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How Much Does Crowdfunding Really Cost?

Posted in Crowdfunding by IgnitionDeck

We’re all familiar with the old adage “you’ve got to spend money to make money.” Unfortunately, many newbie crowdfunders seem to forget this reality, and it’s easy to understand why. After all, you wouldn’t be asking others for cash if you were swimming in it, would you?

Despite the revolutionary advantages crowdfunding provides – increased accessibility to investors, reliable viability testing, and an incredibly fast turnaround – a successful campaign does require an upfront investment. Whether you’re choosing to self-host with a platform like IgnitionDeck Crowdfunding, or using a third-party crowdfunding service in exchange for a percentage of your earnings, the “hidden costs” of running even a simple crowdfunding campaign should be carefully considered.

In this post, we’ll go over some of the real-world costs involved with developing a successful crowdfunding campaign. We’ll also discuss some of the things you could potentially do yourself, as opposed to hiring out, that could save you money.

The true cost of crowdfunding.

Step 1: Determine Profit Sharing Costs

The first step in evaluating the pros and cons of hosting a campaign on your own site versus joining forces with a third-party provider, is to evaluate profit sharing costs. While it used to be that partnering with companies, such as Kickstarter, Indiegogo, and GoFundMe were your only options, there are now a number of options out there for those looking to crowdfund their next project.

Thanks to the invention of self-hosted crowdfunding, you can now keep 100 percent of your fundraising profit (after paying a one-time fee ranging from $79 to $149) by hosting the the campaign on your own WordPress site, as opposed to begrudgingly divvying up a sizable chunk of your earnings with another host.

The three crowdfunding platforms mentioned above all have their fees set at 5% at the time of writing. That means that if you successfully raise $25,000, you’ll lose $1250 in fees to the website. With IgnitionDeck, you’ll get to keep every dollar.

But what if, for whatever reason, you come up short? What if you don’t make your goal?

If you use Kickstarter, your investors keep their money and you end up empty-handed. With a ‘fixed funding’ project Indiegogo will refund your investors and you finish with nothing or they’ll charge you a 5% fee on every dollar raised so far with ‘flexible funding’ projects. GoFundMe operates quite similar to Indiegogo. With IgnitionDeck, you won’t be charged anything and you keep every dollar.

Obviously, when it comes to profit-sharing costs, self-hosted crowdfunding offers the best option with “zero.” But that doesn’t mean it’s for everyone. Keep reading to determine what’s right for you.

Step 2: Evaluate Payment Gateway & Processing Fees

Though you may be unfamiliar with the term, you actually use payment gateways all the time! If you’ve ever purchased something online – a Joe-bro’s eyelash; a crazy, cat-lady action figure or something really out there, like a Netflix subscription – you have likely benefitted from a payment gateway.

These e-commerce applications authorize, facilitate and protect the transfer of payment information between a payment portal (like your campaign website) to what’s called “the front end processor” (eg. the bank). These gateways encrypt private information before passing it securely from the customer to the merchant to the payment processor. Sound confusing? It’s basically just the third-party service provider that transfers the money from buyer to seller.

Again, your payment processing fees will vary depending on how you host your campaign. For example, Kickstarter, charges a variable 3 to 5 percent processing fee per transaction, whereas Indiegogo charges a flat 3 percent + 30 cents per credit card transaction. If you’re self-hosting with IgnitionDeck, we recommend using Stripe to process your credit card transactions. They have a solid payment gateway and can receive payments from over 100 currencies from around the world. Their fees are different depending on which country you are from.

Sticking with our example of a $25,000 campaign goal, you could expect to fork over $750 with a 3 percent processing fee.

Step 3: Evaluate Website Development Fees

If you’re the “hands-on type,” you may want to develop your own site to save yourself from paying out those profit shares we just discussed. With just a basic understanding of WordPress, you can buy a premade theme, build your own site, set-up IgnitionDeck and be campaigning fairly quickly.

If you’re not familiar with WordPress, or how to use shortcodes, but have a DIY-attitude, there are plenty of free resources you can consult to teach yourself.

Not feeling too tech-savvy? Want something super customized? Or just short on time?

Your options are hiring a developer or going with a third-party crowdfunding host, as discussed above. Obviously, if you’re going with a third-party platform, there’s no need to worry about site development costs as it’s done for you. While this can be a huge boon to some projects (think lower budget projects in the $1000-$3000 range), it can be a deterrent to others.

The biggest downfall to NOT hosting your own campaign (aside from splitting the “final pie” and missing out on SEO traffic that could be boosting your brand’s reputation) is the lack of flexibility in designing an “eye-catching” page. Put simply, you risk blending into the background by using the same format as every other crowdfunder in the marketplace!

