

The Economics of a Kickstarter Project  - uptown
https://medium.com/@cameronmoll/5b374cfeb43c

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timdierks
This is a very helpful post; makers should be very aware that there are a lot
of costs to producing things, many of which you're unlikely to pencil out when
dreaming something up (e.g. 1% of revenue going to storing shipping supplies).
This is why so many companies appear to have high margins: money leaks out of
businesses all over the place.

To the criticism that Kickstarter isn't about making money: part of enabling
people to make things is compensating them enough that they can afford to put
in the time.

Nitpick: I think your tax estimate is high, given that pretty much everything
else is a business expense, and thus deductible, unless your income is high
enough that you have to pay $3K in taxes on roughly $8K in net income (38%: 5%
Utah + 33% Fed tax bracket).

Also, you're left with the asset of 800 posters which you're offering for
$120/ea + shipping. Sure, you probably won't sell all of them at that price,
at least not anytime soon, but you do have to attribute that revenue to the
project, since you attributed the costs to produce them to the project, and
selling just 10% of them will double your net revenue. (Assuming $130 in
revenue each, $6 in transaction costs, $15 in shipping & packing costs, $4 in
miscellaneous costs = $105 net per poster sold * 80 = $8400 net pre-tax.)

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tedivm
To me this is an excellent example of why it's important to budget out, in
advance, any venture. It seems like shipping was way over budget because he
didn't take into account materials and postage, and I'm not sure why anyways
would set a funding goal of $10k for a project they already spent $15k on if
they actually expected profit.

It's important to define your goal to yourself beforehand. Are you looking to
fund a cool project you just want to see exist, or is it profit? I imagine
most people are somewhere in the middle of those two, but it's important to
know where you are before you sit prices and goals.

One thing that I got out of this article that I really appreciate is the early
backer concept. One of the benefits of kickstarter is that it is a bit more
community, and people are forgiving of mistakes- the early backers even more
so. Something that people may want to do in the future is offer to ship to the
early backers first so that way if there are problems it's discovered sooner
and it effects a smaller group of people.

~~~
rbatty
I have to agree with tedivm. It seems somewhat disingenuous for him to act
like he barely broke even if he was able to pay off $15k of debt that he was
prepared to eat regardless of whether he sold a single poster or not.

Frankly, it sounds to me like he should consider himself lucky that, despite
grossly mis-estimating the actual cost of printing and delivering his posters,
he actually received enough funding to meet his obligations to his backers. If
he had only raised the amount set as his goal, we'd be reading about yet
another guy who's project was never delivered.

Maybe I'm being too uncharitable here, but I think his article is really a
case study for why people should be wary of funding low-cost kickstarter
projects that require delivery of physical goods.

~~~
preinheimer
He precisely estimated the cost of printing: "Printing was precisely what I
estimated it would be: $9,500 "

The cost of re-printing, and re-shipping the posters came out to $7,073, or 9%
of the total amount raised. I think we all make these large screw-ups
occasionally, but rarely enough that they're not in budgets. I think I cost my
last job 20k in an afternoon once.

I don't think this at all indicates people should be wary about funding
projects: everything was delivered.

~~~
DatBear
He would have been able to print the posters, but had he only raised 10,000,
he would still be in the hole for:

Less shipping supplies ($5,811)

Less storage lease for 5 months ($690)

Less postage ($4,701)

Less temporary help ($741)

Less charity: water contribution ($2,000)

$13,943 in addition to his $15,000 loan, as well as Kickstarter taking 5% and
the 5% merchant fee, which would have come out to ~$1000. I don't think people
would have received the poster.

~~~
egypturnash
He also probably would have done a smaller print run, and spent less on
shipping and postage. Might not have needed help shipping either.

~~~
cameronmoll
Most likely, yes. This is what I've done with my two previous posters (smaller
run).

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trcollinson
I think it is really good for people to see the break down of a Kickstarter
campaign like this. I see that he gave a short summary into his feelings and I
am sorry he was upset with the outcome of this business experiment. I am sure
his backers are glad to have his work but would be sorely upset that the
artist feels this way at the end of the experience when they put their hard
earned dollars into backing his dream.

I guess if an artists point in making a kickstarter is to fund or pay back an
interesting and fun side project, ~$4,000 and a number of people now owning
your art and knowing your name is a huge payoff (with many hundreds of units
of unsold merchandise left over being icing on the cake). If an artists hope
was to make this their full time income, then I hope this business experience
was a learning one. Kickstarter has made funding business different, not any
easier.

