The Entrepreneur's Guide to the Fees on Crowdfunding Platforms

crowdfunding fees on kickstarter and indiegogo
Zack Miller, About.com Crowdfunding Expert

Kicking off a crowdfunding campaign requires some smart planning. Of course, it's worthwhile to do the 6 essential things you should complete before you begin crowdfunding.

And whether you have a lot of money to promote your crowdfunding campaign or you're running your crowdfunding campaign on a budget, it's important to understand how the crowdfunding platforms like Kickstarter and Indiegogo charge.

Because no matter what, you're going to end up pocketing less money than you raised and that can impact your bottom line (especially if you're producing some type of physical product).

Crowdfunding business model

Rewards-based crowdfunding is one of the largest forms of crowdfunding and one of the most profitable. These websites don't charge the people who donate money to back projects. The way crowdfunding platforms make money is by taking a percentage of the money that is raised during the course of a project. 

You'll also have to pay a credit card processing fee that is upwards of 3% of each transaction. Again, this eats away at how much money you actually bring home at the end of your crowdfunding campaign.

Let's look at how the major platforms charge, so you can begin to plan your crowdfunding campaign and budget accordingly.

Learn more about Kickstarter's fees

Kickstarter is the dominant player in the crowdfunding space.

As such, it's hosted over $1.5 billion in crowdfunding pledges since it launched.

Here's how Kickstarter's fees (at least in the US) break down:

  • Kickstarter's fee: 5% of total funds raised
  • Credit card processing fee: 3% + $0.20 per pledge

    Pledges under $10 have a discounted micropledge fee of 5% + $0.05 per pledge

    Source for Kickstarter's fees

    So, let's do a quick numerical example. Let's say you crowdfund a nice round dollay number for your widget. Let's say it's $100,000.

    • Kickstarter fee: Now, Kickstarter is going to take $5000 in fees (5% of $100,000).
    • Credit card processing fee: Also, 3% of your total is going to go to the credit card companies - that's $3000.

    The fees you'll pay will actually be more than $8000 ($5000 + $3000) because there is a small fee of $0.20 per pledge. But let's say that you have 1000 backers, that would tally up another $200 ($0.20*1000). 

    So, you'd end up with less than $92,000 on a campaign that raised $100k on Kickstarter.

    Learn more about Indiegogo's fees

    Indiegogo was the pioneer in the rewards crowdfunding space and continues to raise tons of money for crowdfunding campaigns all over the world. 

    The interesting thing about Indiegogo is that this crowdfunding platform offers 2 types of campaigns: Fixed and Flexible. Fixed crowdfunding means that a campaign has to hit its original funding goal.

    If it does, money changes hands. If it doesn't, no transaction takes place. Flexible crowdfunding means that the person running the crowdfunding campaign gets to keep the money she raises, regardless of whether the funding goal is reached.

    Here's how Indiegogo's fees break down in each category:

    Fixed Crowdfunding (or all or none)

    • Indiegogo's fee:
      • If the funding goal is reached: 4% of total funds raised
      • If the funding goal is NOT reached: 0% because money is refunded to backers
    • Credit card processing fee: 3% - 5%

    Flexible Crowdfunding

    • Indiegogo's fee
      • If the funding goal is reached: 4% of total funds raised
      • If the funding goal is NOT reached: 9% and you keep what you earned
    • Credit card processing fee: 3% - 5%

    Source for Indiegogo's fees

    As you can see, the fee structure that Indiegogo employs is somewhat similar to Kickstarter's. It's cheaper on the platform fee for a successful campaign (by 1% -- or 4% versus 5%) and may be more expensive on the credit card.

    Kickstarter doesn't offer a flexible funding option, so there isn't anything to compare to. But objectively, it's more expensive to go the flexible route and fail than it is to succeed. That's an incentive to make sure you create a realistic funding goal.

    Summary

    Crowdfunding offers an incredibly powerful way to raise money efficiently while simultaneously creating a crowd of early customers backing your product. But, raising the money is just the beginning of the crowdfunding campaign. Next, you need to produce and ship your product -- an expensive endeavor. Add to this the fees you need to pay out to use platforms like Kickstarter and Indiegogo and you see how much pressure it puts on the crowdfunding process (and how important proper budgeting and planning is!).

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