Expert Thoughts

Here’s How I’m Spending the $589,660 I Raised on Kickstarter

Lessons in crowdfunding with Erik Dahlman

screen shot 2014 03 23 at 11 57 13 pm Heres How Im Spending the $589,660 I Raised on KickstarterI worked for many years in a corporate environment before starting Albino Dragon. In that time there was a vicious animal that always found its way into projects: scope creep. Let’s look at the what Wikipedia has to say about it first:

Typically, the scope increase consists of either new products or new features of already approved product designs, without corresponding increases in resources, schedule, or budget.

Sound like a project you may have backed recently? This blog post is the first part showing how some of that scope creep affected the final numbers.

The Money

Let’s be honest, in a post about a Kickstarter project that raised a ton of money (we funded for $589,660), you want to hear about where it went. You probably think the project creator went on a fancy vacation or bought a nice piece of real estate somewhere. And you would be terribly wrong, here is how the whole thing went down…

Total Costs to Date: $572,499

screen shot 2014 03 23 at 11 58 00 pm Heres How Im Spending the $589,660 I Raised on Kickstarter

The Name of the Wind started as a modest project, a deck of cards based on Patrick Rothfuss’s fantasy novel of the same name. We had several tiers in which you could buy decks, and only decks. This was a good premise, and if we would have started with just this, we would have been fine.

We had planned our standard stretch goals for coins, poker chips, and custom seals. We knew how to make these so there wasn’t much guess work there. But even with that there were some issues. I’ll focus on the financial issues we encountered for each stage of the project below.

Fees

Pretty straight forward. There is a certain amount of attrition in a project so the total amount raised isn’t necessarily what is shown at the end of funding. Roughly 1% of backers have failed credit card transactions and there is quite a bit lost to Amazon and Kickstarter fees right off the top.

As with any licensed property, there are also licensing fees. For every new Name of the Wind item we created we had to pay licensing fees. Also pretty straightforward and an expected cost of doing business.

Advertising

During the course of the project we spent money on traditional ads, utilized a couple of marketing firms, and printed some promotional inserts to mail with each reward package sent out.

One of the unexpected expenses here was our mailing list which grew to about 10,000 people. This actually raised our monthly fee with our provider to about $75 per month.

Shipping and Fulfillment

This is always the part of the process that catches most first time creators by surprise. Having fulfilled a project that shipped over 3,000 packages in the past, I knew that I didn’t want to get anywhere near fulfillment on this one so we used a fulfillment company.

The benefit of using a fulfillment company is that you don’t have to individually pack 11,334 orders yourself. You can go out and run your business and do business-ey things, like write blogs.

One of the cons of using a fulfillment company however, is that it is more expensive. Really this becomes a judgement call of how much your time is worth and how quickly you would like to get packages out. We could have either:

A. Saved the money in fulfillment and spent about six months packaging and shipping ourselves. This would be a soul-sucking full time job so there is also the opportunity costs associated with not having the ability to complete any other tasks.

B. Pay a processing fee for each package and trust the fulfillment center to do the best job packaging and quality checking each reward sent.

You may be able to tell that I’m a little biased. We went with B.

Art Costs

As many have noted, the art on The Name of the Wind is really top notch. The original budget accounted for about three months to complete the work for this project. After adding new artwork for magnets, bookplates, original art prints, etc that pushed the actual timeline to almost double that.

Toward the end of the art generation phase, we ran into issues receiving completed art assets for the project. This shifted our manufacturing timeline because we needed these assets before seeking licensing approval and placing our orders. In several situations this resulted in paying additional fees to make up the time.

There were also standard art fees associated with Bicycle to produce soft proofs, graphic design, and some enhancements to the original art that were needed during the manufacturing process.

Conventions

This would normally be lumped in with operating costs (or even advertising), but it was such a large amount that we broke it into its own category. For a gaming company like ours, it’s essential that we attend many of the major conventions during the year like Gencon. This is where we have the opportunity to show off games and products and try to sell as much inventory as possible.

The hardest part about conventions is that you have to pay for them a year in advance to get a good spot. Well that and the fact that convention services are basically a legal form of sodomy. I don’t know anywhere else I would be allowed to charge $150/day for a sub standard Internet connection.

Operating Costs

The idea of running a Kickstarter as a care free individual is a nice one, but not very practical. I would suggest that anyone taking money to produce a product or service at a minimum create an LLC to give you at least some layer of personal protection. People will always be nice to you when things are going well, but it always helps to be prepared for when they’re not.

The cost of doing business trickles all the way down to even the little things like that pirated copy of Photoshop you may be using. We run everything above board which means operating costs include salaries, taxes, and medical benefits for all of our employees. We also pay rent, utilities, legal fees, software licenses, and need hardware like computers and drawing tablets.

Manufacturing (Hard Goods)

These are all of the items that we produced for the project. We started with just decks, but we ended up with oh so much more. This is by far the biggest category when it comes to expenses. When I was running this project, I often referred people back to a very good article written by Fred Hicks.

Much like him, we didn’t turn a profit from the pledges themselves. We made enough to manufacture what we needed for the rewards and a little extra inventory that we’ll hopefully turn a profit on.

Art Prints

The Court Card Print was by far the worst product that we made. It reduced the numbers of the other prints we sold (including potential uncut sheet sales, an almost identical product), cost more to print, and required a larger tube than we normally use.

We created more unique prints like the Albino Draccus. Prints that cost more to produce than what we actually sold. By creating so many variations we also lost some economies of scale by not being able to just print a lot of a few different ones. Not to mention the added headache of additional SKUs and inventory management fees.

