Friday, December 27, 2013

Kickstarter Project Budgeting 101

I'll take it your project didn't quite pass the 3-Question Test?  No worries, we can make this work.  Read below to learn steps that will ensure your project has an air-tight budget!


To ensure your project doesn't go catastrophically overbudget, stick to the following rule:


There are many accounting equations that we could use to define what a solid budgeting strategy, but the most simple concept is usually the best -- and to make this one work, you must fully understand both sides of the above equation to keep your project in the green.


There is no way to know how much money your Kickstarter campaign will bring in.  I can't tell you how to guess that number.  I recommend that you set a reasonable goal, and promote your project everywhere you can in order to meet that goal.  (see this post on Creating Hype)  

What's reasonable?  Well, what's your target audience size?  For our upcoming Kickstarter project, "How Do Be Funny' -- we're following two comedians from Logan, UT on their journey to Hollywood to develop themselves as comedians/writers/actors, so our target audiences is essentially their current fanbase + other people from the local area + extra people that are just interested in the careers of young comedians.  So... not huge.  But we reflect that in our Kickstarter goal of $3000.  

Whatever goal you come up with, be sure to account for the 8%-10% cut of your pledges that go to Kickstarter and Amazon payments!!


Reward Fulfillment Costs

I put the reward fulfillment costs first because determining these costs will help you scope your project.  It was during this step that we decided to not offer physical copies of our documentary as a reward, but instead to offer downloads of digital copies of the film.  But as you're researching prices for fulfilling rewards, be sure to consider all possible costs (including packaging, postage, etc) to ensure you've picked a smart pledge amount for that reward.  Kickstarter recommends picking prices that your reward would retail at, but I've seen various interpretations of 'retail price'.

Project Costs

This is where you can really strengthen your budget by putting in the time to do your homework.  And this step is very dependent on what type of project you have -- a technology project will be focused on raw materials, production, packaging, etc, where an artsy project will be focused on other less concrete costs.  It helps to create a Work Breakdown Structure to identify all the steps required to complete your project, and build you budget off that.  

For example: If you were filming a documentary (HEY!) you'd want to research costs for individual pieces of equipment that you need, exact pricing for travel costs (use or similar websites and get the cost of a trip that would be about as many days/weeks out as you would book for the project), 

It's also smart to pick costs conservatively, meaning that if you were looking at the cost for a new lens, don't use the absolute lowest prices that you can find in your budget.  This builds a little cushion into the budget, where once you get the funding you can look hard for the good deals and use the money saved on things that cost more than you thought. Which leads in to the last type of cost to consider, the risk management costs.

Risk Budget Costs

This is maybe the most over-looked step in the budgeting process.  Make sure that you leave a chunk of money set aside to handle any emergency costs (what if you break a piece of equipment? etc).  How much money to set aside is a tricky question to answer because it depends on the amount of risk that's involved in your project.  I could do a whole post on risk, but just think about how likely it is that something goes wrong (are you holding an outdoor event in Seattle?) and how large of an impact that thing will have on your project (could delay your event for a day/week, can your project be that flexible?).  Also, the unknown-unknowns are hard to account for, so unless you're an old pro and have done similar projects many times, it's smart to research similar projects and see what type of things went wrong for them, then account for those in your plan.


So, if you've followed the above guidelines, your budget should have a solid answer for the following questions with enough detail to bore your wife:
  • What does it cost to fulfill rewards?
  • What will it cost to finish the project?
  • What level of risk do I anticipate having to overcome with project funds?
Add those up, tack on the 10% cut that Kickstarter/Amazon claim, and feel confident that you've set a good goal.

Stretch Goals

I'm not going to debate here whether stretch goals are a good idea or not (there's been enough of that already), but if you do choose to create stretch goals, make sure you have a solid budget for each level of funding you could bring in, a lot of projects get into trouble by expanding the scope of their project via stretch goals, but failing to expand their budget accordingly (particularly the risk part of their budget)

The next steps:

Kickstarter Project Management Basics - a post on how to clearly define your project and set yourself up for success
Building Kickstarter Hype - a post showing ways to create an audience and build support

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