Have you thought about doing a Kickstarter to fund your passion project? Maybe you saw that LeVar Burton and the Reading Rainbow team earned more than two million dollars for their Kickstarter in just two days. Maybe you’ve donated to a lot of Kickstarters and seen how the funding helps dream projects become realities.
Kickstarter has crowdfunded over 62,000 projects since the site got started in 2009. If you want seed funding for your independent film, music album, video game or other creative project, it’s a great way to earn the cash you need while gaining support from friends and fans.
However, a lot of people who launch Kickstarters end up losing money in the process. Here’s what to watch out for — and how to make sure you’re not one of them.
You Don’t Actually Know How Much Your Project Is Going to Cost
How much does it cost to make an album?
According to current Kickstarter projects, it could cost anywhere from $2,500 to $7,000 — or more. When I did a Kickstarter to fund my album, I thought it would cost about $6,000, so that’s what I asked my backers to contribute.
I was wrong.
My Kickstarter ended up costing just over $10,000 to produce. That includes not only the final product, Giant Robot Album, which cost $7,225.96 to make and distribute, but also the rewards, the shipping, etc. Everything that wasn’t funded by the Kickstarter came out of my pocket. I ended up going into debt to finish the album, since I had promised my fans that I would complete it.
A lot of people don’t actually know what their Kickstarter projects are going to cost, even if they take the time to research costs beforehand. Creative projects have a way of expanding and snowballing once they get going — and every snowflake on that snowball costs you money.
You Offer Rewards That Suck Up All Your Earnings
In addition to figuring out exactly how much you think your project is going to cost you, you also need to consider the cost of your Kickstarter rewards. Many people get in way over their heads with Kickstarter rewards; they promise a lot and then find it very difficult to deliver.
Remember that every T-shirt, every custom-knit scarf, every tchotchke you offer as a reward costs you money. First to create it, and then to ship it.
You Don’t Include Stretch Goals In Your Budget
When you get caught up in the excitement of Kickstarter funding, it’s easy to start promising without planning. “If we hit $1,000 over our goal amount, we’ll release an entire second album!”
For better or for worse, stretch goals are now a part of Kickstarter culture. To run a successful Kickstarter, you need to be ready to pull an amazing stretch goal out of your back pocket and use it to incentivize your fans.
You also need to include that stretch goal in your budget from the very beginning. Otherwise, you’ll end up paying for it yourself, long after the Kickstarter funding is spent.
You Forget About Taxes
Your Kickstarter donations count as income. Depending on how your project is set up, it might be considered business income and it might be considered personal income. Either way, you have to keep this in mind when you launch your Kickstarter, and you have to include a line for taxes in your Kickstarter budget.
Let’s say, for example, you want to make a movie with five of your friends. You come up with a name for your “production company” but don’t actually take the time to form an LLC. Which one of you is responsible for paying state and federal taxes on the money you earn from your Kickstarter? Are you splitting the responsibility among the group? Answering these questions before you get started helps prevent problems later.
How Can You Run A Kickstarter Without Losing Money?
Plan. Plan everything.
Figure out how much it’s going to cost if you have to pay international shipping on 500 T-shirt reward packages (it could happen). Figure out how much it’s going to cost if it takes twice as long to record your album or shoot your documentary (it will happen).
Also, don’t undersell yourself. If you are asking people to fund your creative project, ask them to fully fund it. This is your creative work you’re doing here — don’t cut the budget close to the bone. Figure out how much you think it will cost, including rewards, stretch goals, taxes, shipping, and everything else, and then add a hefty contingency fund to pay for everything that will cost more than you expect.
That’s the way to run a successful Kickstarter.
Your Turn: Have other questions about launching a Kickstarter? Leave ‘em in the comments!