It has been nearly 10 years since I backed my first Kickstarter and I’ve been studying crowdfunding on a near daily basis ever since.
I like to see what people are doing, to understand the trends, to support projects and to follow them to see what I can learn.
A lot has changed.
My internal conflict
One of those changes leaves me in a constant internal conflict and whenever I start thinking about it, I feel like my brain is melting – I’ve never found a good answer.
The question is simple:
Should all the funds required from a backer be paid during the Kickstarter (how it used to be) or should extra fees be paid in a second payment afterwards (how it is now).
There are a lot of pros and cons on this topic, but I believe there are only 2 facts:
- It is a better experience for the backer to pay once, and for that payment to include everything up front.
- Charging additional fees after the campaign can be cheaper for the creator, as they don’t have to pay Kickstarter fees on the additional money.
There isn’t much to say about the first point but let us dive into the second.
Kickstarter charges 5% +payment processing fees.
It is likely whatever platform you use to collect additional money will charge you similar payment processing fees to Kickstarter, meaning we should only consider the 5%.
Shipping and taxes are the usual fees collected after a campaign, shipping shouldn’t be more than 30% of the product cost, and taxes sit around 20% for those who need to pay them. In my experience only 30 – 40% of backers need to pay the 20% tax.
Let’s assume I have 1,000 backers and my product is $50, I have raised $50,000.
At the higher end, shipping is then $15,000 and assuming 40% of backers pay the 20% tax, that’s another $4,000.
In total I’ve collected $19,000 in additional fees and by not using Kickstarter, my 5% saving is $950.
My profit margin has increased by 1.38%, not accounting for the additional time to set up the second payment collecting tool, or the support needed to help those who struggle to use it.
Is 1.38% more profit worth the extra work and to negatively impact the customer experience?
There is another factor to this and that comes down to risk.
The biggest argument I hear constantly is everything is so unknown right now, prices keep rising, problems occur, we don’t know how much it will cost.
This is a valid point.
- Between 2019 and 2022 we saw container prices go from $5,000 to $30,000.
- We’ve seen local shipping prices increase by 30 – 40% and more in some countries.
Can we really account for that a year or more in advance when we could charge extra costs later when we know exactly how much they will be?
It’s certainly an interesting perspective and makes a lot of sense from the business side, but are we being lazy, are we being greedy, or are we just being smart?
I consider myself luckier than most, I make physical products and have a community who supports the manufacturing and shipping costs of those products a year or more in advance. Those people are taking a risk in supporting me, and I believe I should be returning the favour by taking my own risks alongside them. Compared to the majority of physical good based small businesses, I have it very easy when it comes to producing products.
What to do
This is a topic I could discuss for days and I’ve only just touched on the surface of the problem at hand in this article, I have no idea where the best answer sits.
What I do know is, things have changed a lot on Kickstarter over the years and I dislike how we’ve moved towards putting more risk on the backers. Many creators take the easiest route because others are doing it too and I think a change of mindset is needed.
In business there should be a balance between best for the company and best for the customer, and I’m going to keep digging deep until I find a way forward that I am happy with.
Update. Since writing this article I’ve explored the idea further and recommend reading: