Many people starting a business don’t have the funding needed to launch. For example, without a great credit history, most banks will not offer a business owner a business loan. Other roadblocks could include a lack of interested investors. When traditional forms of funding aren’t available, the only solution is to get creative. One of the best ways to do this is by creating a Kickstarter campaign.
According to research published by Statista, the crowdfunding platform has raised over $5 billion dollars in funding for almost 200,000 projects in a little over 10 years. Kickstarter’s website provides updated raw data that shows most projects receive between $1,000–$10,000 in funding, but over 500 campaigns have raised over $1 million. Funding success stories include Pebble Watches ($10 million), Monster 1.5 ($1 million in 19 minutes), and Exploding Kittens ($8.8 million). Many of these companies initially set out to receive a few thousand dollars of funding, but quickly gained massive support from the public.
With this in mind, find out more about Kickstarter and how to create a successful campaign that attracts backers who will fund your business idea.
What is Kickstarter?
In April 2009, co-founders Perry Chen, Yancey Strickler, and Charles Adler launched Kickstarter, a crowdfunding platform where patrons across the world can support various creative projects. Currently, the site allows “creators” or project owners (must be 18 or older) from the following countries: US, UK, Canada, Australia, New Zealand, the Netherlands, Denmark, Ireland, Norway, Sweden, Germany, France, Spain, Italy, Austria, Belgium, Switzerland, Luxembourg, Hong Kong, Singapore, Mexico, Japan, Poland, Greece, and Slovenia.
Campaigns must fit into their eight different genres:
- Comics and illustration
- Design and tech
- Foods and crafts
How Does Kickstarter Work?
Unlike receiving funding from bankers, venture capitalists, or angel investors, crowdfunding works by many donors offering small amounts of money toward the larger total. For instance, this might look like 500 people giving $50 dollars each to raise $25,000. Campaign owners can only collect funding if they meet their funding goal and project deadline (between one and 60 days). For example, if a person’s goal is to collect $20,000 in 30 days for a new film, but only $10,000 is given in that time span, they will not receive their pledges. If the project does meet its goal, then within about two weeks Kickstarter will directly deposit the backers’ donations into the campaign owner’s bank account.
Any money raised is not a loan. Instead, the capital is treated as personal income. This means the beneficiary of the project must report these earnings on their annual income tax return. For this reason, it is wise for project owners to legally start a business if they anticipate funding from Kickstarter. Naturally, they would organically become sole proprietors due to their business activity. Yet, starting an LLC offers much more legal protection. Because this type of business entity requires registration paperwork and filing fees, it is better to start this step before launching a campaign.
How Much Does Kickstarter Cost?
Creating a campaign is free. However, Kickstarter needs income to keep their doors open, so a five percent fee is charged on projects that meet their goal and deadline. Additionally, credit card processing fees bring this number closer to ten percent of the total amount of money raised. It’s important to remember to factor in these fees when determining your project’s funding goal.
Kickstarter allows you to create donation tiers that correspond with various rewards, but does Kickstarter work? It’s wise to consider the cost involved in offering rewards before settling upon your campaign plan and your fundraising goal.
Start factoring rewards cost by:
- Creating donation tiers. For example, Tier 1: $10 to $25, Tier 2: $25 to $50, Tier 3: $50 to $100, Tier 4: $100 to $150, and Tier 5: $150 to $200.
- Outlining the prizes awarded to each group. For instance, lower tier donors might receive a handwritten thank you or branded sticker. Higher tier rewards could include wearables like t-shirts or a personalized video message from the creators.
- Determining the amount you want to spend on rewards.
- Deciding where you’ll need to cap rewards in order to stay within that amount. For example, this might look like the first 100 people to give $100 get a free t-shirt.
- Budgeting reward expenses into your total funding goal.
How to Launch a Kickstarter Campaign
After all costs are factored into funding goals, it’s time to get proactive about developing an effective campaign. Find out how to get started by following these strategic steps that have helped other creators get funding.
1. Sign Up for the Platform
The first step is simple: create a Kickstarter account. Begin by visiting their website and clicking the “Log In” button. This will take you to a new page. Scroll down and click on “Sign Up” (don’t worry, it’s completely free to create an account). The signup page will require a name, email, and password. Once this information is completed, you’re officially part of the Kickstarter community. After registering, starting a project is simple. You’ll automatically be led to the homepage where you’ll see “Start a Project” at the top left side of your screen. When you’re ready to start outlining your project, click this button to begin.
2. Read the Fine Print
It’s important that users read Kickstarter’s guidelines to understand what is and isn’t allowed. Every project is reviewed by the company team, and about a quarter of Kickstarter projects get denied because they don’t follow the company’s five rules. To ensure your project receives approval make sure you DO NOT:
- Create an offering that can’t be shared with the public.
- Present your offering in a dishonest or misleading manner.
- Fundraise on behalf of a charity (nonprofits are welcome, though).
- Promise equity in the company.
- Violate Kickstarter’s list of prohibited items.
The business treats broken rules as a serious offense. For example, if they find out a creator doesn’t make good on their promise to give out certain rewards, the company can cancel pledges or projects, delete or suspend the user’s account, and take legal action. More often than not though, the company will inform users of how they’ve infringed upon the rules and provide an opportunity for resolution. Nevertheless, it’s best to read through Kickstarter’s Terms and Conditions before starting a project.
