For the last 7 years, I’ve helped brands raise over $6M using the popular crowdfunding platforms Kickstarter and Indiegogo.
And I’ve decided to leave Kickstarter launches for good, and here’s why.
Kickstarter used to be a way for good ideas with low funding needs to turn into reality. That doesn’t happen anymore. Here’s why.
I’ve built my business helping passionate founders with great ideas learn to market, finance, and launch their amazing products.
At one time, this meant testing a marketing angle, building the assets, collecting a list of excited early adopters, and then using the organic audience of millions of Kickstarter backers to get enough pre-orders to finance their first inventory order.
And, it worked! Over and over, we could reliably get results for our clients that made sense for the founder’s business.
It was a lot of work, but with an excellent product and careful execution, we could reliably get in front of enough people to kickstart your business.
This is no longer the case. Kickstarter is broken for most new founders, and in almost all cases, is no longer a viable tool to kickstart your new business.
Before I explain the severity of the issue here, I need to bust a big myth about Kickstarter.
Myth: The amount a company raises is directly related to the quality of the idea or video and page they put together. Of course, these are both vital.
But these platforms are littered with campaigns having clearly superior products (and videos) than other large successes that went nowhere, simply because no one saw them.
Actual success is almost entirely dependent on the success you have in the first few hours of the campaign.
Other than a very short period of time when these platforms first launched, the recipe for success has always been about creating an orchestrated push on day one, so that the website algorithm would rank you on the platform, and give you an actual chance of getting noticed.
The next step involves using the story of your early success to trigger buzz and help with paid advertising to scale the campaign.
This strategy did take an initial investment to drive people to a page to join the waitlist, but it was within reach of a new venture trying to get a foothold.
Not only is this not the case anymore, it gets much, much worse.
Well, you might say … clearly these platforms are still working for some people, there’s tons of large “successes” all the time, what are they doing differently? Spending insane amounts of money, that’s what.
Way more than would conceivably make sense for a true pre-market company trying to kickstart their idea. It’s even worse than that. Being a crowdfunder I have unique insight into the numbers of campaigns of all kinds.
To help illustrate, let’s break down what’s actually going on every day on these platforms.
A campaign that raised $1M on Kickstarter today almost certainly spent in excess of $250,000 on advertising BEFORE the campaign even went live.
Again, this spend is used to create a launch list of people ready to buy on day one so the campaign would rank on the site.
With so much investment flooding into these platforms, it has gotten so bad, that unless a campaign has $50,000 to spend on a launch list, it is almost certainly going to fade into obscurity.
Here’s the worst part: Not only does this completely destroy the purpose of crowdfunding (launching great new ideas that need funding), this kind of spending puts even well-funded startups at risk of delivering their product, and thus furthering the stigma around disappointing pledges.
Here’s an example of how the math works out. Let’s say you have a hot new gadget with good margins. Your product’s MSRP is $100 and has a COGS (cost of goods sold <-how much it costs you to make) of $25 per unit.
And likely, for your first inventory run you have to pay for tooling and design work. That’s an extra one-time expense of $5-25K.
So, your startup costs will be your cost of inventory, tooling, design work, and any certifications required. If you are bringing a hardware product to market, these startup costs can be as little as $100K, and if you’re selling a simpler item, like a journal, closer to $15K+.
Now, in order to incentivize people to buy your product during your Kickstarter, because your customers will need to wait a few months to receive their product, you’ll need to offer a 30% discount.
This means you will sell your product for $70, and with a COGS of $25, you now have $45 in margin.
If your hot new startup is targeting a $1M campaign (approx 14K units sold at $70 each).
Brands launch products on Kickstarter because of the allure of their massive community of potential customers.
In order to be discovered by Kickstarter’s community, you need to prove to the platform that your product is something their platform likes. You do this by lining up between 20-30% of your total goal to raise, on the first day of your Kickstarter campaign.
Knowing you need 20% of your total goal of $1M on the first day, you need to build up a marketing list that will convert $200K within hours of launching in order for Kickstarter’s algorithm to pick it up and show it to their community.
$200K means 2,800 units sold at $70 each.
And based on market averages, you will need to build an email list of 112,000+ people, assuming a 2.5% conversion to support that goal.
100,000 emails gathered at a minimum of $2 each means at least $224,000 spent on building that launch list.
Yes, that’s right. $224,000 spent to get $200,000 in sales… Perhaps the problem is starting to present itself.
But that’s just to get the initial traction on Kickstarter.
Not bad, right? Hold the phone, we need to get another $800K in sales, and only about 20% of that is going to come from the crowdfunding platform itself (due to the customer mistrust of backing Kickstarter campaigns). That means you have to PAY to acquire another $600K or 8,500 customers.
