Kickstarter, a business crowdfunding platform launched in 2009, has helped over 150,000 businesses and projects collectively raise $4 billion in funding. Small businesses that are successful on Kickstarter often go on to build a loyal customer base and earn positive social media and press coverage. And unlike a business loan, the money you raise on Kickstarter is completely yours to keep.
Kickstarter can be an excellent platform for small business owners with an interesting project and compelling story to share. However, it certainly isn’t as easy as creating a Kickstarter account and seeing the money pour in. You need to invest time and resources into your Kickstarter campaign and think strategically if your campaign is to be successful.
The truth is that only about 37% of business owners who launch a Kickstarter campaign reach their funding goal. Read this guide to learn how to stand out and join the ranks of successful Kickstarters.
The actual mechanics of how Kickstarter works are pretty easy. Any professional in the following industries is eligible to launch a campaign on the platform: arts, comics, crafts, dance, design, fashion, film and video, food, games, journalism, music, photography, publishing, technology, and theater. Many small businesses can fit into one of these categories.
That said, one thing to keep in mind is that the Kickstarter platform is designed to help you raise money for a specific project. For example, you can raise funds to launch a new product line, purchase materials and supplies, or open a new location. You can’t use Kickstarter to raise funds to start a business, without a specific goal in mind.
No matter which industry you fall into and no matter what your project is, you’ll need to understand some basic Kickstarter terminology before you start using the platform:
Once you have a handle on the basics, you’ll need to follow these steps to launch your Kickstarter campaign and raise money:
To learn more about Kickstarter and feel more prepared before launching your project, it’s a good idea to browse successful projects. This can help you find patterns of what has worked in your industry and what hasn’t.
Anyone who is 18 years or older in one of the creative industries mentioned above is eligible to use Kickstarter.
There are, however, a few rules that you’ll need to comply with:
Kickstarter uses an all-or-nothing funding model. That means that if you don’t have enough pledges to reach your funding goal, you don’t receive any funding. And if you receive funding that exceeds your goal amount, you get to keep the extra money.
Playing by the Kickstarter rulebook is important. If you violate any of these rules, you could get yourself banned from the platform or potentially expose yourself to legal action from backers.
Kickstarter makes money by taking a cut from the funds that backers pledge to you. If you’re unable to fund your project, there are no fees, so you can try Kickstarter risk-free. If your project is successfully funded, Kickstarter will collect a 5% fee. Plus, credit card processing fees between 3% and 5% go to Stripe, Kickstarter’s credit card processor.
Pledges under $10 have a discounted total fee of 5% + $0.05 per pledge, which is Kickstarter’s way of encouraging creators to raise small amounts of money from a large number of backers.
Remember that there are also shipping fees if you’ll be delivering a tangible product to your backers. These are accounted for in backers’ pledges. In other words, if a backer is pledging $10 but your shipping fees to deliver the product to them are $8.95, then they will actually pledge $18.95.
Launching a Kickstarter campaign definitely has perks, but it’s not a good fit for every small business owner. Nearly two-thirds of businesses fail to achieve their Kickstarter funding goal. You should carefully weigh the pros and cons before launching a campaign.
As mentioned above, Kickstarter follows an all-or-nothing funding model. That means that you need to gather enough support and momentum to reach your full fundraising goal. Here are some best practices to successfully fund on Kickstarter:
The best way to succeed on Kickstarter is to build up a network of supporters before you even launch your campaign. People prefer to contribute to campaigns that are already receiving engagement, just as you’re more likely to “like” something on Facebook if others have already liked it.
Building up your own network of friends and family is key. They will probably be the first backers to pledge money in support of your project, and they can motivate their own networks to contribute as well. Rachael Taylor-Tuller, founder of Lost Peacock Creamery, raised money on Kickstarter to build out a portion of her goat dairy farm.
“I had a large social media following before I launched my Kickstarter,” Taylor-Tuller says. “I gained followers all organically through blog and photo content. I never set out to purchase any followers or do any paid advertising. I don’t think anyone who donated wasn’t already engaged in my dream.”
Although you might not think of it this way, your Kickstarter campaign page is equivalent to pitching an investor to invest money into your business. The face you present to would-be backers matters. You should take the time to develop a compelling project description, post high-quality images of yourself and your product or service, and upload a video showcasing your work.
One thing that can really help here is to browse other successfully funded projects that are in the same industry. You should put your own unique spin on your project page, but exploration can give you a good idea of what types of textual and visual elements have received traction in the past.
A video is optional, but the success rate of Kickstarter campaigns with video is much higher than those without video. A video is also the first thing that appears on your project page. You don’t need to be a professional to make a good Kickstarter video. You can shoot a good video with your smartphone and from your own home or public space. Here’s a video from Kickstarter with more tips:
In order to succeed on Kickstarter, it’s important to come up with an attractive rewards structure and set a realistic timeline. Your rewards structure should incentivize backers, pique people’s interest, and make them feel like they are a part of your project. And rewards come in tiers, tailored to the contribution amount.