Coins

These went as planned except for the Be Wary coin. The original design actually called for two different metal colors which we hadn’t done before. This increased our cost on those coins by about 25%. Before you start throwing out a lot of shiny stretch rewards, make sure you inquire about product variations when talking to your vendors before offering something different.

Shirts/Jots

Be very careful when dealing with licensed products. The licensor has the final say on these and you want to make sure you know the terms of the contract before offering certain products and factoring your manufacturing costs.

For past projects we had ordered similar quality shirts at $3-6 each. However, because we were locked into purchasing directly from our licensor, our shirt costs were about $30,000. This was an unexpected expense at the end of the project given that we had expected a similar price point as what we had paid in manufacturing the same item previously.

Magnets

During the project, we offered these at $6 each or 3 for $12. When setting up the pledge manager we thought it would be too difficult to enforce this so we said we would just go with $4 each per magnet across the board. This also ended badly for us when the magnets we ordered ended up with a higher cost than the original estimate given.

We also created so many different magnets that we once again lost some of the benefits of buying higher quantities of just a few designs. There was a change order fee for each design and the time in approving final proofs was much longer. You’re probably seeing this theme over and over at this point: less is more.

Wallpaper PDF Pack

This was offered as a stretch goal but ended up being another bad move. We spent time creating high quality art that wasn’t ever fully used. While it might have been another print, that would have resulted in the same problems outlined above: more SKUs and more varied inventory.

Bookplate

This ended up being one of the hardest items to deal with. We didn’t receive the artwork until mid October so that it could be sent over to the printer. The product the printer returned was completely unusable; they basically printed the bookplate image on a giant sticker. What was I supposed to do with this, cut out thousands of them by hand with a pair of scissors?

If we would have just been able to order individual bookplates as stickers it would have been far easier. The author of the project had requested that we provide sheets of bookplates though since it would make it far more efficient for him to sign them. We ended up having to have a special die plate created to accomplish this which cost more time and money than we had originally planned for.

Dice

We ordered the dice we originally put up as a reward and then our supplier informed us that they had the wrong amount of stock. So we had to re-order again with new stock to make sure everything was the same, leaving us with a smaller variant of inventory that we couldn’t use and some backers that were disappointed there was a change to the final product.

Leather Bags

Fortunately, we knew some folks that are super detail-oriented that we knew could make these. They were easy to work with and more than reasonable in their rates. One of the few things that went as planned and according to budget.

Jewelry

This became one of the more complex add-ons for our project. Our overall margins were pretty low and the additional effort and time to manage these didn’t outweigh the additional dollars that were brought in as a result. Our vendor didn’t realize exactly how popular these would be and the initial estimate of about a month grew to several months when the final order was placed.

This brings up a good point about scalability. Make sure that in a best-case scenario for your project that your vendor will be able to scale up if needed without impacting the delivery date.

Decks

The first mistake we made was starting to add in additional art with inverse images. This required two images per card instead of just one. As a result this added more time and cost to our art budget.

The second mistake with the decks was making too many variants. Creating an unlimited version made sense so that we could order more inventory to sell after the project, but the magic/trick deck specifically was a colossal time sink. The proofing process on that alone was ridiculous as we had to proof not only the faces, but the card backs as well while making sure that they matched. This is the equivalent of the amount of work on two of the other decks to create a very specialized niche product that will be difficult to sell in a retail environment.

What’s not accounted for

The elephant in the room for us is taxes. You can bet Uncle Sam is going to want a good percentage of what we made. Everyone says, “you shouldn’t have to pay, you didn’t make anything”, “on a cash basis you can still count that money as a deposit since it didn’t ship until 2014”. These all sound like great things, but this assumes that we didn’t make any money on our other product lines and somehow I think if it was that easy, nobody would pay taxes.

We also have quite a few miscellaneous expenses that haven’t been factored in. These are anything from the prototypes we create for our next project to administrative fees we haven’t been hit with yet on fulfillment.

Summary

You can see the difference between our funded amount and the total that’s been paid out is about $17,000. The Albino Dragon team worked at least 3,000 hours on this project which would be about $5.60 an hour if we miraculously don’t have to pay taxes or incur any additional expenses.

If we would have kept our original scope we wouldn’t have funded as much, but our margins would have been much higher. Instead, we created a lot more work than necessary for ourselves and pushed our fulfillment time out by six weeks.

The big lessons we learned on this one:

  • Limit the number of products offered. This will make dealing with vendors more manageable by reducing the number of contact points, generate higher margins, and limit potential delays.
  • Don’t provide deep discounts to create more pledges. It’s okay to provide a discount in return for helping a product come to light, but too much of one will result in a lot of work with little to no return.
  • Provide rewards in easy groupings for shipping. Allowing add-ons creates a lot of unique pledges that complicates your fulfillment at the end of the project. Bundle your add-ons whenever possible. The caveat to this is that it increases the delay of the entire group if one item takes longer to manufacture.
  • Watch out for product variation. What seems like a small difference can really add up both in manufacturing costs as well as added headache when it comes time to differentiate between each product in the warehouse while doing fulfillment.

We took all of these lessons and tried them out on our current project, Dragon Crate. This is our attempt at a one size fits all pledge and so far it’s proving successful. As of this writing we are more than 75% funded with plenty of time to reach our goal.

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Erik Dahlman is a serial entrepreneur that has crowdfunded over one million dollars over eight projects. He often shares his experiences on albinodragon.com to help creators avoid some of the same pitfalls. 

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