If we assume an optimistic acquisition cost of $30 to sell one unit for $70, and we need to sell $600K through additional paid advertising, you’ll need to spend an additional $257,142 in ad spend.
Let’s sum it up.
So far, to get to market, you went to Kickstarter because you wanted to cover your initial inventory costs, design costs, tooling costs, and any certifications. We’ll assume $100K to get that covered.
But before that, you need to invest in…
The pre-launch list of $224,000.
Then the extra advertising you need to do during the campaign of $257,142.
Oh yeah, then there’s the 5% platform fees Kickstarter takes for every dollar raised = 5% of $1M goal = $50,000.
And then the payment processing fees of 3-4% = $30-40K on $1M in transaction fees.
So, to yield $1M in revenue, you need to spend $571,142
$671,142 spent for $1M raised.
But these numbers assume you’ve done all of this yourself.
It doesn’t also take into consideration the $15K+ the founders have put into a video… Or the $40K+ they’ve paid a marketing agency to help with this process.
When all this is said and done, and not taking into account any extra expenses like press or influencer marketing done, you’re barely breaking $100K in profit.
That’s great, you say! That will buy me 1,000 units of profit-making inventory! Sure … if you don’t need money to operate for the next six months as you get into producing products, pay for freight, road blocks, design changes … You can see the issue.
So, maybe you beat the odds and get to market. Now, you still have no inventory and no money (unless gathered from other sources). Maybe you can at least see why some brands sell their product on Amazon before fulfilling all of their backers that have waited months.
But what if you only want to raise $100K or less? Trust me, this math is even worse when you’re looking at a small campaign. It used to make sense to break even on a campaign, because it meant you were up and running, selling, and growing a customer base. It’s a lot of work, but well worth it in the long run.
But, even breaking even is becoming almost impossible because of these two big issues.
- The amount you have to pay for your launch list is growing and growing (Facebook ads going up in cost doesn’t help)
- The bigger campaigns still drown you out on Kickstarter, which means you have to pay for almost all of your traffic. And, if you’re paying for all your traffic, what’s the point of paying those platform fees and having a big day one???
Here’s a concrete example to drive this home. Let’s take the same great margins, but this time your ambitions are to do a $100,000 campaign on Kickstarter. Let’s even say you’ve got a very experienced agency behind you to pull all the right levers. Here’s a summary of your expenses.
(The figures below are taken from the experience of doing dozens of campaigns)
So why do brands still do this?? Market validation, buzz, and cashflow.
Due to Kickstarter, it has become expected that companies have a large amount of product validation before asking for funding from investors or lenders, so you’re kind of stuck.
Also, the press and attention is enticing, and holding onto the COGS portion of the funds can help you for a short period of time, but it’s risky.
Right now, hundreds of well-prepared founders with great ideas are sinking tons of money into these campaigns, and still walking away empty-handed.
In short, large crowdfunding platforms like Kickstarter and Indiegogo have mutated into a launch platform for well-funded startups and existing brands to pay for press and buzz around a launch, even though it makes very little financial sense.
So, this is all looking pretty glum, right? Is it even possible for a solopreneur with a great product to finance their dream? Are all Kickstarter launches doomed to fail???
In summary? No.
Do I think the Kickstarter model is dead for 85% of brands that want to use it? Yes. But do I think it’s a viable option for some companies? Yes.
Here are the types of companies I think will still do well on Kickstarter (without the platform making significant changes).
The success of your campaign comes down to how well Kickstarter’s audience responds to your product. Kickstarter has built an amazing community of early adopters that will likely support these types of projects over other, more mainstream products:
Independent Creators (photographers, etc)
Big-budget Tech or Design products
Existing brands that have a highly engaged existing community
But if you have a product that’s in a saturated market (journals, non-technical clothing, non-tech fitness accessories), or something that isn’t a novel idea that disrupts an industry, I’d recommend using our pre-order strategy to drive sales directly to your site.
So, if you are a well-funded startup that’s launching a product in the above mentioned categories, Kickstarter might be a viable option for you.
If not, we’ve found that with a pre-order strategy driving sales directly to your site, you can skip the launch list, skip the platform fee, and still get the early cash flow and market validation you need to launch a new product.
To help founders make this happen, we’ve combined an incubator, marketing agency, mastermind community, and digital course into our Product Launchpad to give everything brands need to launch and scale a product in today’s e-commerce marketplace.
If you’re passionate about launching a new product, becoming an e-commerce marketer is the way to go. If you’d like some help on that journey, go to launchandscale.co
Khierstyn Ross – Founder and CEO at Launch and Scale™