~~~
preinheimer
I backed the project, I have a copy of the poster.

I don't read that post as Cameron being upset about the outcome, more of a
frank look into the profitability of the venture _so far_. He has been up
front with everyone along the way, including during the tyop issue. He'll
continue to sell the remaining posters (at a higher price than many backers
paid) to pull in additional revenue.

I'm not upset with this at all, I appreciate it.

+1 would back again.

~~~
cameronmoll
Very happy with the outcome, indeed. I thought it was important, however, for
others to understand what goes into (and comes out of) creating a Kickstarter
project, and how they might avoid misjudging costs—as others have pointed out
here.

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egypturnash
~$7k fixing the mistake. Sounds about right.

I'm in the home stretch of fulfilling a Kickstarter and had something similar
happen: I realized that I left a page out when I put together the master files
for my comic. When I had an advance copy in my hand and 399 more on a loading
dock in China.

So I sighed, and threw pretty much all the expected profit for this print run
into a corrected reprint. With a couple little tweaks I'd noted down as "fix
this in the second edition" anyway. And I looked at the point in the process
where I made this mistake and did my best to make sure it'd never happen
again.

I kept the backers updated and they've been pretty cool about it.

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ChuckMcM
That was a fun read, it strikes that heart of business naivete. Not
particularly in a bad way, these lessons need to be learned somehow, but in a
real way.

I've advised a few folks on doing Kickstarter projects. It can be a wonderful
experience, and it can be soul crushing. In this case they got their rewards
out, and at the end of the day debt free and a few thousand $ in free cash
flow. That seems to be an unusual outcome for the ill prepared.

It is a challenge to understand the costs associated with building something,
it takes an ability to face unpleasant realities, deal with folks who are
possibly unscrupulous, and keep risks under control. Fall down and you can end
up out of money and deeply in debt, unable to fulfill your rewards. That
cannot feel "good."

This article covers some of the interesting bits (error in your final product
results in re-doing a bunch of stuff) paying off costs to third parties for
licenses and such, and storing mailers (something a lot of people totally
miss). At some point I hope there is a "Kickstarters for Dummies" book that
helps people make good estimates about future costs and potential risks.

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lubos
Since when you pay taxes on "unearned revenue"? If you don't deliver goods
before end of the year, all of that income from Kickstarter is unearned
revenue which means non tax-assessable income until the revenue is actually
"earned" by fulfilling your obligations to backers.

Also, looking at
[https://www.kickstarter.com/help/taxes](https://www.kickstarter.com/help/taxes),
it looks like you can possibly classify portion of the funds received as
nontaxable gift which means even lower tax liability.

~~~
sheetjs
To be clear, companies can elect for accrual-based accounting (in which case
the revenue is unearned) or cash-based accounting (in which case the cash is
taxed in the year received). In fact, many small businesses use cash-based
accounting.

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tixocloud
For those of you who've started a Kickstarter Project, have you used it for:

a) Market validation? b) Fund raising? c) Inspiration to get yourself going?
d) All of the above

I'm considering starting a Kickstarter project for a project management
application to boot (yes, I know it's been done a million times over but it
seems like most ideas have been done already) and wanted to validate the
market and provide myself some temporary income to build the solution.

Would love to hear some thoughts!

Cheers!

~~~
snide
We've got Webhook on kickstarter right now. It's a static site generator with
a CMS.

[https://www.kickstarter.com/projects/1749618880/webhook](https://www.kickstarter.com/projects/1749618880/webhook)

Definitely did it for validation. While it's awesome that we hit our goals and
have some early customers for our product on Day 1, it's going to be tough to
re-attain those users and get them on a monthly subscription once we launch.
My guess is we'll lose over half of them. That's mostly because we're using an
outside channel (kickstarter) to take payment. Also, I'm sure there will be
some people that just don't think the product is what they thought it to be.

What KS did do was give us a very easy way to validate the product. We're
self-funding and basically said... hey, if we can't raise $20k, this project
likely isn't worth investing more time and money in. Granted, we were hopeful,
and even assumed we'd do better, but that's the way we looked at it. It's
basically fail fast with a real timeline. Sometimes (and I've done this
before) you can get emotional about a product and not walk away.

Running a KS campaign is also a small preview for the marketing you'll need to
do for the actual product once it's launched (example: a post like this). You
go through some peaks and valleys and have a 30-day roller-coaster ride. If
you end up funding your project, even if it's a small amount, that's a great
feeling of "win" that can carry you through the first few months of your
project. Small teams need some early wins to keep positive.

I highly recommend it as a replacement for seed funding for software
companies. We'll likely end up around $40k when we end. That'll break down
like this.

1\. $2000 for video. 2\. $4000 in fees.

The other $34k will let us operate for a few months as if we were making
decent revenue. We'll also likely invest more of our own money into the idea
now that we know it has an audience. Now it's just up to us to deliver on the
promise and sign up our customers.

One tip I'd give to people thinking about KS. Keep it simple. You don't need
to give Tshirts and stuff. If you're building software, just build software,
don't do anything that will take away from you doing that.