3. Think About How to Strategically Attract Backers
Attracting backers is the key to reaching your funding goal. The most successful campaigns drive traffic to their launch. Time management planner SELF Journal is a great example of a campaign launch with a well-developed strategy. Co-founder Cathryn Lavery tells Sumo writer Nat Eliason that BestSelf did much more than cross their fingers and hope backers liked their project. “You won’t get featured on the front page [of Kickstarter] if you don’t have that initial surge of sales, and the best way to get that initial surge is to build a list of people who can’t wait to get it,” she tells the interviewer.
First, the business grew its email list to 3,235 people using strategies like giveaways and upgrades which were advertised in ads on social media. These emails and ads linked to a landing page where potential buyers could learn more about the product and when the Kickstarter campaign would launch. On top of this, Lavery and her business partner Allen Brouwer also developed shareable content, promoted the product on websites geared toward entrepreneurs, and personally reached out to their supporters. Every post, article, and email had a Call to Action (CTA) that grew their email list so they could continue raising awareness about the launch.
When their Kickstarter campaign went live, the company’s backers raised $322,695. This was $307,695 dollars more than the initial goal of $15,000. It goes to show a well-formulated launch plan is one of the best ways to ensure a project’s success.
4. Develop an Engaging Project Page
After building a strategic plan that aligns with the launch of your project, start creating a project page. Do this at least one month in advance of your launch date. Elevate the success of your project with professional looking copy, images, and videos that potential backers will see. As graphic designer and art director Paul Rand once said, “Design is the silent ambassador of your brand.”
More than likely, this will require an investment. For example, it can be money well spent to hire a designer to create branded images of your product or a videographer to create an “explainer” video. Also, consult with a copywriter to lay out a project page similar to a professional sales page, as many successful campaigns have done. The better developed a project is, the more likely it is that backers will want to support it.
Additionally, check out Kickstarter’s most backed projects of all time. There is clearly a formula for success. This typically includes a professional product image, “How It Works” copy with parallel images, cohesive branding, clearly stated goals, an origin story, and well- defined pledge tiers with attractive rewards.
5. Reward Backers With a Positive Emotional Brand Experience
People offering money toward a Kickstarter project want to know they played a part in the success of an entrepreneur they believe in. Creating an emotionally stimulating brand experience is one of the best ways to gain loyal supporters. This means exchanging backers’ donations for something of value that extends beyond prizes and discounts.
As reported by CrowdCrux, David Iaituri raised almost $200,000 on Kickstarter by going “to extra lengths to involve backers in his project, from posting images of the orders being shipped out, to naming product parts after his early supporters. He likened running a successful Kickstarter campaign to how restaurant-goers love to watch Japanese Hibachi chefs cook. The food and atmosphere must be worth the money spent, but it’s also about seeing a performance.” Integrating backers into a brand’s development is a great way for them to feel they’re part of supporting the company in real-time and making a difference in creators’ lives.
6. Set Up Payment Information to Receive Funds
A project cannot launch without a way for Kickstarter to directly deposit funds into the bank account of an individual or business. Before taking the project live, visit the “Payment” tab on your project draft page and enter your banking information. Should projects meet their end goal, Kickstarter funds will appear approximately two weeks from the deadline date. Depending on processing, this could take longer. Kickstarter advises those who don’t see payment appear within three weeks to directly contact them.
7. Launch the Campaign
After your project page is perfected, choose your funding goal and set a deadline. Here are a few important things to note before completing this step. First, the most successful projects do not extend past 30 days. You have a better chance of reaching your goal by not extending the deadline to 60 days. Additionally, Kickstarter projects with higher funding goals are typically more successful, while those that aim to raise less than $1,000 fail more frequently.
Next, the success of a campaign is usually determined within the first 48 hours after a project goes live. Monitor your page to see if it’s gaining traction. If it isn’t, edit different parts of the page to test what works and what doesn’t. Editable sections after a launch include the project’s title, category, description, image, video, FAQs, and profile bio. Remember, even if you don’t meet your goal the first time, you can always try again. All you need to do is implement what you learned and relaunch the campaign.
Finding the Right Type of Funding for Your Business
While Kickstarter is a great way to creatively finance an entrepreneurs’ products and services, it isn’t the best fit for everyone. In fact, according to the raw data displayed on their website, more than 300,000 projects have been unsuccessfully funded. This is far more than the 195,000+ projects that have been funded. Yet, the pros outweigh the cons when it comes to giving it a try. First of all, if you meet your goals, your business gets the capital it needs to launch. Secondly, it’s an effective way to build a loyal fan base interested in helping your company succeed. And don’t forget about one of the most important benefits: creators don’t have to pay back any of the money they raise. It’s a perk not provided with traditional forms of funding.
Still, the most successful projects require an initial investment in professionally designed product images, branded assets, and copy. For those who have no financial room to spare for these expenses, launching a successful Kickstarter project is unlikely. Furthermore, since any money received is treated as income which the recipient must pay taxes on, it is important to consider this before deciding whether choosing Kickstarter is a good move. Finally, funding isn’t the only key to a business’s success. If a new entrepreneur chooses instead to receive capital from an angel investor or venture capitalist, they are more likely to also receive the mentorship and guidance that will benefit them and their new business.