Figuring Out Your Project’s Funding Goal

When you’re setting your crowdfunding budget, it’s easy to fall into some traps.

It needs to walk a line between being achievable, while still being able to complete your project’s goals.

A budget is absolutely mandatory for crowdfunders. People are trusting you with their money, and it’s fair they want to know what you’re planning to spend it on.

As much as I believe that the biggest benefit of crowdfunding comes from the crowd, rather than the cash. You wouldn’t be here if you didn’t need the cash.

It can be a bit of a catch-22.

If you ask for too much, you risk falling short and getting nothing at all.

If you don’t ask for enough, you shoot yourself in the foot. You won’t have enough capital and might fail to achieve the very goals you set out to achieve. And you might gain an angry mob in the process.

So let’s look at a few tips for setting a budget that will achieve your goals, without ruining you.

Get yourself a pen and paper (or a spreadsheet if you would prefer). Let’s go!

1. Set the right target

You have a number in your head, I know you do. Write it down, call it your Draft Funding Goal.

Mary wants to open a bakery. She has a Draft Funding Goal of $20,000 to get started.

Now, write a list of all the things you plan to do with your Draft Funding Goal.

Put a price on each of those things.

It is worth doing some research and understanding current, actual costs here.

Commercial kitchen rental – $500 per week x 4 weeks = $2,000
Ingredients and supplies for the first month – $400 per week x 4 weeks = $1,600
Packaging for products and storage containers – $1,500
Stall space in a pop up food hall – $250 per week x 4 weeks = $1,000
Branding, marketing – $300 for signage, $200 for Instagram advertising = $500
A vehicle to transport the goods between the kitchen and food hall: $10,000
Mary’s rent – $300 per week x 4 weeks = $1200

When you add everything up, what’s your Funding Goal looking like? Did it get higher or smaller?

Mary’s wishlist adds up to $17,800

That’s pretty close when we add in reward costs and PledgeMe fees, which we’ll do a bit later on.

Minimum Viable Product

Now, look at that list and rank the items on it by importance. Do you need to do all of it to achieve your goals? Or are some things nice extras?

What you’re looking to identify is your Minimum Viable Product. A bare-bones offering.

It’s the least you can ask for to get this thing off the ground. No bells and whistles, just your idea as a thing, alive in the world.

It’s version 1. You can build on it later if you want to.

Cross out anything off your list that you don’t need to do to get to your Minimum Viable Product.

Move them to a new list, and call it “stretch goals“. Worry about them later.

Marketing should go into the stretch goals list. You’re going to find running your PledgeMe campaign is a marketing activity in and of itself.

If you’ve built in a profit margin, cross that off the list entirely. Profit margin is better built into your rewards where it is scalable, and subject to supply and demand.

You might find as you go about finding your first supporters that some of them will be able to offer help here too.

Mary decides not to ask her crowd to pay her rent and will pay that from her savings.

Her cousin offers her an old van that works for moving her goods when she tells him about her plans.

This is your Base Budget. That’s the amount you actually need to raise.

Mary’s Base Budget is $6,400

2. Cost your rewards

Write out each reward level, and how much you plan to charge for it.

Box of cookies – $25
Invite to a catered picnic – $50

Now work out how much each reward is going to cost you to create, above and beyond anything that is already covered in your Base Budget.

In Mary’s case, her ingredients and packaging are included in her Base Budget.
She wants to hire a microphone for her picnic so everyone can clearly hear how much she appreciates them, which will cost $100.
Mary adds the microphone hire to her Base Budget, bringing it to $6,500

Thinking about postage

Next, for each reward level, figure out how much it will cost to send to an urban address in New Zealand.

It’s worth spending some time figuring out postage. It’s a fixed cost that you have no control over. Any mistake will be multiplied by every supporter who receives a physical reward.

That can add up fast! Better to over-research than under-research.

The cookies cost $7 to post, but Mary knows many will be happy to pick them up from her stall. Or she can deliver locally in the van.

If 50 boxes of cookies are available, and 30% of backers don’t live locally, then means 15 packages for Mary to send.
15 x $7.00 = $105.00, or around $2 per box averaged over all 50 boxes.

I recommend you try to absorb this postage cost where you can, rather than asking pledgers to do maths and tack on a postage fee.

If you’re asking people to add postage onto every pledge, you might find that affects conversion.

Mary decides that the $25 pledge is enough to cover the out-of-town supporters.
People attending a picnic have no postage costs.

You can ask people with Rural Delivery addresses to add extra to their pledge to cover their surcharge (approximately $5) – that’s harder to predict and absorb.

People who have to pay an RD fee (like I do) tend to understand it’s an additional cost of our lifestyle. But they will appreciate and take advantage of it if you forget to include, or decide to absorb this cost as well.

3. Remember the fees

PledgeMe will take 5% from each pledge they process before it arrives in your bank account.

You’ll need to account for this now to make sure it doesn’t leave you short.

Mary’s Base Budget is $6,400 + $100 reward cost to hold the picnic.
6,500 x 0.05 = $325
Mary’s Funding Goal should be at least $6,825.
She decides to round it up to $7,000 in case any unexpected costs arise.

Between talking to her crowd and thinking things through, Mary has reduced her Draft Funding Goal from $20,000 to a fully-costed Funding Goal of $7,000.

Mary feels that could actually be achievable and is a little less intimidated by the new number!

Takeaways

There’s an art to setting the right funding goal. The trick is to create rewards that cost little or nothing over and above your project goals to deliver to backers.

There is real value in digital rewards and experiences for this reason. The best reward will cost absolutely nothing beyond your base cost to create and fulfill.

Remember that you are making a promise to your backers that you can do the thing for this amount of money. Also remember that the less you ask for, the more likely you are to get it.

Finding that balance is the art.

Do you have rewards that are going to cost you additional money beyond your Base Budget? Can you eliminate them for lower-cost rewards?

If not, you could end up falling into the trap of spending your funds to fulfill your rewards, rather than getting on with your plans.