~~~
tixocloud
Thanks, snide. I really appreciate your thoughts - this gives me a whole lot
of hope for someone new like myself.

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thenipper
Here is another great breakdown of a successful Kickstarter that raised $433k
by a tabletop RPG company called Evil Hat:

[http://www.deadlyfredly.com/2013/11/core-ks-
breakdown/](http://www.deadlyfredly.com/2013/11/core-ks-breakdown/)

Basically they called the campaign itself profit neutral which was their
intent but it gave them the ability to launch a new product line. I think that
is what people should expect if anything they'll have extra product sell or to
use it as a launch pad rather then to expect to pull in a ton of extra cash.

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jasontsui
Hm, I've always assumed that Kickstarter funds should be exactly what they're
called - kickstart funds that allow you to bring a project/product to market.
In more recent times, it seems that the majority use of Kickstarter has skewed
towards a preorder style in which the creator of the project is basically
already selling the product and looking to make a profit on that first run. It
is much harder to bring the project to market AND deliver it with the same
funds, as opposed to spending most of it towards the former and sending out
t-shirts for the support. Of course, way less people would back projects if
they only got t-shirts. Thus, the current state of Kickstarter, where creators
promise a lot from the beginning just so they can be successfully funded.

I'm not implying that this was a bad shift, just that if you plan to use
Kickstarter rewards in a preorder style, its much more important to get the
numbers pinned down so the project doesnt fail altogether.

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sheetjs
> My campaign goal was $10,000. These funds were meant to cover the cost of
> printing.

> Less loan repayment ($15,000)

Just curious: why wasn't the campaign goal much larger (at least 15K)? If the
person hit the target, they'd still be short for the loan

~~~
seandougall
Indeed. This whole post is a frustrating exercise in how not to do arithmetic.
It's not Kickstarter's fault that he failed to budget the vast majority of his
costs -- and failed to proof the product before shipping. Maybe next time he
should invest a couple thousand up front and get a competent project manager.

~~~
preinheimer
Where in the post is he blaming kickstarter for anything? It's not the post
I'm reading.

The post starts with the kickstarter & transaction fees because they come off
the total amount raised.

The entire thing seems to have been delivered on time, and would have returned
a reasonable amount of money without the reprinting & 2nd mailing costs.

As someone who saw the original version (with typo), and missed it entirely:
it's easy to miss.

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brazzy
Heck, I had to look three or four times before I saw the typo, _knowing that
there was one_!

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tannerc
Curious as to why nobody mentioned the travel expenses for _multiple_ trips to
New York. I somewhat sarcastically asked on Designer News why multiple trips
were required for a simple poster design, to which Cameron responded (for
anyone else curious):

 _" Research. But yes, I could have done that via Google. There's a special
amount of knowledge, however, that comes from studying the architecture and
stone in person, speaking with type designers familiar with the history in
which it was built, etc."_

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lxmorj
Hey Cameron,

Great write-up. Care to shoot me an email at alex@monthlyboxer.com? We're a
fulfillment company specializing in Subscription Boxes and Kickstarter
fulfillment. I know it may not be much help to you for this campaign, but we
might have been able to bring your fulfillment and shipping costs down quite a
bit. I'd love to chat with you about your experience. If you're planning on
doing anything like this again, it'll be good to have an idea of shipping
supply and postage options. In some cases our volume discounts on postage and
materials save more than our total fees, meaning it costs you less to ship
with us than do it yourself out of your garage. And you get to keep your
garage empty and your weekend free!

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edanm
I think this is a great lesson for any budding entrepreneur. Business Plans
get a bad rap around most startup communities, but it's undeserved.

Sure, writing a formal business plan to conform to some standard in an MBA
class is ridiculous. And it's true, most numbers in a business plan are made
up.

