Kickstarter is a Math Problem

I get some form of these questions all of the time while consulting for Kickstarter clients and around social media at large:

  • How many Facebook likes should I have before launching my campaign?
  • How many Twitter followers should I have before launching my campaign?
  • How many email subscribers should I have before launching my campaign?

The truth is, it depends. By the end of this article, you should have the tools necessary to work out the math problem for your particular Kickstarter campaign.

Kickstarter Product Manufacturing

Let’s start with an obvious one. Manufacture in China. The only exception to this rule is if most of your backers are in the EU, in which case you should produce in the EU to save on shipping. This situation is almost never the case with Kickstarter campaigns.

You will start this journey with having a mostly finalized product you want to crowdfund via Kickstarter. At this point, you should be soliciting manufacturers such as LongPack Games. Give them the specifications for the game and let them know you are interested in possibly upgrading some amount of components, adding components, etc. as future stretch goals. This process can be a lengthy dialogue, so the more specific you can be, the easier time you will have. You should be asking the manufacturer for an itemized quote for 1000, 2000, and 3000 unit run, minimum. If the manufacturer cannot or is unwilling to give you an itemized quote, you are encouraged to save your money and work with a manufacturer who is transparent about the actual costs involved. You also should not even bother with a 500 unit run because you likely cannot make the numbers work for a Kickstarter campaign’s value proposition. This manufacturing quote will allow you to see how the scales of economy can work in your favor directly.

Once you have your per unit costs for 1000 units, we have our first variable for the math problem. We’ll call the manufactured per unit cost A.

Manufactured Cost Per Unit: A

Kickstarter Product Freight Shipping and Fulfillment

Shipping is largely a fog of uncertainty for most new creators if they have not had any experience with overseas freight forwarding. As you will see in the below text, even I oversimplified it on my first pass. The good news is that this is a problem you can and should outsource to your manufacturer and a third party. Your manufacturer should be able to give you the estimated final box dimensions and weight of your product without much effort. They should also be able to quote you a cost to freight all 1000-3000 units to an arbitrary address in the states, the EU, and any other country. At this point, have them itemize 100 units at a time, or wherever their price breaks are to fulfill to your US address. This will be important later.

If your manufacturer cannot do this, there are other third-party options. I recommend that you should get quotes from Ship Naked and Quartermaster Logistics at a minimum, in addition to seeing how the manufacturer can help you directly.

These third party fulfillment options, in cooperation with your manufacturer, will move your product from the factory to the Chinese port to the specified country port to the warehouse to the end customer. Let’s call the actual cost of shipping the product from the warehouse (or your garage) to the Kickstarter backers Z. I am jumping ahead a bit, but your Z is based on our end number of backers, not the total amount it would cost to ship all units produced since that likely won’t be the case for most new creators. For estimating Z, use your home address to estimate US costs. Thanks to Joseph Z Chen for correcting this portion.

A third opportunity to shave costs might come in the form of a bonafide freight company. Dusty Finn Watkins recommended to me that creators get in touch with Universal Cargo or OTX Logistics. This won’t change the math problem, but with a shared email thread between your manufacturer, your freight company, and your fulfillment partner, you should be able to effortlessly navigate where one party hands off your product to the next. All of this is in service to getting to your C variable.

You should notice by now that I don’t recommend you try to ship on your own the first few campaigns. The hassle involved is patently not worth the savings, and you have enough on your plate launching a business.

The last option I would hesitantly recommend is making contact with retail shops in countries you expect to do business in and ask if they are willing to accept a pallet or more on your behalf and fulfill orders in their region for a fee. This is a fairly hands-on process, but provide decent cost savings if you do it correctly.

Regardless of your shipping/fulfillment options, keep in mind that Value Added Tax exists in the EU, meaning you will pay money to import your product into Europe. You are encouraged to thoroughly discuss the additional shipping costs for worldwide as compared to the US with your shipping and fulfillment partners. This will materialize as your additional shipping charged to those countries in the campaign, but will not be factored into this equation as the majority of Kickstarter backers still reside in the US.

