With over 9 million users in more than 200 countries, Kickstarter is a popular crowdfunding website that helps new companies and entrepreneurs raise money to launch their ideas. The site has launched successful products like the Oculus Rift VR headset, the Double Happiness sticker book, and the Exploding Kittens card game, helping them raise almost $1 billion in funding from backers who see a potential in these products and services. If you’ve got an idea for a product or business but aren’t sure if people will buy it, launching a campaign on Kickstarter can help you test the waters and see if people are interested in what you have to offer. But before you dive into this type of fundraising process, you need to know how kickstarter makes money.
What is Kickstarter?
Kickstarter is a global crowdfunding platform that helps entrepreneurs and creatives fund their projects. It’s a way for startups and creative projects to raise money for their ideas through online pledges. Entrepreneurs create a profile and post information about their business or campaign, along with a funding goal and a fundraising timeline.
Anyone can pledge money to help make their idea a reality. The person who pledges money is usually rewarded with incentives such as product discounts, or early access to the products the company is trying to sell. Kickstarter keeps 5% of all money raised, and the rest goes to the entrepreneur whose project is being funded. Kickstarter is very flexible for people to use in a variety of ways. Some companies use it to pre-sell products that they plan to mass-produce through a crowdfunding campaign. Other companies use it as a way to get early feedback on a product they’re developing. Some projects are non-profit initiatives that use the site to fund charitable efforts. And then there are people who simply want to create a project that they’re passionate about, and use the site to raise money.
How Does Kickstarter Make Money?
Kickstarter reports that 80% of the companies that launch on their platform fail, which means the site has a lot of failed projects that need to be funded by backers. So how does Kickstarter make money if so many projects fail? They charge a 5% fee on each pledge, plus a 3%-5% processing fee. This is taken from the amount each backer contributed to the project. So if a backer pledges $100 to a project, Kickstarter will charge $5 for facilitating the transaction and $3-5 for processing the payment.
This means that if the project fails and doesn’t collect any money from backers, Kickstarter doesn’t lose money. However, if a project is funded, Kickstarter collects 5% of the total amount raised, which is a hefty amount compared to other crowdfunding sites that charge a flat fee instead of a percentage. That’s why it’s important to make sure your project is successful enough to cover the 5% fee.
The Costs of Running a Kickstarter Campaign
The costs of running a Kickstarter campaign vary depending on what type of project you’re funding, and what you plan to do with the money if you’re successfully funded. The average pledge amount is $25, but backers often pledge less than the amount they decided to contribute. This means you have to have enough money to cover the amount you’re asking for, as well as any additional fees, taxes, and costs that are associated with running a campaign. Here are some of the costs you should prepare for when running a Kickstarter campaign.
– Kickstarter Fee –
Kickstarter charges a fee of 5% of the funds collected, so if you’re hoping to raise $100,000 and you collect $110,000, you’ll owe Kickstarter $5,000.
– Taxes –
Depending on how you set up your Kickstarter campaign, you may be responsible for taxes.
-Shipping Costs –
If you’re creating a product, or offering a service, you may have to account for shipping and logistics costs.
– Fees –
Even if your project is completely non-profit, you’ll have to pay taxes, and Kickstarter will take a percentage off the total amount you raise.
– Rewards –
One of the most important things you should figure out when running a Kickstarter campaign is what you’ll give backers for their contributions.
– Product Costs –
If you’re creating a product and hoping to sell it after funding ends, you’ll need to account for product costs, and how much you’ll be able to sell the product for.
The Rewards of Running a Campaign
If you meet your funding goal, you have some great rewards and a successful campaign. If the funding goal isn’t met, the project is cancelled and nobody is charged. The Kickstarter platform is great in that it allows companies to try out their product, get real customer feedback and research, and launch a campaign in a market where they’re ready to scale. If all goes well, they can then go on to sell the product at a larger scale, and ship it to the customers who pledged in their Kickstarter campaign. If your project is funded, you’ll likely see an increase in company awareness, brand recognition, and a surge in customer acquisition. The platform is popular with tech and creative companies, so your product or service may be exposed to a large audience who’s interested in a particular field.
Should You Use Kickstarter to Fund Your Company?
Kickstarter is a great way to test the waters and see if people are interested in your product or service. You can use it to figure out what to change about your product, get feedback from customers, and gauge their interest in your idea. If your project is successful and you meet your funding goal, you can launch the campaign and send out any products or rewards you promised backers.
If your project is unsuccessful, you’ll learn valuable information about your product that can inform future decisions. You may discover that customers aren’t interested in your product, or that they have suggestions on how to improve it. You may also discover that there’s not enough demand for your product to warrant running a Kickstarter campaign. Kickstarter is a great way to get your product in front of a large audience, and to test your product on an audience of your peers.
Final Words: Is Kickstarter Right for Your Company?
There are a lot of benefits to running a Kickstarter campaign. You can test the waters and see if people are interested in your product, you can gauge customer feedback and see what changes you need to make, and you can build a customer base from scratch. You’ll be able to fund your product or campaign, and have a promise that if you meet your funding goal, people are obligated to pay for their pledge. Kickstarter is a great way to fund a project and build a community around it. It’s not an ideal place to raise money for your company or product unless it’s non-profit, or you’re planning to manufacture and sell a product once the campaign is over.