Should You Use Kickstarter for Your Business?

A lot of entrepreneurs feel that the answer to their financial prayers lies with Kickstarter. Unfortunately, while you may have seen a lot of people succeed on a crowdfunding site, the odds aren’t necessarily in your favor. Those success stories are the exception, not the rule. With so much competition out there, how do you know if Kickstarter is the right option for you?

The Truth About Kickstarter

On average, a Kickstarter project will raise approximately $7,800. Projects that are striving to earn under $10,000 only have a success rate of 29 percent. Projects that are successful raise between $20,000 and $100,000, but that’s just 4 percent of the projects that are launched. Projects that reach a goal of over $100,000 make up less than 1 percent of Kickstarter projects. Fifty-five percent of projects never meet their goals; 11 percent never get even one backer.

The Price of Kickstarter

Kickstarter’s fee is 5 percent of your earnings. Amazon charges between 3 and 5 percent for credit card processing. In order to get the most out of your campaign, you’ll need a quality video, which can cost you between $5,000 and $50,000 from a professional. When you offer rewards and profits to your backers, that will cut into your earnings, too. Then, you may need to spend money on shipping, marketing services, content production, and other activities.

Not Being Able to Deliver

A mere 25 percent of Kickstarter projects actually deliver on their promise on time. This can push away potential customers before you’ve even got your business off the ground. When you turn off your backers and fans, you’ve lost customers before they’ve had a chance to use your product. Often, pre-sales aren’t even in the beta stage yet, which means it could be an awfully long time before the product makes it to the customer. This creates negative experiences for customers and, in turn, businesses. Plus, since so many Kickstarter projects aren’t delivering on time, the entire platform is suffering because backers no longer trust the process.

Is Kickstarter Worth the Risk?

Assuming you get the funding you need, will you be able to deliver on your promise? If you’re not 100 percent certain you can, is it worth the risk? There’s a very short window of time to make a first impression. If you can’t get your first interactions right, you could lose a strong customer base for good.

Also, if your incentive to get people to back you is a reduced price on your product, this confuses its real value. If your product is usually $200, but you’re willing to sell it for $100 during the pre-sale period, why would anyone ever think it’s worth $200? To some professionals, this is a cheap way to launch a business.

To make Kickstarter work for you, decide if a pre-sale is absolutely necessary. If it is, be completely transparent and factor in a lot of extra time to your shipping date. Talk to your backers as though they’re investors, because in a way, they are. Communicate regularly with your backers and be clear with them; set realistic expectations.

Create a budget for your pre-launch, launch, and post-launch needs. It’s a good idea to also create an off-Kickstarter experience. You don’t want to narrow your audience to only people on Kickstarter. You can start to create buzz with a blog and social media profiles, too.

Becoming an overnight business success is extremely uncommon. That doesn’t mean you won’t be able to raise money for your business, just that crowdfunding may not be the best way to spend your time and effort. To get inspired by others who have seriously made it in the financial industry, check out Peter Briger’s resume.