Let’s call freighting costs per unit B. We will not use Z yet. You can use the estimated landed cost to build your MSRP, or what we will call C in the math problem. and let’s add it to our math problem:

MSRP: (A+B)x5=C

The reason you multiply the landed cost per unit, or A+B, by five is for price breaks in traditional distribution models. You still need to turn a profit if you give a distributor 60% off MSRP. It also puts you at about what the market expects a product to cost in the US and on Kickstarter with some variance.

Kickstarter Funding Goal

You should not factor in the costs of artwork, prototyping, or marketing into your funding goal. This harsh truth is important. Those are sunk costs and something you will hopefully make up in sales of the product over time. All you care about in making a funding goal is how much it would cost to manufacture and fulfill 1000 units of the product, or D.

One cost you do need to factor in is Kickstarter. Funding a campaign on Kickstarter will mean Kickstarter collects 5 percent of the funding total plus 3-5 percent of the funding goal for payment processing fees. You need to add those back in using K. Thanks to Harry Haralampidis for this edit.

We are also going to factor in your comfort level for swings in pricing at this point. My advice is that you should tack on an extra $1000-2000ish, but again, this is a comfort level situation. Let’s call your padding as it were P. You need to be able to foot the bill to fulfill a Kickstarter campaign if and when you hit your funding goal, no matter what happens after the campaign ends. Now, let’s go back to the math problem:

Kickstarter Fees: D/10=K

Funding Goal: (A+B)x1000+(ZxE)+P+K=D

Now we have our MSRP (C), our Shipping (Z) and our Funding Goal (D).

Wait, I don’t know what E is yet and thus, can’t get a gauge on what D should be! We will get to that.

Kickstarter Backers Required

Here is the tough love lesson I will impart to you. If you cannot get this minimum number of people excited about your product to do an initial print run, there may be something fundamentally wrong with the product itself. Maybe the product isn’t fun to use. Maybe the art sucks. I don’t know. But you need to get this number of people ready to back your campaign on day one, or E:

Backers Required to Fund: D/C=E

Now we have the elusive E. Here is how you go back and solve for D to have a clear-cut funding goal. It’s a balancing act. Let’s say you fulfill 500 units to US backers, and the remaining 500 units end up in your garage, or a warehouse, or wherever. You can calculate the cost of fulfillment by going back to those third-party quotes and using the price breaks to get a handle on how Z influences E. There is no exact right answer for this, but I would aim to fulfill at least half of my manufactured units and slow sell the rest through distribution or on Amazon.

You’ll notice that I didn’t discount the product for Kickstarter backers. That’s because I don’t think you should discount the product for Kickstarter backers. You shouldn’t do early birds, and you shouldn’t do discounted pledge levels. There are many reasons for this, not least of which is that you should charge what the product is worth for the continued success of your business.

I also didn’t factor in premium pledge levels or your Aunt Joanne dropping a grand on your Kickstarter campaign. That is intentional to keep you focused on the normal workings of a Kickstarter campaign. There will always be a most-popular pledge. Use that to do your math with calculating C.

Great, Now What?

Now you get to work marketing your product. You have all the tools necessary to launch an almost guaranteed successful campaign. Now you can collect emails, advertise on Facebook, attend trade shows, and interact with the community you will be selling in (to include backing other Kickstarters). Challenge yourself to know by name all the backers who will make up E. Know that only a percentage of online followers will actually back the campaign, but that deep personal connections will almost always support you.

Did I miss anything? Let me know in the comments.

4 Replies to “Kickstarter is a Math Problem”

  1. This seems like a good estimate. That was an interesting insight on “sunk” costs. I am hoping to launch in February or March and need to set up my first spread sheet, thank you for your article.

  2. Thanks for this interesting post. What if most of the backers are from EU and production in China.
    You say you recommend in such case, the production to be in EU, but it is not very clear why? Regardless of the location of the production the end consumer must pay the VAT in any case.
    The only difference I see is the import tax which is rather low (2.2%) for the type of product “nomenclature”.

  3. Is this all in the context of having investment capital to pay for your reached goal and manufacture during kick starter, then shipping just after? How do you calculate processing and fulfillment time if youre using your kickstarter funds to produce everything?

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