I’m working out the funding for a kickstarter again, and once more it is proving complex to get a really clear view on what the target goal should be. I’ve found it necessary to distinguish between my ‘kickstarter target’ and my ‘profit target’
For instance, if you want to raise £1000 for some services (editing & art for instance), and you are going to be producing PDF and print versions of a game, then what should your kickstarter target be?
If you picked £1000 then you are on the way towards a loss! You need to have a ‘profit target’ of £1000, and that means that your ‘kickstarter target’ needs to be higher than that. How much higher?
First of all, from that £1000 we have to take off kickstarter fees (5%) and payment card fees (3% + 20p). Assuming you are not using Backerkit, that typically runs 9-10% variable deduction off the top.
So that £1000 has become £900.
If everyone backed you at PDF level, then you are only down £100. But what happens when you are backed at print level? Well, each of those backers is going to have to have a copy printed and sent to them.
So a print reward at £20 might only contribute £10 towards the profit goal after cost of printing and distribution is factored in. If all your backers wanted print, and you had 50 backers at £20 each, then
of the £1000 kickstarter target
- £900 after fees
- Less 50 x £10 print and distribution
You’ve only got £400 towards your profit goal. Oops!
What if you have a ‘rest of the world’ pledge level, with higher and realistic shipping costs? While realistic shipping costs may put some people off, the other problem is that shipping costs contribute towards your ‘kickstarter target’ but not your ‘profit target’. In the above examples, what if the Rest of World pledge level was £40 to include shipping, and all of your backers where in Rest of World? You could end up with
- of the £1000 kickstarter target
- £900 after fees
- Less 25 x £30 print and distribution
you’ve only got £150 towards your profit goal. Double Oops!
Work out your worst case scenario
In reality you are probably going to have a mixture of pledge levels - some at PDF (which incur the variable cost but not the fixed cost), some at print (which incur variable cost and the fixed cost) and hopefully some at higher pledge points (which incur variable cost and fixed cost, but the fixed cost is a smaller proportion of the total pledge, and so these contribute more towards the ‘profit goal’).
It is worth knowing what you think the likely proportion of backers will be in each category, and it might be fun to think about the most optimistic case. But for safety I think it is necessary to work out the most pessimistic result, based on the pledge level which contributes least to the ‘profit goal’ in order to make sure that meeting the kickstarter target will also meet the profit goal you need to meet.
If I try to put it into a formula, I have
Tk= kickstarter target
Tp= Profit target
S = Supporter Pledge
N = number of supporters
V1= kickstarter fees
V2= card payment fees
P = Print costs
Duk= Distribution costs UK
Dus= Distribution US
Drow= Distribution Rest of World
Tk= N * S
Tp = N * (S * (1-(S*(v1+v2)) - P - Drow)
But I want to solve for N (how many of my worst performing pledge levels do I need in order to meet my Profit Target)
N = Tp/ (S * (1-(S*(v1+v2)) - P - Drow)
Then I feed that into my kickstarter target formula to find Tk= N * S.
Pricing Stretch Goals
Personally I keep a spreadsheet with all the combinations of pledge levels (S) and print/distribution costs (P, Dx) so that I can tweak any of these values and see immediately what the Tk should be.
It is then possible to work out the additional costs associated with the additional Profit Target required to deliver a particular stretch goal, and ensure that the stretch goal Kickstarter targets are set appropriately. I've heard of too many kickstarters where enthusiastic stretch goals hadn't been costed properly and ended up severely impacting the ability of the creator to deliver everything.
I'm not writing anything here about Tax (it varies so much by country) but it absolutely is something that you need to take into account!