Two Things Kickstarter Does that Can Leave a Creator Critically Short on Shipping Funds

For Kickstarter creators creating physical products, shipping is the last major hurdle that must be cleared for the project to be a success. But even though it is the last thing to be done, it must be planned and budgeted very early on. Too many Kickstarter creators find out just how expensive shipping is when they are starting to pack up boxes and print shipping labels. As a general point of reference, the United States Postal Service has a large flat rate box it markets as being specifically for board games. This is what we often use to mail War of Kings. It costs $18.75 to mail from any address in the United States to any other address in the United States. That is a lot, especially if you’re not expecting it. Sure, if you are not sending the box all the way across the country, or your rewards are smaller and lighter you may be able to ship it for less (the medium flat rate boxes we use to ship TerraTiles cost only $13.45 to mail), but this is still a useful benchmark for the discussion.

From the creator’s perspective, the cost of shipping cannot be escaped. To get your product into the hands of your backers the cost of shipping must be paid. Therefore, it must be accounted for in the budget from the very beginning. If you are not paying shipping out of pocket, the expense will have to be paid by the crowdfunding project’s backers, or by the customer during regular sales.

If you are crowdfunding your project on Kickstarter, there are basically three ways you can collect shipping charges:

  1. as part of the Kickstarter pledge, either by:
    • having the shipping as a separate line item on the pledge, or
    • building the shipping cost into the cost of the item and offering “free” or discounted shipping,
  2. charging shipping through a third party pledge manager immediately after the campaign ends, or
  3. billing backers for shipping later once the rewards are close to mailing.

I set up a Twitter poll asking which people preferred when backing a Kickstarter campaign.

Personally, as a backer, I prefer Option #1. It takes care of everything in one transaction and then it is over. From the perspective of a Kickstarter creator, I also prefer Option #1. I don’t have to worry about setting up a third-party system, contacting all my backers and getting them to go through it, or about backers who do not pay their shipping cost if I tried to bill them months later. A single transaction seems to be the easiest solution.

However, it seems like I see a lot of campaigns going with Option #2. This could be because Kickstarter appears to incentivize creators to choose this option. This is because:

  1. Kickstarter takes a 5% cut of the shipping charges if they are collected through the Kickstarter system, and
  2. Kickstarter counts money collected for shipping toward your funding goal.

I feel sure these two facts have gotten Kickstarter creators into trouble. I did not realize either of these were true until well into the War of Kings Kickstarter campaign. We were well ahead of where I thought the funding level should be based on the number of backers we had. That is when I realized Kickstarter was adding the shipping to our total. This is significant because a creator can’t spend the shipping money he or she has collected to make the project happen. That money has to stay in the bank until it is time to buy postage to ship the rewards.

Imagine a creator who needs $20,000 to complete a project. He or she plans to find 400 people to back the project for $50 each to raise the $20,000. To deliver the rewards, he or she charges $12.50 in shipping. But since Kickstarter adds the shipping cost to money raised, each backer is actually pledging $62.50, which means the project will fund (committing the creator) with only 320 backers. Since the $12.50 each backer paid for shipping can’t be spent until it is time to buy postage, that’s $4,000 the creator has but cannot spend to realize the project. If the project requires $20,000 he or she is now sitting at $16,000 and has to get $4,000 from somewhere else to complete the project. For some creators, that might be impossibly hard, and raising money in that quantity may have been the original impetus for the Kickstarter in the first place.

But, that is not all. Kickstarter takes a 5% cut of everything raised on the site and there is an additional payment processing charge of 3% to 5%. That means that rather than getting the $20,000 raised, only about $18,200 shows up in the creator’s bank account. The $4,000 for shipping must still be saved until the end of the project, leaving the creator with only $14,200 to complete a $20,000 project. That is not a good situation to be in.

By doing those two things, Kickstarter incentives creators to collect shipping charges through a third party service when the campaign ends. This could be why collecting shipping charges off Kickstarter appears to be increasingly popular, although, it is important to note that there will still be fees associated with using a third-party system. Payment processing fees still must be paid, and the third party service will have to be paid in some way as well. The method and amount will vary with the service you choose.

The ultimate advice to creators is to know the shipping costs for your project before it begins, budget for it as early as possible, and be aware of any fees associated with the services you are using.

Know people who would be interested? Please share. 🙂
RSS
EMAIL
Share on Facebook
Share on Facebook
Google+
http://www.edwardheathrobinson.com/shipping-funds/">