Do you love Elon Musk… or hate him? Whatever your answer is, I ask you to forget about that for now. Because this blog post is not going to be about Elon Musk’s character. There are thousands of Tweets and news articles tackling that subject daily.
Instead, this blog will be diving into a strategy that Elon Musk didn’t create, but executed on masterfully. More importantly, you don’t have to have Musk’s 119 million Twitter followers to pull it off. It’s a strategy that anyone can steal.
Ready? Let’s dive in!
How the Model 3’s launch changed the game
Back in 2016, Elon Musk opened up reservations for the Tesla Model 3. People could put down a $1,000 refundable deposit to reserve it. The Model 3 wouldn’t be delivered for at least 6 months. But by putting down a deposit now people could:
- Lock in the price
- Save their spot in line to receive their Model 3
If you put down a deposit, you would still have to pay the remaining amount at a later point. But because of the two reasons above, a lot of people put down deposits.
“Successful” might be an understatement
The strategy performed extremely well. On the first day reservations were opened, Tesla received over 200,000 deposits. After a few months, they had 450,000.
Let’s do some quick math:
X $1,000 deposit
$450,000,000 in revenue
That amount of revenue is mind boggling. Remember that that revenue was only from deposits. Eventually people would have to pay ~$45,000 to complete their purchase… meaning the deposits only represented 2% of potential revenue.
Here’s what potential future revenue looked like:
X $45,000 avg price
$20,000,000,000 in potential revenue
Now, you’re probably thinking, “not everyone completed their purchase…” and you’re right. Many people did not complete their Model 3 purchase after the deposit, but it was still a huge success. Because of this strategy, Tesla was able to:
- Generate cash flow immediately
- Validate demand
- Predict future revenue
This is cool for the richest man in the world, but what about you?
Well, like I said at the beginning, this is not a strategy only for Elon Musk. We use a very similar strategy to launch crowdfunding campaigns. We call it the Reservation Funnel.
How we use the Reservation Funnel to launch products
The key to a successful launch is a successful prelaunch. Just like Elon, we focus on building a list of reservations before we launch a product through crowdfunding. We do this by using a Reservation Funnel. Here’s how it works:
Step 1: Meta ads
- Drive traffic through Meta (Instagram & Facebook)
- Goal is to get a click
Step 2: Landing page
- Build a simple landing page that explains your product
- Goal is to get their email address
Step 3: Reservation bridge
- Tell them how they can reserve the best discount by putting down a deposit
- Goal is to get them to go to checkout
Step 4: Reservation checkout
- Keep the checkout simple
- Goal is for them to pay for the deposit
Step 5: Email automation
- Send welcome email from the founder
- Goal is to get them to reserve (if they haven’t already)
In our Reservation Funnels, we always start with a $1 deposit. It may not sound like a lot, but even at $1, we’ve found that people are 30x more likely to buy on average. But after watching what Elon did with the Tesla deposits, we wanted to experiment with higher deposit amounts. So that’s what we did.
From $1 to $50 deposits
One of the first campaigns where we experimented with this strategy was called Nomad’s Pad – a boutique hotel concept that we launched on Indiegogo. We increased the deposit from $1 to $50. The result: we pre-sold $582,505 in revenue in only a few months. The Reservation Funnel was key to our success.
By increasing the deposit from $1 to $50, we not only generated leads that were way more likely to convert (up to 85X more likely than a regular lead for Nomad’s Pad), but we were also able to pump the deposits we were collecting back into our lead-gen campaigns to subsidize ad spend. This significantly reduced our actual cost per lead and our client’s out-of-pocket costs.
This did so well for Nomad’s Pad that we actually went cash positive on just reservation deposits. We were generating $50 reservations for as little as $42 each. Meaning, we made $8 for every reservation we got. I like to call this the virtuous cycle of the Reservation Funnel.
Here are the final, exact numbers for prelaunch performance on Nomad’s Pad:
- Ad spend: $44,515.80
- Deposit revenue: $45,803.79
- Prelaunch cost: -$1,287.99 (Yes, that’s negative)
- $50 deposit purchase rate: 22.34%
- Prelaunch list revenue: $358,602 (this doesn’t include deposits)
In total we spend $44,515.80 to generate $404,405.79 in total revenue or a 9x return on ad spend. Not too bad.
You can use this strategy too
By now I hope you realize that you do not have to be Elon Musk to make this strategy work. It’s a strategy that anyone can easily set up and execute on. Here’s a quick recap:
- Set up a Reservation Funnel
- Experiment with higher deposit amounts
- Use reservations to:
- Generate cash flow now
- Validate demand for your product
- Predict future revenue
If done correctly, your crowdfunding launch will be successful… all without needing Elon Musk to tweet his 119M followers.