Do want to make money FAST? Do you want to GET RICH QUICK?
Imagine receiving thousands and thousands of dollars in funds from strangers online!
Wouldn’t it feel like you’ve hit the jackpot?
Unfortunately, the idea of quick riches and internet fame has gotten people thinking…hey…maybe I should launch a Kickstarter campaign!
I can build such and such a widget for X dollars and sell it for Y. Better yet! I can take a product that already exists and essentially run a pre-order campaign for it (see this scam)!
The reality: Kickstarter is not a something for nothing community. You must ship out rewards. You must have a high quality prototype, and you must have a compelling vision for the future.
However, you’d be surprised. By focusing on delivering real value to the community and making an incredible experience for backers, you can create a launch pad that will enable you to achieve your future dreams, whether that be wealth, fame, or making a dent in the universe.
Before I reveal the secret as to how, let’s take a look at some realistic expectations for post-Kickstarter earnings (which yes, are taxable). Below, I’ve included a few examples of how much Kickstarter campaign raised and actually netted (profit).
Amanda Palmer’s Campaign
Amanda Palmer is famous in crowdfunding circles for raising over 1 million on Kickstarter from 24,883 backers for her music project. However, just because she raised a large amount of money via crowdfunding does not mean that this lump sum translated into massive profits.
Amount raised: $1,192,793
Cost of manufacturing goods
$105,000 – 7,000+ high-end CD-books & thank you cards cost about $15 a package to manufacture and ship.
$30,000 – 1,500+ vinyls & cards, at about $20 to manufacture & ship
$80,000. – 2,000+ art books (bearing in mind the shipping on those, every time they need to be shipped from the plant, to the distributor, to the backer, plus the signing).
$15-20k – Payment for design team to actually design rewards and make it awesome.
$30k – Neil and Kyle Books about $300/copy for about 100 copies.
$15k – 100 turntable packages: ordering the tables, paying the artists to paint them, shipping all that stuff around.
$10k – Band Tour.
$10k – House party tour.
$20-25k – Visual artists.
$150,000 of the kickstarter money will go to the commission pile. (Staff, Laywer fees, Business Manager)
$100k – Music Videos
$75-100 Kickstarter & Amazon expenses.
Not included: Other expenses. See full breakdown here.
“If we keep our expenses down, and keep the tour pretty practical and the video budget way down, I could probably put $100k of this in the bank personally. which would be great, but I might just be close to zero as I head off on tour this fall.”
The campaign would have an estimated 8% profit. If
any of the estimated costs were larger than expected, this profit would quickly erode. In my experience, it’s rare that costs actually end up being less than you estimate.
Takeaway: At best case, you may make a small profit, but this could easily be chewed up if costs are more than you expected.
In the DailyDot Article, “The Hidden Cost of Kickstarter Success,” Fastball guitarist Miles Zuniga explained how although he raised $27,355 from 153 backers, more than $7,000 over his original goal, he forgot to account for taxes.
In short, money raised from Kickstarter and other crowdfunding platforms is considered to be taxable income. Amazon Payments, which handles the credit card transactions for Kickstarter, disburses the funds to the project creator and sends them a 1099-K, a tax form that reports “Merchant Card and Third Party Network Payments” to the IRS.
The article goes on to explain how jazz songstress Kat Edmonson, who raised $53,823 in April 2011 to fund her second album, Way Down Low, ended up burning through the money on studio and musician payments, leaving no funds to fulfill her backer’s rewards!
Takeaway: You may get a lump sum from Kickstarter, but don’t forget that 1: It is taxable and 2: If you estimate the costs required to deliver the project incorrectly, you may end up having to dip into your own bank account to make good on the rewards you promised your backers.
Star Command, an Android/iOS game is the creation of indie game developer War Balloon. In this article, published on Gamasutra, Star Command shares the realities for shipping and reward fulfillment costs after Kickstarter.
Amount Raised: $36,967
Costs
$2,000 worth of pledges failed to transfer.
$3,000 went to Kickstarter and Amazon Payments.
$10,000 production of War Balloon rewards (posters and shirts).
$6,000 towards Star Command‘s music
$4,000 on setting up the company (attorneys, start-up fees, etc.)
$2,000 on poster art
$1,000 on iPads
$3,000 on its PAX East presence.
After these expenses, War Balloon was left with $6,000, a third of which went to taxes.
The article reports “The studio has actually taken on more than $50,000 in debt while working on Star Command, which releases to iOS and Android devices this summer.”
Total Profit: ~10%
Takeaway: You will not go laughing to the bank off profits made from a Kickstarter campaign.
So you can’t fly to the Bahamas after Kickstarter?
Unfortunately not. You need to coordinate reward fulfillment, shipping, deal with manufactures, respond to comments, and actually complete the project (which is not always the same as fulfilling the rewards).
The best overview I’ve found to give you an idea of what it’s like to be successful post-Kickstarter is the article published on FastCoDesign entitled Life After Kickstarter: 5 Costly Lessons From A Kickstarter-Backed Designer. Read it, study it, and soak it in.
How can you increase your profits on Kickstarter?
First of all, if your sole goal is to make money via Kickstarter, you really need to do some hard thinking. I think that Jamey Stegmaier of Stonemaier Games games said it best:
“If you go into a Kickstarter project with “making money” as your one and only goal, there’s a decent chance you will fail. Consider these additional goals:
1. Connect and interact with strangers who have never heard of you or your product.
2. Learn how to market and promote yourself and your product.
3. Learn what works and doesn’t work on Kickstarter.
4. Establish yourself as a competent, communicative, trustworthy project creator.
You might have other goals–add them to the list. The point is that even though you may not reach your funding goal, Kickstarter is a learning experience if you’re open to the possibility that you don’t know everything about everything.”
Do you really want to make a profit off the early-adopters that are taking a chance on you? Shouldn’t they get the best price? Well, that’s up to you. After all, you will be spending a considerable amount of time on the project for which you will not be compensated.
If you really want to maximize your profit, the best way is to plan better. If you’re looking for a template to estimate costs, I think the Bots High project did a good job of estimating their costs going into their campaign. Fun fact: they also raised 9k. I’ve included a screenshot of their article below.
I think that Christopher Wilson also gave a good formula/guidelines for estimating costs for your Kickstarter project in his article, which I’ve linked to here and included a screenshot of below.
So… I know what you’re thinking… this sounds a lot harder than you initially expected. It’s true. Preparing, launching, managing, and fulfilling your promises for a Kickstarter campaign can seem like a full-time job. However, I think the benefits far outweigh the costs. Why? Keep reading!
You don’t make money ON Kickstarter, you make money WITH Kickstarter.
The best way I’ve found to explain Kickstarter to non-crowdfunders is to compare it to the “Shark Tank Effect.”
If you haven’t seen the hit show “Shark Tank,” I highly recommend watching it. Basically, entrepreneurs are invited to come on the show and pitch their business ideas/prototype products to a group of angel investors (most notably, Mark Cuban, the billionaire owner of the Dallas Mavericks).
What’s incredible is that after the show, even companies that did not get deals will benefit from what is called the “Shark Tank Effect.” The added exposure leads to sales, contacts from distributors, and more.
I believe that successful Kickstarter projects exhibit was could be coined the “Kickstarter Effect.”
From generating publicity to gathering a following, Kickstarter is an amazing tool to launch a product, attract early-adopters, and spread awareness for you and your company.
I’ve talked with creators who have met distributors through the website that want to help them sell their product and even creators who have connected with angel investors because the campaign demonstrated proof of concept and product-market fit.
The last generation was full of gatekeepers who got to decide who they should pick to let in to their little club. These gatekeepers could be record labels, publishers, studios, investors, and others.
Now, you can decide to pick yourself. Kickstarter won’t make you rich, but it gives you the an affordable ticket to the creative world, where artists, designers, and entrepreneurs are able to make a living off their creations.
You can get your product into the hands of REAL people and get feedback. This step is crucial to developing a good product-market fit, which is the foundation for every scalable business.
What do you think?
Do you think you should try to make profits from your Kickstarter project? Do you think the majority of the benefits come after your Kickstarter success? Let me know in a comment below.
