Kickstarter Funding Goal — All the expenses you need to consider

You’re thinking about starting a Kickstarter campaign for your brilliant new idea. You made a prototype, filmed an amazing video, and are ready to go live with your campaign.. until they ask you what your funding goal is.

You scratch your head… maybe $10k? Maybe $50k? Maybe $100k? How are you supposed to know?

Choosing your Kickstarter funding goal is more of science than art. You need to make sure that it covers the expenses you want covered while also leaving room for any additional manufacturing runs you would want to do in the future. You need to also account for overhead expenses, taxes, Kickstarter fees, payment processor fees, and so on.

So how should you go about calculating your funding goal? Disclaimer: We’re going to assume that this is a physical product that is going to be distributed by shipment and that you are based in the US.

What is your purpose?

First, you need to determine what your purpose for the campaign is. This will help you determine what your funding goal should ultimately be. Some people are only looking to cover a part of their expenses and some people are looking to cover all their expenses and maybe plus some.

So ask yourself — what do you want?

Do you want to set your funding goal as low as possible to achieve it, even if it means you’ll cover some expenses out of pocket?

Do you want all your expenses covered even if it means setting your goal pretty high and that you might end up with nothing?

R&D Costs

List out all your Research and Development costs. This includes any expenses you’ve incurred to draft up designs, samples, tooling, prototypes, and other one time expenses to develop your product.

Minimum Order Quantities

You will need to figure out what the minimum order quantities (MOQ) are for every single one of your vendors. For example, if you are using three different factories for three different parts of your product, you need to check with each of them what the MOQ will be. If one factory says 100, another says 500, and the last one says 1,000, then you will at least need to manufacture 1,000 units. So your funding goal should account for the production of at least 1,000 units.

Aside from that, if you plan on using a third party fulfillment center, they might also enforce minimum quantities before they take on your business. Think through the entire manufacturing, storing, and shipping process and make sure you know what the MOQ is for every single vendor that is involved in that process.

Manufacturing Costs

Figure out what the cost per unit will be — this includes the cost of the materials, packaging and assembly. Then you will obviously want to multiply that by the MOQ to see how much it would cost to manufacture the minimum number of units.

Fulfillment and Shipping Costs

When you think about shipping costs, you will probably immediately think of the shipping cost of sending the product to the backer. But there are a couple of other shipping costs to take into account.

First, if you are using multiple factories and will be sending all the parts to one factory for final assembly, you will need to incur the costs of shipping from factory to factory. So you will want to figure out approximately how much that would cost for the MOQ you have in mind.

Then, you might decide to send the final assembled product to another third party fulfillment center. You will also have to account for this part of the shipping yourself, so make sure include this in your funding goals.

And finally, there is the shipping costs to the backer. This is the portion where you can pass on the shipping fee to the backer and charge each one separately based on where they are located and how much it will cost to them individually. But if you decide to eat the costs of shipping to all your backers, you will obviously have to make an educated guess about where you think your backers will be located, approximately how much it would cost to ship to them, and make sure to build this cost into your funding goal as well.

Kickstarter Fees

Kickstarter charges 5% of your campaign funds as their platform fee. So you would want to build in a 5% markup in your funding goal to make sure you can pay Kickstarter and still have enough.

Payment Processor Fees

Kickstarter also partners with Stripe, the payment processor that will be used to charge the backers and then deposit the money to you. They will also take a fee — usually this will be 3% + $0.20 per backer. So on top of the 5% Kickstarter fee, make sure you also have this built into your funding goal.

Federal Income Tax

Now comes the super fun part — taxes! If you are located in the States, the money you raised through Kickstarter will be counted as taxable income. But remember that you only pay taxes on the profit (revenue-expenses) so you if are able to use up all the money you raised in the same tax year, you might be able to get away with not paying taxes at all!

So calculate this out properly before choosing your funding goal. Figure out when you’ll incur these expenses and see if there will be any profit leftover at the end of the tax year. If you do have profit leftover, be prepared to pay 21% of it in federal income tax.

Local Income Tax

Depending on where you are located, this will vary greatly. So make sure you do some thorough research online or consult a tax professional about what the tax requirements are for not only your state but also your county and city.

For example, we’re located in Seattle, Washington. Washington does not have a state income tax but we do have what’s called a Business & Operation tax at both the state level and city level. This is a small percentage charged off of revenue, meaning even if we have no profit leftover, we’ll still need to pay the B&O tax. So we would absolutely want to account for this differently than if we lived in a state that charged a standard income tax based on profits.

Marketing Costs

If you spent any money in marketing your campaign, which you probably have, you would also want to build that cost into your funding goal. This includes potentially flat fees you’ve paid to hire agencies or any advertising spend you’ve incurred.

You might also want to build in some buffer room for future marketing costs that will be incurred during the course of the campaign. For instance, if you plan on spending $100 on Facebook ads a day during the entire duration of the campaign, you would want to build that into the funding goal.

Other Overhead Costs

Then there are the other overhead expenses that don’t necessarily fall into any of the above categories. This usually will be your lease for any office space, incorporation and administrative expenses, any labor costs, etc.

Margin of Error

A lot of these costs have to be educated guesses. Even if you thought it was very exact, any number of things can happen to change what you actually end up paying for in the end. And more often than not, you end up paying more than what you planned for.

So we also like to include about a 10% margin of error in the funding goal. This provides a bit of buffer room for you if one or some of your costs hike up.

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Shelbru has designed the perfect cold brew system — a brewer and carafe set — to help you level up your cold brew game! We will be launching our Kickstarter campaign this Spring to fund manufacturing and distribution and need your support.

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