BUT, most entrepreneurs these days never even bother to put pen to paper and
think of the basic costs of their business. Sure, some of this post is about
mistakes, but a lot of it is things that anyone with a shred of business
experience could've foreseen. All it took is sitting down and _doing the damn
math_.

Kickstarter projects aren't exempt from having to make the math work on a
business. Neither are startups, incidentally.

~~~
acgourley
Just want to be devil's advocate with a couple questions:

Do you think Zuck could have made a business plan which correctly predicted
Facebook's growth curve?

If he had put together a more modest, defendable one, do you think it might
have slowed down the company or made them focus on the wrong things to hit key
milestones?

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mattmanser
That's actually not really the point of a business plan. The costs is the
important thing. The bjallions in profit in year 3 are almost always pure
fantasy.

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hagbardgroup
There's nothing wrong with writing down the fixed costs (which will often be
estimable) and getting close on the variable costs. Revenue projections in a
new company will be made-up usually, but you're correct to point that out.

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bangbang
Thanks for the breakdown.

Kickstarter's spirit isn't about profit, it's about enabling an person's
passion project to become a reality. The tone of the post strikes me as odd.

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eropple
People have to eat.

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pearjuice
Then work for your money. The world wasn't build by people begging for money.

~~~
Fomite
Actually, given how long the patronage system was around for, most of what we
consider "culture" _was_ built by people begging for money.

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chrisBob
I am surprised there isn't more talk about the costs of delivering t-shirts
for these campaigns. This project was an exception, but most of the ones I see
are selling shirts that have to eat more than half of the contribution from
each $30 donor.

There should be a way to have Kickstarter discount the low donations that
require shirts or stickers because they end up contributing much less to the
project goal than someone contributing $200 for a product.

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rrggrr
I've sponsored 63 projects: \- 42 shipped. \- 8 broke. \- 6 not only never
shipped but I never got replies from the project team when I inquired about
shipping. \- All but 4 were late, most significantly.

Overseas manufacturing problems plagued most of the projects. Inadequate
budgets took down many. Some just seemed to drop off the face of earth.

Its gotten worse IMHO, I don't know why, but I do that I rarely sponsor
projects anymore.

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tchaffee
I think the breakdown could be helpful for other people doing a KS project,
but 7% profit margin is good for many businesses.

~~~
cameronmoll
Keep in mind, however, that I didn't earn wages for my time. In contrast, most
businesses that garner 7% profit pay their employees.

~~~
Al__Dante
First and foremost, congratulations on a wonderful piece of art. The realities
of accounting should not distract you from the fact that the project was a
success and enriched people's lives.

Although you paint a pretty bleak picture of the finances, as others have
pointed out above, this does not reflect the economic reality.

The typo impacted your profit margin significantly - without it, you would
have had an additional $7k and a margin of 19%.

But this is only a side show. Even if you had made 0% on the posters shipped
to the Kickstarter backers, the 800 posters remaining represent a book value
of $96k. (Less a few hundred dollars for storage).

Assuming you can sell at this price, your three years work will be amply
remunerated for a part-time project.

In the end, Kickstarter functioned as it should. It reduced your risk by
providing a pool of known buyers and left you with the infrastructure for
approaching your market. That market is your final reward.

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benatkin
The BROOKYLN thing reminds me of CHI-TONW. I'm glad some backers were ok with
the typo!

~~~
Macsenour
I worked at a video game company that had the Atlanta Olympics license. As
Manager of Development instituted a "sign off" on all documents and packaging.
I left the company after a few months of banging my head on a wall. The next
day the CEO sent a memo around recalling all of my procedures. The next game
they produced was for the "Olympcis". All copies had to be recalled off the
store shelves.

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JoeAltmaier
Silly analysis. He disregards all of the real value he got for the money he
spent. E.g. he paid off $15000 in loans - what was that, chopped liver? It was
cash in his pocket - or rather, cash that didn't go out of his pocket.

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chrismcb
So he made a profit of $25 (minus about $5k for a printing error) doesn't
sound too bad to me. You have to take into consideration your costs for
producing your extra's, as well as things like shipping and fees.

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Grue3
I noticed the typo straight away as I opened his kickstarter page, even before
I knew there was a typo. Can't believe none of the backers noticed it.

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netcan
Am I going crazy or is that Tim Ferris he hired to help with shipping?
[https://twitter.com/cameronmoll/status/412080485502705664](https://twitter.com/cameronmoll/status/412080485502705664)

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skizm


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jk215
dat typo.