Not only can you get more creative with self-hosted crowdfunding, you can also format your message in alignment with direct-response marketing principles, thus optimizing your page for conversion. Oddly, most 3rd-party hosting options don’t seem to be set-up with this in mind. If this type of personalization is attractive to you, and within your budget, it might be worth it to partner with a developer to create something amazing! Here’s a rundown of the associated self-hosting costs you could pay:

Domain Registration: $10
Web Hosting: About $15/month or $120 for a year.
Plugins: Up to $200
SSL Certificate: Average $50
Developer: Between $1,200 – $4,000*
TOTAL: About $380 without customisation or anywhere from $1500 with custom work

*Typically, developers charge per hour, based upon the amount of time required to design, build and test a site. Fees vary dramatically depending upon whom you’re hiring and what you’re asking for. Freelance web developers typically charge between $25 and $100 an hour, while web agencies can charge anywhere from $60 to $250 an hour.

Already have a basic vision for the site’s design (and preferably, a solid knowledge-base of marketing principles)? Create a visual “mock-up” in a program like Adobe InDesign, before presenting it to your developer. This could reap significant savings.

As outlined above, self-hosting can be surprisingly affordable if you’re willing to “roll up your sleeves” and do a little work. Especially considering, you are “investing” the profit-sharing funds you would have given to a third-party in your own brand. But only you can decide if that’s a project you want to take on.

Step 4: Evaluate Content Production Fees

This is kind of obvious, but… You have to give them something worth engaging with! Here we’re talking about your site’s video and written content. While it’s completely possible to bootstrap this part, it’s more likely you’ll need some help. Here are the possible expenses involved:

VIDEO
A video is essential! According to ReelSEO, 73 percent of consumers are more likely to make a purchase after watching a video. And using video on landing pages increases conversion rates by as much as 80 percent. The challenging part? Deciding how pro you want to go. Here’s a rough breakdown of what costs you can expect for a 2-3 minute video:

Amatuer: FREE with basic consumer video equipment
Semi-Pro: $200-$750; more sophisticated tools & experience
Professional: $1,000-$3,000; experienced agency production
Premium: $5,000-$50,000; motion graphics & grade-A storytelling

Again, the clearer you can get on what you want ahead of time, the more money you will save and the better result you will obtain. Always ask to see their portfolio of past projects and weigh your options based on what you can afford.

COPYWRITING
Having great content is deceptively simple. It conveys information clearly, thoughtfully and with the least amount of words possible. If you don’t have a skilled wordsmith on your team, consider hiring a copywriter to help flesh out your messaging. You’ll need written content for your page and spoken content for your video.

Even when working with a professional videographer, you will be responsible for providing core soundbites and/or a complete video script. Freelance copywriter fees vary greatly, between $35 and $120 an hour on average. Here are some rough estimates:

$200 to $750 for a 2-3 minute video script
$200 to $1,000 for basic campaign page copy

When on a tight budget, this is often the area most crowdfunders skip — which is fine. Just make sure you take the time to flesh out a clear, powerful message. You can do it; it just may take longer than you’d prefer!

Summary

In conclusion, how much you spend on your crowdfunding campaign can vary dramatically depending on how much you’re willing to do yourself.

Take the following example scenarios:

SCENARIO 1: $25,000 campaign goal, hosted via Kickstarter
-$1,250 profit sharing fee (at 5 percent)
-$750 processing fee (at 3 percent)
-$40 pledge fee (at 20 cents a pledge for 200 pledges)
-$1,000 semi-pro videographer fee
-$750 copywriter fee

The total expenses comes to $3,790 which leaves you with $21,210 of your total goal.

SCENARIO 2: $25,000 campaign goal, self-hosted

-$130 domain, hosting costs (free if you already have a website)
-$50 SSL certificate
-$100 self-hosted crowdfunding plugins (one-time fee)
-$725 processing fee (at 2.9 percent)
-$60 pledge fee (at 30 cents a pledge for 200 pledges)
-$1,000 semi-pro videographer fee
-$750 copywriter fee
-$2,000 web developer fee

Total expenses for self-hosted comes to $2,815 without paying a developer leaving you with $22,185. As mentioned above, a developer will take about $2,000 from that total bringing the total to just over $20,000.

As you can see, significant savings can be had with a “can do” attitude and some basic programming skills. Not to mention, additional investments could potentially be gained by the construction of a more creatively designed, self-hosted page. Ultimately, it’s important to get honest with yourself about what you feel comfortable with and capable of doing. We recommend saving this article, revisiting it and using the information provided to create a couple of “mock spending scenarios” for yourself.

If you’re ready to start your own self-hosted crowdfunding campaign, let us know and we’ll guide you through the process!