for your product-based crowdfunding campaign.
We are going to focus on Kickstarter and Indiegogo for the rest of this ebook, as they are the two most commonly used platforms.
What You Need To Know About Kickstarter
First, we’ll start with Kickstarter – probably the most well-known of all the crowdfunding platforms. Kickstarter has a few restrictions that you won’t find on Indiegogo. While it may be more difficult to comply with Kickstarter’s requirements, hosting your campaign on Kickstarter lends credibility to your project in the eyes of backers.
Kickstarter uses an “all-or-nothing” funding model
In other words, the funding goal must be met or exceeded, or the project founder gets nothing.
Launching a project if you're outside the U.S. is harder (but not impossible).
At the time of this writing, Kickstarter is available to individuals in the US, UK, Canada, Australia, New Zealand, the Netherlands, Denmark, Ireland, Norway, Sweden, Germany, France, Spain, Italy, Austria, Belgium, Switzerland, Luxembourg, Hong Kong, Singapore, Mexico and Japan.
Kickstarter has more restrictions than other platforms, and you should familiarize yourself with those before you begin to build your campaign here.
You must have a functioning prototype to fund on Kickstarter- the platform will not allow you to launch a project with renderings or a non-working model of your eventual product.
They’ll require you to show it working properly in your project video.
Kickstarter only funds “creative projects”, that is, projects where one specific thing (film, game, book, etc.) will be made or where there is a beginning and end to a project
There is no “fund my college tuition” or “kickstart my new business” option on Kickstarter.
Also note that you can’t run a Kickstarter campaign to fund a non-profit or donate any of your funds to charity
You’ll want to launch on Indiegogo if this is what you’re looking to do.
Again, check out Kickstarter’s rules and restrictions to be sure that your product has a good chance of being accepted by the platform before getting too far into the campaign creation process.
What You Need To Know About Indiegogo
Indiegogo is the second largest crowdfunding platform, and it often offers much more flexibility than Kickstarter. There are a few unique features to the site:
The biggest difference between Indiegogo and Kickstarter is that Indiegogo offers flexible funding in addition to fixed funding, which is the all-or-nothing model that Kickstarter uses.
Flexible funding gives you the option to collect all of the money raised, whether you meet your funding goal or not.
Project flexibility is the other key feature of Indiegogo.
Unlike Kickstarter, your project does not have to be approved by the platform, and you can start a campaign for anything from a high-tech drone to a new wheel for your personal bicycle or even your non-profit. Indiegogo is also flexible with campaign extensions, as well as rewards, or perks as they’re called on Indiegogo, offered.
The analytics and tracking information provided via the Indiegogo dashboard also allows you to run a referral program during your campaign, which rewards the people funding your project for bringing in even more funders.
We will further detail how to run this referral program later in our course. This is a tactic that is simple to implement on Indiegogo, but would have to be run manually, or using an external service, on Kickstarter.
Indiegogo also has another distinctive feature - InDemand campaigns.
This program allows successful projects to continue raising funds indefinitely via the Indiegogo platform. This program offers projects some flexibility outside of setting up an ecommerce website post-campaign. You can even run an InDemand campaign after you’ve run a successful Kickstarter campaign and your funding number will transfer over to your new campaign, so everyone will see how successful your project was.
Finally, Indiegogo, unlike Kickstarter, offers an API.
The Indiegogo API allows you to embed your Indiegogo campaign on your own website. This will need to be implemented by a developer, but the API documentation is very thorough and it does allow companies with large followings or powerful existing brands to leverage their own website traffic. Note: if you choose to use the API, your campaign will still appear on Indiegogo.com as a project, so you’ll receive Indiegogo traffic to your campaign page as well.
Also note that you can’t run a Kickstarter campaign to fund a non-profit or donate any of your funds to charity
You’ll want to launch on Indiegogo if this is what you’re looking to do.
In general, when comparing Kickstarter and Indiegogo, it’s worth launching on Indiegogo if:
You anticipate running a referral program
You would like flexibility in your funding
You don’t yet have a functioning prototype
Your project is outside of Kickstarter’s eligibility requirements
Developing and Manufacturing your Product
Setting the timeline for prototyping and design is very important for starting your project on the right foot and providing assurance to your backers. If potential backers see that you are not at the optimal stage throughout any point in your campaign, they will quickly lose faith in your project.
Designing and Prototyping
Before you launch, you will need a solid prototype at a minimum. This progress allows you to prove to your backers that your idea is viable and also show off your product to those who matter most – potential backers – which is essential for building a buzz. Not to mention, if you have decided to host your campaign on Kickstarter, the platform requires that you have a working prototype and show it in action in your project video.
We highly recommend working with a product development company to design and build your product. While it may involve more of an upfront cost, it will improve your chances of success because you’ll have a solid prototype for a product ready to go into manufacturing as soon as your campaign ends successfully.
Additionally, be sure you patent your idea before you go public and launch your crowdfunding campaign. First, do a search report to determine the competitive landscape for your idea. This will alert you if you are potentially infringing on someone else’s patent. Then, you can move forward with protecting your idea with a patent. If you have a good idea and a good product, it will likely eventually be copied – patenting your idea will protect you from this.
Manufacturing
At this point, you can begin to prepare to manufacture your product.
There are two options when finding a manufacturer for your product. First, you can choose to work directly with a factory. This option has lower costs associated with it, but is also higher risk than working with a contract manufacturer or sourcing group. This will involve higher costs, but lower risk.
