One of the most important things you need to do before you launch is to decide on what your crowdfunding goal should be. You need to figure out what your break-even number is, and then you need to decide your goal based on that. But how do you set your funding goal?
Don’t guess! You don’t want to set your goal too low and then end up not raising enough money to cover your expenses. Likewise, you don’t want to set your goal too high and then not come close to reaching it. Having a funding goal that you know you will cover all of your expenses and won’t be out of reach is important to your campaign’s success.
So how do you go about creating this goal?
Calculate your fixed costs
These are things like molds & tooling, package design, and travel & trade shows. They’re costs that you will have to pay once, rather than things associated with the production of each unit. For our example, we’ll say our fixed costs are $13,500.
Calculate your variable costs
These are the components of your product that will have to be paid for each unit that you produce. Think about things like the battery, casing, buttons, gears, packaging, and assembly for each unit (or whatever different components your particular product will need). Break this down as much as you can so you understand how much each piece is going to cost. For our example, we’ll say our variable costs are $10.40 per unit.
Figure out your average order value
Most likely, you’ll plan to offer different prices on your product at different points during the campaign (think about Early Bird specials and VIP pricing, for instance). Your average order value will generally be about 1.25x your most discounted price. For our example, we’ll say our average order value is $100.
Calculate your break-even count and funding amount
Subtract the number you got in step 2 from the number you got in step 3 to get your profit per unit:
$100 – $10.40 = $89.60
Now divide the number you got in step 1 by your profit per unit to get your break-even count:
$13,500 / $89.60 = 150.669
This number represents the units you need to sell to break even. In this case, we will need to sell 151 units. With this information, we can now calculate our break-even price by multiplying our break-even count by our price per unit:
151 units x $100 = $15,100
We now know that our funding goal for our sample project here should be $15,100 if we want to break even on the campaign. If we want to make a profit, we can make that goal higher. We can also adjust the price per unit if it makes sense with the product, or seek to lower fixed and variable costs by working with other vendors if possible.
Again, the important thing here is that you should not guess on these numbers. Setting a funding goal isn’t about what you really hope to raise; it’s about making sure you set an amount that will cover your costs and perhaps make a little profit (if that’s your goal).
Want to work with someone to set your funding goal? Need help with other parts of the process? Apply to work with us today!