You have come up with the product idea, sat down, and come up with a clear strategy, and procured a manufacturer. Now it’s time to sit down and come up with a price per item so that you can present the strategy to your backer audience.
Why is pricing so important? Crowdfunding pricing is just like any other business plan that you would present to an investor for the funds to make your plan take life.
In this article, we will review the best strategies for arriving at a per-unit price so that you can confidentially present your campaign to your backer audience.
Why is a pricing strategy so important?
Any investor will always want to see a business plan, this will include how you came up with the price for your product. Backers for crowdfunding campaigns are no different, they want to see how much it will cost to manufacture, advertise, ship to your fulfillment center, distribute, and show a profit. This is the general rule for pricing any product or service.
Understanding Pricing Basics:
Start out by reviewing your costs, this will include any prototyping, manufacturing, fulfillment costs, packaging, marketing, and shipping costs. To obtain clear insight into these costs, you will need to speak with both the manufacturer and your fulfillment center. Below is a list of items that you will need to obtain to get down to the per-unit price.
Prototyping/Sample costs: The expenses incurred in creating a prototype or sample of your product.
Manufacturers costs: The cost of producing your product at scale.
Shipping Costs: This includes both the cost of shipping from the manufacturer to your warehouse and the costs of shipping rewards to backers.
Fulfillment costs: These are divided into several subcategories:
– Pick-pack costs: The expense of picking and packaging products.
– Storage costs: Fees for storing your product in a warehouse.
– Account fees: Any fees associated with maintaining your fulfillment account.
– Shipping Costs for Backer Incentives: Separate from initial shipping, this is the cost of shipping rewards to your backers.
Marketing costs: The budget for promoting your campaign.
Platform Costs: Fees charged by platforms like Kickstarter, which can range from 5-10% of the total funds raised.
Payment Processor Costs: These are generally around 3.5% of the total funds raised.
This means that you will need to know your Gross Margins so that you can outline an exact business plan.
- Gross Margin Percentage=((Revenue – Cost of Goods Sold)/Revenue)×100
Once you have this information, you can get your price per unit cost.
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Research You Competitors
Go shopping… Look at products that are of a similar nature to yours and check out their product pricing and reviews. Consumer expectations really dictate how pricing strategies are influenced so this is why checking out their reviews is important.
Gathering this information prior to setting your price will allow you to know if you will be priced out of the market or if you can add some additional cushioning to your per-unit price and show a profit.
Track your expenses
Now that you have gathered all the necessary elements enter all this information into a spreadsheet or your ERP system so that you can analyze the data and come up with the manufacturer’s suggested retail price.
Once you have your MSRP, you will want to multiply this by a percentage, some suggest 5-10- or even 25% so that are planning for contingencies and still earn a profit. You will want to provide a breakdown and an outline of these costs to your backer audience so that you can obtain the funding that you need for your venture.
Studies show that clearer communication will eliminate any uncertainty that backers may have on the campaign and show a better successful campaign rate. Earning a profit will also allow you to take those profits and allocate them for your product’s future entry into the market.
Pricing always plays a key role in the success of any business. Reviewing the competition is vital for achieving this as it provides insight into what is already working. Accounting for development, manufacturing, warehousing, marketing, distribution, and the unforeseen will allow insight into what price will be profitable. Having a clear outline of your pricing strategy will not only outline your budget, goals, and timelines but also ensure your campaign’s success. This can also lead to an easier path for future campaign ventures since you are building a rapport with bakers.
FAQs: Pricing Your Crowdfunding Campaign
How much does a crowdfunding campaign cost?
The cost of a crowdfunding campaign can vary widely depending on several factors including the type of project, the chosen platform, marketing efforts, and production costs. Generally, costs include:
- Prototyping/Sample Costs: Expenses for creating a prototype or sample of your product.
- Manufacturing Costs: The cost of producing your product at scale.
- Shipping and Fulfillment Costs: Including logistics from manufacturer to warehouse and then to backers.
- Marketing and Promotion Costs: Can vary widely but are crucial for campaign visibility.
- Platform Fees: Most crowdfunding platforms charge a fee, typically ranging from 5% to 10% of the total funds raised.
- Payment Processing Fees: Usually around 3% to 5% of the total funds raised.
A small project might only need a few thousand dollars, while larger, more complex projects could require tens of thousands or more.
How much do crowdfunding sites charge?
Crowdfunding platforms typically charge a fee based on the amount of money raised. This fee varies by platform but generally ranges from:
- 5% to 10% of the Total Funds Raised: This is the most common fee structure.
- Additional Payment Processing Fees: These are often around 3% to 5% of the total funds raised.
It's important to factor these costs into your funding goal to ensure you raise enough to cover both the project expenses and platform fees.
How much does the average crowdfunding campaign make?
The average amount raised by crowdfunding campaigns can differ significantly based on the platform, project type, and campaign strategy.
- Small to Medium Projects: Often raise anywhere from a few thousand to several tens of thousands of dollars.
- Highly Successful Campaigns: Can raise hundreds of thousands or even millions, but these are exceptions rather than the rule.
Campaigns with robust marketing strategies and a compelling story tend to raise more funds.
What is the offering limit for crowdfunding?
The offering limit for crowdfunding refers to the maximum amount of money that can be raised through a crowdfunding campaign within a given period, usually a year. This limit can vary based on the regulations of the country and the policies of the crowdfunding platform.
- Regulatory Limits: In the United States, for example, the Securities and Exchange Commission (SEC) regulates equity crowdfunding. Under Regulation Crowdfunding, the limit is $5 million in a 12-month period.
- Platform-Specific Limits: Different crowdfunding platforms may have their own limits, which could be lower than the regulatory maximum. These limits are often set to manage risk and ensure the feasibility of projects.
- Type of Crowdfunding: The limits can also differ based on the type of crowdfunding (e.g., donation-based, reward-based, equity-based). Equity crowdfunding generally has stricter limits and regulations compared to other types due to its nature of offering equity in return for funding.
- Updates and Changes: It's crucial to check the latest regulations and platform policies, as these limits are subject to change and can vary based on legislative updates.
For the most current and detailed information, it's advisable to consult the specific crowdfunding platform you're interested in and review the latest regulatory guidelines in your region.
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