When selecting a manufacturing partner, start by finding others who have successfully completed crowdfunding campaigns and exploring which manufacturers they used. You can also look up a local makerspace, hackerspace or fab-lab for assistance. Most medium to large-sized cities have them, and you can find lots of expertise and experience there.
Once you have narrowed manufacturers down to a few options, take the time to get to know them! This is a resource that you will be working closely with and spending lots of time with, so make sure that you can work together and that you trust them. Always get samples of their work prior to agreeing to work with any factory – there will be a cost associated with this, but the cost will be far less than receiving 2,000 poorly-manufactured units. You will also want to consider the location of the manufacturer, the cost to you and the manufacturer’s customer service.
While manufacturing overseas is certainly more affordable, a local manufacturer makes it easier to have more control over the process, timing, quality and communication. Patent validity and having your intellectual property stolen are also issues to be aware of with overseas production. Additionally, choosing a local manufacturer can be used as a unique selling point for your product or idea – you are supporting local job creation!
Consider choosing a manufacturer in the U.S. if:
- Your first order is small (under ~2,000 units)
- Your product uses mostly off-the-shelf parts
- The price of your product is on the higher side
- Your product is made of one or two materials
- Your product is a consumable (food, drink, supplements, etc.)
Consider manufacturing abroad if:
- Your first order is large (over ~4,000 units)
- You need many custom parts
- Your product requires a lot of assembly
- Your product can be easily and inexpensively shipped overseas
- Your production budget cannot afford a local manufacturer
If you haven’t manufactured a product before, and no one on your team has either, it would be wise to hire a sourcing agent. One of the key factors to a successful startup is eliminating risk, and hiring someone who has done this before takes significant risk out of the equation.
Shipping Costs and Delivery Dates
When it comes to charging your backers for shipping, you have two options: you can include an average shipping cost (for all of the locations you’re shipping to) in the price of your rewards, or you can have backers add additional funds to their pledge for shipping – you can even charge backers in different countries different shipping prices. We recommend having backers add shipping in order to avoid sticker shock on the initial price of the item. When a backer goes to back your project, they’ll be required to select a shipping country and the shipping cost for that country is automatically added to their contribution total, so you’re sure to get your shipping funds from them.
You’ll need to know the exact weight and packaged size of your product in order to get accurate shipping quotes. Once you’ve factored in the cost to get your products from the factory to a fulfillment center (or your home), shop around! Check out the largest shipping companies to see who has the most competitive rates – this could be the Postal Service, UPS, FedEx, DHL, or any other carrier. Make sure you also find out how much it costs to ship to different countries – both best and worst case scenario – in order to price your international shipping accordingly.
Tip: a lot of campaigns offer free shipping to backers in the U.S. and/or Canada– you can add this to the reward.
Predicting a delivery date for your product can be tricky, and it is important to not set unrealistic expectations for your backers. Avoid pulling a date out of thin air. Talk to your manufacturer about the different aspects of your product, and determine how long it will take them to make it. They will often give you an “ideal” estimate, so to be safe, double or triple that timeline. No one is going to complain if they get their reward ahead of schedule, but shipping delays can be a headache for you and lead to unhappy backers.
Setting Your Funding Goal
There are two approaches to pricing a product – top-down pricing and bottom-up pricing.
Top-down pricing
Top-down means first figuring out the value of your product and what people would be willing to pay for it through comparison to other similar products, in-person market research and online A/B testing.
Bottom-up pricing
Bottom-up refers to determining the cost of your goods and then multiplying that by a factor (usually 3X or more) to calculate a price.
It is best to utilize both of these approaches when determining your price – this way, you are sure to cover your own costs, but you also don’t shortchange yourself by selling the product for less than its value. Furthermore, make sure to consider what you will charge for your product once the campaign is over; crowdfunding campaigns usually offer the product at a lower price than the future retail price.
A precise calculation of costs is important to any budding business, but it is an especially important step in preparing a crowdfunding campaign because these numbers need to be used to determine your campaign funding goal.
The first thing to keep in mind when determining this number is that your final costs are going to be much higher than just your cost of goods.
There are many fixed costs associated with product development and with running a crowdfunding campaign. These include:
- Prototyping costs
- Tooling
- Flights and travel to visit manufacturing facilities
- Campaign costs：Videography,Photography,Marketing and advertising
- Team salaries
- Manufacturing costs
- Shipping costs
- Platform and processing fees
That said, it is also wise to keep your crowdfunding campaign goal as low as possible while still raising the necessary funds to cover your costs, produce your rewards and ship them. An unrealistically high campaign goal can instantly put off backers. Your potential funders are much more likely to contribute to your campaign when they believe your funding goal is achievable. Plus, once a project is funded, it begins to take on a whole new trajectory of people who know that they are now guaranteed to get their reward. If you keep it real and set a goal that makes sense for your project, it will be much more attractive to your backers. You want your goal to be a reasonable minimum that is based on reality and includes all of your platform fees.
If your project is successfully funded, the following fees will be collected from your funding total:
Kickstarter’s 5% fee of your project’s final funding number, and payment processing fees, which are between 3% and 5%. If your funding isn’t successful, there are no fees.
5%
Kickstarter Fee
3% + $0.20 Per Pledge
Payment Processor Fee
5% + $0.05 Per Pledge
*Pledges under $10 have this micropledge fee
Indiegogo’s platform fee is 5% of your project’s final funding number. Third party fees for payment processors are typically 3% plus 30 cents per transaction for credit cards, and 3-5% for PayPal transactions. There is also a one-time international wire fee of $25 to send USD funds to an international bank account.