Rewards for product sellers are more straightforward than businesses that sell services or experiences. Sarah Council is a choreographer and the artistic director of a dance studio. She offers shoutouts on social media for her small-scale Kickstarter backers, dance studio merchandise for mid-tier backers, and show tickets for large-scale backers.
The timeline for your campaign should also be realistic. In most cases, campaigns that last 30 or fewer days are most successful because they create a sense of urgency among backers. You’ll also have to provide an estimated delivery timeline on rewards and provide regular updates to your backers on how you’re progressing.
A common mistake by small business owners is forgetting to factor in their own operating costs. When determining your Kickstarter fundraising goal, you’ll want to factor in all of the following business expenses:
As far as taxes go, a good rule of thumb is to add 20% to your estimated funding needs to cover the amount of money you’ll have to pay in taxes. Most of the other costs you can source from your financial statements or business plan.
Cheryl Sutherland, founder of journaling company PleaseNotes, says that small business owners should carefully calculate shipping fees in advance. Otherwise, you could end up with pledges that are too low to cover your delivery costs.
“Building out the shipping costs for each level on Kickstarter and needing to calculate costs for shipping internationally got me a couple times. There were definitely incidences of people’s shipping costs being more than their pledge!”
Once your Kickstarter campaign is over, keep your customers engaged. Provide regular updates on the platform about your company’s progress. And if there are any delays in delivering rewards to your backers, make sure you clearly communicate your timeline.
You should also have a solid marketing strategy ready to go when you’re done with Kickstarter. This should include social media marketing, offline marketing, influencer marketing, and other any type of marketing that gets you close to your customers. And if possible, try to avoid sudden price hikes after the Kickstarter campaign. More gradual increases could help customers adapt.
Otherwise, you risk your Kickstarter campaign being a one-time success. Patrick Hohmann, founder and CEO of Swiss watchmaker Werenbach, raised over $770,000 on Kickstarter.
“One of the biggest cons with crowdfunding,” Hohmann says, “is the low price of the items. Since products are sold discounted—sometimes even without taxes taken into account (as this may be a company’s first venture), the later market prices are perceived as ‘very high.’ This can frustrate potential customers down the line as they compare the prices to the pre-sale. It is also a reason why a crowdfunding campaign may not be an indicator for future business success.”
Given the amount of work that goes into a Kickstarter campaign and the fact that success rates are low, it’s best not to pin all your hopes for funding on Kickstarter. Rather, Kickstarter should be just one part of your overall financial and marketing strategy. You should also consider alternatives to Kickstarter, like business grants, business loans, raising money from investors, and other financial solutions.
In some ways, Kickstarter funds are like small business grants. There’s no debt or interest to pay back, and you get to retain full ownership in your business. Federal, state, and local governments, as well as nonprofit agencies issue grants to businesses. But, like Kickstarter, getting a grant is a highly competitive process. Most businesses aren’t eligible or lose out to other applicants.
In this case, business credit cards can offer a good alternative source of financing. Ordinarily, if you charge something on a credit card, you have to pay at least a minimum balance the following month. But some business credit cards offer an interest-free, 0% APR period during which you can charge money up to your credit limit without paying any interest.
Granted, this isn’t exactly the same as raising funds on Kickstarter. With Kickstarter, the only obligation you have is to make sure your backers receive their rewards. With a business credit card, you have to start paying back what you borrowed when the interest-free period ends. However, the interest-free period can give you some much-needed breathing room while ramping up your business.
The Blue Business Plus Credit Card from American Express offers a long 0% APR period on purchases—a full 12 months. There’s no annual fee on this card, plus you can earn 2x points on your first $50,000 in purchases. After the 12 interest-free months are up, your APR will set in at a rate that will depend on your creditworthiness and vary with the market prime rate, so be sure to see American Express’s terms and conditions for the latest APR information.
Kickstarter can be a great platform for startups and small businesses in need of funding. Not only can you get the money you need to grow your company (without incurring debt or giving up equity), but you can also expand your customer base. But this definitely is not a “get rich quick” strategy.
You should be ready to pour significant time and resources into your Kickstarter campaign before you launch, and after to keep the momentum going. The most successful small businesses use Kickstarter as just one part of an overall marketing strategy that works for their business model and industry.
Priyanka Prakash is a senior contributing writer at Fundera.
Priyanka specializes in small business finance, credit, law, and insurance, helping businesses owners navigate complicated concepts and decisions. Since earning her law degree from the University of Washington, Priyanka has spent half a decade writing on small business financial and legal concerns. Prior to joining Fundera, Priyanka was managing editor at a small business resource site and in-house counsel at a Y Combinator tech startup.