The crowdfunding market continues to transcend expectations. Its feasibility, accessibility, reliability, and notably, crowdfunding’s adaptability and flexibility make it the ideal model to inject cash into projects. What’s more, most entrepreneurs and project managers have turned to crowdfunding as their primary source of financing while highlighting their projects to the masses.
Lucrative and prodigious as crowdfunding seems, the harsh truth is that only one out of five projects profit from a successful crowdfunding journey. The impressive numbers boasted by Kickstarter, Indiegogo, and the likes only account for less than half of the entire campaigns. Inappropriate pre-launch strategies, adverse timing, or rushed executions have made innovative and promising projects fail to attain fruition. Not to mention the inapt pricing of crowdfunding campaigns.
Pricing is a critical consideration before launching a campaign on any platform. Unfortunately, settling for the optimal product and pricing decision is quite intimidating. A rule of thumb is that pricing should cover all the expenses incurred while promoting your campaign and still generate profit. What’s more, it must justify the value it will purportedly deliver to backers.
As you can imagine, pricing can be a complicated challenge for most campaigners. This post offers valuable insights on how to price your crowdfunding campaign appropriately and help you plan a successful journey.
How to price your crowdfunding campaign
The adage “you need to break a few eggs to make an omelet” resonates with all shrewd entrepreneurs. As a result, before launching the great next sensation on a crowdfunding platform, it’s essential to budget for several things, such as the costs of creating high-quality videos that sell your story, mass marketing, and showing a functional prototype.
Your pricing must cover the expenses and produce a profit while duly substantiating the value it will deliver to your backers. Additionally, underpricing your campaign might as well be useless and a waste of resources. You will lack enough funds to hit your goal, and potential investors might take your campaign as a joke. On the other hand, overpricing your crowdfunding campaign means you won’t realize your target goal, and the raised amount might find its way back into the backers’ pockets.
Here are the best practices for optimal pricing of any crowdfunding campaign:
Consider the cost of materials
The cost of manufacturing your product is focal in making it a functional, affordable product. Raw materials are among the primary cost centers. Therefore, it’s paramount to determine the amount of material expenses assigned to a production unit. Having a working prototype beforehand can help determine the tentative cost of production.
Research your price point
Extensive research offers a solid foundation for building your ideas and what to expect during your campaign. Vendor sourcing, designing, handling, and legalities are essential factors to research. Most importantly, determine the price your target audience will accept.
For instance, you can research similar crowdfunding projects to determine competitive pricing. Examining the pricing structure of other products in your category can offer a better approach when pricing your campaign. Not to forget how much the campaigns raised and their initial targets. But, ultimately, you have to settle for a goal that’s plausible to your potential backers.
Even as a prototype, bringing your idea/product into life will significantly bolster your campaign’s credibility. Alternatively, with the assistance of a product design company, you can create a 3D rendering and specifications for your product. With a version of your intended product, it’s more practical to gather more precise requirements on the cost of mass production and obtain market feedback.
Evaluate marketing and promotion costs
It’s almost impractical for your campaign to go viral with little or no marketing strategies. To hit your crowdfunding target, you must spend lump sums on advertising and creating promotional videos and content. Also, you can outsource PR teams and content creators to create awareness beyond your community and make your project discoverable.
On top of that, factor out the costs you will incur attending events and seminars to promote your project. Revealing your prototypes to your target audience in trade shows enhances the chances of acquiring investors. Consider the travel costs to such shows, renting booth spaces, and developing a display. In addition, Expos and trade shows help establish industry contacts and meet bloggers.
Most crowdfunding platforms charge a platform fee that’s a percentage of the money raised. In addition, you are liable for a payment processing fee. For instance, Kickstarter and Indiegogo charge 5% of the raised funds. On top of the 5%, both platforms charge an extra 3% for the payment processor fee. Therefore, it’s vital to comprehend the pricing policy of your intended crowdfunding platform before launching a campaign.
Understanding what cost’s a crowdfunding website deducts from your total amount will be beneficial in establishing a fundraising goal. As you can expect, a website with low platform fees enables you to keep most funds.
Consider reward fulfillment and shipping costs
Fulfillment and shipping expenses are a significant cost center of your entire crowdfunding project. First and foremost, you must be strategic about your reward program. Create an alluring incentive program that doesn’t overwhelm your project’s operations. In addition, settle for a promise that you can comfortably commit without breaking your bank.
Shipping costs might involve several aspects such as packaging, warehousing, documentation, transit, and customs duty. Overlooking such overheads while pricing your campaign can be detrimental to your project.
All the above components act as a baseline for setting your crowdfunding goal. Still, the price you come up with is just a tentative cost, especially if your idea/product is still a concept, and you aren’t entirely sure about the cost of production. In addition, there is always the possibility of unexpected events that may rack up your production price.
As a result, it would be best to add a markup on your products. The markup will go a long way in helping you handle any mishaps on your crowdfunding journey. Finally, always keep in mind that there is the cost of entering the marketplace after a successful crowdfunding endeavor.