Three Fundamentals for Winning at Crowdfunding
By Bryce Hansen, Salt Lake SBDC
Crowdfunding has become a bona fide way to fund the purchase of molds and inventory of physical products, while also offering some validation in the market for the product.
I have found three fundamentals that ought to be done, so that you or more likely to have success with your own crowdfunding campaign.
First, build up your following of people interested in your product before you go “Live” with your campaign. This takes time and maybe a little money. Build up your following by sending them to join an email list through any method available to you. You can do it through online ads, in-person booths at events, or networking at conferences.
You might ask: “What about my social media page?”. It is better for you to grow your followers through an email list than it is to send followers to a social media platform. With social media platforms, you are an algorithm change or a platform’s business decision away from losing access to your people.
Second, study the crowdfunding campaign page of products that are similar to your product, or which are in the same industry. Questions you are trying to answer would include:
· How successful were they with their campaigns?
· For those that were successful, how were their campaign pages structured?
· What were the perk price points?
· How did their campaign pages flow?
· How did they incorporate videos and images, as well as graphics?
· What advertising agencies did they use?
Spend a few hours going through multiple campaigns on Kickstarter and Indiegogo. Take notes. You will start to get a feel for what is possible with your own campaign, as well as boil up some good ideas on how to structure and outline your own campaign page.
Third, know your costs before going “Live.” Get multiple quotes from different contract manufacturers on building your molds and how much the manufacturers would charge you for each unit made. Find out what your Minimum Order Quantities (MOQs) would be. Remember, each variation of your product (i.e., color, size, etc.) will generally have a separate MOQ. For example, you may have a 1,000 MOQ for each color variation of your product, but then also have a 3,000 MOQ for the whole order.
Additional costs to consider are the shipping costs incurred by you to ship your products to your backers/customers. In crowdfunding, this is sometimes a forgotten cost. So, you need to make sure to charge your backers for it. And, when you do, you need to set aside those funds to make sure you have them 6-12 months later, when you end up fulfilling to your backers.
Other costs include the platform fees and credit card fees, which can come in at about 10% of the total money raised on the platform. You will then likely add another 1%-2% of your funding amount toward fulfillment software, such as CrowdOx or BackerKit, which helps manage backers after the campaign. If you opt to use a crowdfunding advertising agency, expect to pay another 12% – 25% of your funding amount as a service fee; this does not include the spending you will be expected pay for social media and search engine ads during the campaign.
Shipping costs (mentioned above) may be over 10% of the amount you collect from the crowdfunding campaign. You will need to then pay cash out the door to the post office, UPS, or FedEx when you fulfill to your backers.
When all of these costs are paid out or accounted for, then you have to also make sure you have enough funds to purchase the molds and the inventory. You may need to secure other funds available to you, such as cash savings, bank loans, credit cards, equity investment, or using a home equity loan, in order to have enough funds to build and fulfill the product you promised to backers.
People are successful in crowdfunding every day. With a little planning and preparation, you can be one of those successful crowdfunders!
Questions about Crowdfunding or other aspects of starting or running your business? Contact the Salt Lake SBDC at 801-957-5441, or contact Christine Rice at [email protected] to set-up an appointment.