Understanding your pledge

The price you pay for the reward is called your pledge. In rewards-based crowdfunding, the reward is the product that is manufactured and shipped to the backer, for example a board-game or designer pen.

Key takeaways

  • Backers pay the 5% Kickstarter service fees.
  • Backers pay the 3-5% Amazon Payments fees.
  • The rest of the pledge goes to the project creator to cover business and shipping expenses.
  • Backers should apply some common sense when evaluating pledges and reward tiers.

What is included in the pledge?

The pledge against any reward covers the following:

  • 5% fee payable to Kickstarter;
  • 3-5% fee payable to Amazon payments;
  • VAT due on the service fees;
  • funds to project creator; and
  • shipping.

Backers cover the fees directly, because as per Kickstarter’s terms and conditions relating to service fees:

“Kickstarter and its payments partners will remove their fees before transmitting proceeds of a campaign. Fees may vary depending on region and other factors.”

Accordingly, when project creators set the price per reward tier, they factor in the following:

  • manufacturing cost of the product;
  • labour costs;
  • profit margin;
  • services fees to Kickstarter and Amazon Payments;

The shipping cost tends to be listed separately, for example, the reward is $40 with $20 shipping for international backers. If you are a US resident, you will pay $40 for this reward; if you are an EU resident, you will pay $60 for this reward.

Interestingly, by listing the shipping as a separate cost, Kickstarter actually earns more service fees on international backers, and project creators receive comparatively less.

Suppose you pledge $55 for a board game with $20 shipping to the EU. For US backers, the same board game is also priced at $55, with free shipping to US. Assume that to manufacture the board game costs $10, Amazon wants 5% for the Amazon Payments service, and Kickstarter wants 5%.  The breakdown of the pledge from an EU and US backer can be represented as follows:

Breakdown of the pledge for an EU and US backer for the same project

Breakdown of the pledge for an EU and US backer for the same project

For the sake of simplicity, VAT due on services fees and the currency conversion fees that the EU backer pays are omitted from the example.

What is important to note in the pie charts, is that there is a $2 difference between what the project creator gets from a US and EU backer. But note that the fees to Kickstarter and Amazon increased by a total of $2 from an EU backer.

Some common sense when looking at pledges and reward tiers

When you look at the pledge amounts, apply some common sense.

Following the project to get updates

The first reward tends to be offered at $1 for backers to only follow the project and get project updates. If the backer wanted to give a higher pledge, he can increase is $1 pledge to the amount desired. If this reward level is priced any greater than $5, I would question why.

Commensurate pledges for rewards

The pledge amount should be aligned and proportional to the retail value of the reward. For example, board games retail on average between £20 and £40 (approximately between $35 to $55) depending on the type of board game, complexity of the game and game-play. I can apply my experience of buying board games when deciding on what is a fair price for the reward in a board game project.

For a Kickstarter project, I expect a reduced price compared to eventual retail price, and I expect a limited edition game or some game components to be exclusive to the Kickstarter campaign. Obviously, these considerations are included when I evaluate the pledge and reward, but I also ask myself if I would pay the pledge amount if I saw the game in a shop.

For example, a pack of customised Bicycle cards cost about £4/$7 from a local bookshop. If the Kickstarter campaign is asking for any amount greater than £6/$9 (to account for it being a Kickstarter and possibly more exclusive), then the reward is over-priced.

Shipping to Europe

As an European-based backer, I know how much shipping products from the US to Europe costs. A $20 shipping charge for a board-game that retails at $40 is reasonable, but $20 shipping charge for a graphic novel that retails at $10 isn’t. From what I have seen, most US project creators have not fully investigated shipping costs to Europe, and the impact of custom charges that backers have to pay. Accordingly, it seems as if the project creators take a best guess, with the EU-based backers taking the hit, and subsidising other backers’ rewards.

One project I considered backing asked $30 for shipping the board-game. About 2 weeks into the campaign, the project creator revised the shipping downwards to $20 and the shipping became EU-friendly, i.e. no custom charges. Because a project creator cannot change the reward levels once the project is published, he was left in a tricky position to make sure that neither the EU backers nor his project’s funding was compromised by the revised shipping. I appreciated that the project creator was open about the shipping costs, but disappointed given that this was a reboot. The reboot was again unsuccessful in funding.

Economies of scale

Surprisingly, many, many businesses get economies of scale wrong. An example of economies of scale is bulk buying. It is cheaper for the shop owner if a customer bulk buys compared to individual sales, and the shop owner can pass some small proportion of those savings to the customer. But, most businesses don’t pass the savings along to the customers. This is a form of price competition: if the customer finds a shop that applies economies of scale to goods, for example Amazon, then the customer will shop there instead.

The same applies to reward levels. If one reward offers one product for a pledge of $10, and another reward offers two products for $20 or greater, then the project creator doesn’t understand or want to apply economies of scale.

One project I have backed offers the following (not early bird offers):

Reward tier 1: One copy of the game for international backers – $20, which includes a shipping charge of $5. This implies a per game cost of $15, which is $20 less $5. Any additional copies can be added by increasing the pledge by $10, no additional shipping cost.

Reward tier 2: two copies of the game for international backers – $28, which includes a shipping charge of $5. This implies a per game cost of $12.50, which is $28 less $5, divided by 2.

If you compare the per game cost between the two reward level, it becomes clear that the project creator understands economies of scale, and offers it to backers seeking multiple copies. Indeed, I may even be tempted to pledge at reward tier 2, even if I only want 1 copy of the game, given the comparative per game cost.

But, did you notice the following: if I want two copies of the game, I pay $15+$10 = $25 for reward tier 1 and $12.50*2 = $25 for reward tier two! The main reason for choosing reward tier 2 is to make it simpler from an administrative point of view; it is easier for both the backer and the project creator to track the multiple copies.

Multiple rewards

Apart from the issue of economies of scale, backers need to carefully read the pledge amounts on multiple copies of the product.

Some project creators don’t allow increasing pledges for reward tiers to get multiple copies of the product. The main reason for this is administrative – keeping track of multiple product orders against single reward tiers is an administrative nightmare. Accordingly, some project creator ask that backers create multiple Kickstarter accounts if they want multiple copies of the game, passing the administration to the backer.

If you want multiple copies, check with the project creator what is the best way to proceed.

In conclusion

As a backer, all of the below are included in your pledge:

  • 5% fee payable to Kickstarter;
  • 3-5% fee payable to Amazon payments;
  • VAT on service fees;
  • funds to project creator; and
  • shipping.

If you are an international backer, you also pay a currency conversion fee and bank charges.

A backer’s pledge is the main revenue source for Kickstarter, Amazon Payments and the project creator in a crowdfunding transaction.

Accordingly, when you make a pledge, make sure to apply some common sense and rational thinking. The emotions in a crowdfunding transaction run very high, and you want to make sure that you back a project that would most likely deliver its rewards, and, at the same time, support the project creator to fulfill his dreams.