This is one of those important, make-or-break questions you must ask yourself.
A funding goal that is set too high could mean you risking months of hard work and walking away without any capital, if you are using a ‘fixed funding’ campaign.
On the other hand, a goal set too low or wrongly could mean that you will have to foot additional campaign costs out of your own pocket, a costly move you don’t want to make.
Before you decide on a funding figure, here are three battle-tested, recommendations I’ll make:
- Start by totalling all project and reward fulfilment costs
- Budget for more money than you think you’ll need
- Always set your funding goal lower than what you need
**1. Start By Totalling All Project and Reward Fulfilment Costs**
Let me be honest: I hated accounting when I studied it back in school.
But as I started doing my own businesses, I realised how important it was to be able to account for costs.
Otherwise, your costs will spiral quickly out of control.
If you could do a quick survey of all crowdfunding campaigns out there, you’ll be amazed at how so many crowdfunding campaigns out there do a poor job with their accounting basics.
Recently, I came across a video game crowdfunding campaign that asked for a funding figure of $30,000, and its creator substantiated its figure only with percentage breakdowns.
But there were no hard figures to substantiate why they needed that sum of money.
So we’ll start with some accounting basics.
To set your funding goal, you start with the basic costs of your campaign.
Basic costs of your campaign include:
Fixed costs of your project.
This includes the costs of manufacturing your product, building a website, or renting a storefront
Costs of reward perks
Shipping and fulfilment costs
That includes mailing envelopes, parcel boxes, and international shipping fees for backers.
This includes ad campaigns, Press Release distribution, and event promotion.
Crowdfunding platform costs
The costs can total up to 10% of your funds raised, after including in payment processor fees.
An important note is that Indiegogo charges 9% if you do not hit your funding goals, and 4% if you do.
And if your bank account is based outside the U.S, there is a one time wire transfer fee of $25.
If you plan on hiring a creative video agency, PR or crowdfunding consultant, you should factor these in too. (*Note: There are plenty of different tiered pricing options out there depending on whether you’re an individual,startup or a full fledged company)
Once you’ve totalled them all, a good safety measure would be to add an additional 20% buffer to your total costs.
Most campaigns tend to overrun their costs due to manufacturing and delivery delays, and the buffer will help absorb those cost overruns.
So: Total Costs = Basic Costs + 20% Cost Overruns Buffer
Use a Spreadsheet
It is recommended to use a spreadsheet to help you list all these costs down easily.
You’ll also be able to forecast the expected number of perks that will be redeemed, and then subtract all the costs outlined in the previous section.
Go detailed and deep here, listing down as many relevant costs as possible that you expect for the campaign.
If you’ve bought the full package of The Crowdfunded Kit, there are ready made spreadsheets that are provided for you to use.
2. Budget For More Money Than You Think You’ll Need
A well funded project is one that raises far more than its funding goal.
But even with the extra funds, the money depletes very quickly as costs mount up.
Some of these costs include manufacturing delays, unforeseen shipping and import customs fees, packaging costs, plus factor in the profit margins that you expect to hit.
So when it doubt, always budget for more money than you think you’ll need.
3. Always Set Your Funding Goal Lower Than What You Need
AHA! I’ve got you here.
Does this statement sound illogical?
After all the talk about factoring in costs and buffering in addition cost overruns, shouldn’t you just tell your backers how much exactly you’ll need?
Actually, the answer is no.
We’ll come to that in a minute.
For now, know that another big secret to a successful campaign, is to set your funding goal at 80% of your actual funding requirement.
So that means if you need $100,000, ask only for $80,000.
The Power Of Social Proof: The Funding Bar
There are two reasons why setting your funding goal lower makes sense.
Firstly, backers like to see the progress bar move, and that they’ve helped you to get to the finish line.
If you have a smaller funding goal, progress is much more evident.
But if you set a high funding goal, you run the risk of much slower progress.
And backers can get turned off, as they might not believe that you can actually reach the goal.
Secondly, is the power of social proof.
A lower funding goal means its easier to hit the target. And when a campaign is fully funded ahead of its deadline, people find it more credible and hence less of a barrier to fund your project.
This is because others have already validated your idea by putting their cash before these people. Momentum generates more momentum.
One Last Note: How To Decide On A Campaign Duration
Kickstarter and Indiegogo both allow you to choose anywhere from one to 60 days for your campaign funding duration.
As a one-off, Indiegogo also allows you to extend your campaign up till 60 days, even if you’ve originally set it at a shorter campaign duration.
In general, its recommended to have a shorter campaign timeframe, between 30 to 47 days, rather than to max it out at 60 days.
The reason for this is because you do not want to wear your backers out with a constant barrage of emails and social media postings.
Also, a longer time frame can unintentionally communicate to your backers that you do not have the confidence to raise the funds required.
Within these 30 (or 47) days, you should do all you can to create a sense of urgency.
Send frequent updates, and try to rally people around your passion for your product.
That said, there is an exception to this rule.
If your objective of the campaign is to create brand awareness, and you have the resources to guarantee almost daily traffic flow, then it makes complete sense to fully max out the campaign duration.
This is especially so in the case where you are running a major PR campaign, and very often, you’ll have limited control over when an article about your campaign gets published.
As an example from the Duet campaign, we had a spurt of $7500 of pledges in a single day when a PR article was released late, just two days before we ended our 60 day Indiegogo campaign.
Had we not chosen the 60 days campaign duration, we would have missed out that vital $7500 in pledges, and much more!
You May Also Like To Read Next: Which Crowdfunding Site Should I Use For My Project?
“A FREE COURSE ON CROWDFUNDING“
I don’t want your crowdfunding education to end here, so I’m putting together a guidebook, and a free three-week course called “5 Ways To Find Users For Testing Your Crowdfunding Idea”. There will be some overlap between that content and this post, but the email course will walk you through some ways you can find users to test your idea.” Also check out the upcoming launch of my latest book: "The Crowdfunded Kit"