Crowdfunding is an exciting way to launch a product, but understanding how to price your product is more complicated than many creators realize.
- Crowdfunding is a rollercoaster journey for campaigners, and one of the most significant bounces you experience is figuring out the price of the product
- To achieve your crowdfunding goal, you will need to spend money on advertising like on social media platforms and attending events and seminars to promote your project
- There are other miscellaneous costs involved, such as salaries, rent, utilities, office supplies, and insurance for your crowdfunding campaign
Pricing is one of the most important aspects to consider before launching a crowdfunding campaign. Your final figure that you would set as the crowdfunding goal will most probably be determined by how much revenue you think you can generate, and this will, in turn, be reached by your chosen price and how many units can be sold at that price. The irrevocable rule for pricing a product is that the price should cover the cost of goods sold and generate a profit.
Essentially, there are two main parts to pricing—cost and profit. The price must cover the tentative cost of manufacturing each unit. It must also include a markup that factors in the benefits of your innovation and that your backers would be willing to pay. In other words, the price must cover the cost and generate a profit while duly justifying the value it supposedly will deliver to the supporters. Additionally, make sure that you do not underprice or overprice your campaign.
Because pricing is one of the most complicated challenges for crowdfunders, here is a quick summary of how to price your product appropriately:
How to Calculate Your Tentative Cost of Production
Most likely, your product is still a prototype, and you do not have a concrete idea of the actual cost of production. Therefore, all you can do is calculate a tentative cost of production.
Below are the major cost centers you will need to take under consideration when calculating the cost of goods sold:
1. Cost of materials
Raw materials are one of the primary cost centers. This factor includes primary/direct materials and indirect materials required to make the product and further accessorize it.
For example, if you are developing an innovative wooden chair that can also be converted into a swing, rocking chair, and bed, the direct material used would be wood. The indirect material would be nuts, bolts, polish, etc.
2. Labor and machinery
Another principal cost is the labor involved in the production. The labor cost will include the wages and employee benefits provided to workers. Also, the price of machinery and petty equipment used for manufacturing will increase the cost if not outsourced to a third party.
3. Research and development
The research and development conducted when making the product will incur a fair amount of cost. Consulting may also play an important part and incur expenses. You will require consulting for vendor sourcing, designing, handling legalities, etc.
4. Marketing and promotion
To achieve your crowdfunding goal, you will need to spend money on advertising. You will be doing sponsored campaigns on social media platforms and attending events and seminars to promote your project. All of this will incur a good amount of outlay.
Related blog: Why hiring a crowdfunding agency is worth the investment
Other miscellaneous costs involved include salaries, rent, utilities, office supplies, and insurance.
6. Cost of shipping
One of the major cost centers of your whole crowdfunding project is fulfillment and shipping. This factor will include the costs incurred for warehousing, packaging, documentation, transit, and customs duties.
Understand that ignoring the shipping cost while pricing your product can cause a severe financial setback to your project. From packaging the goods securely to ensuring that the shipment is delivered on or before the date promised to the backer, several expenses are drawn in at every step.
It is best to discuss the onset of special costs during shipping and how these costs may be dealt with explicitly on your campaign page and individually to every backer.
7. Bulk pricing
Crowdfunding a product is usually an offer to pre-order. However, campaigners often are approached by a group of backers who ask for a discounted price for bulk orders.
BackerLand is one such platform that solicits special prices or add-ons from the campaigner and places them in front of serial backers enthusiastic about your type of product. It is a sort of reseller program. If you are interested in participating in these programs, you will need to be very pragmatic while extending a discount.
You might benefit from economies of scale by increasing the sale volume, decreasing the per-unit fixed cost. However, an over-the-top discount can cripple your project.
8. Competitive pricing
Crowdfunding usually works for products that are out of the box, unique, and very different. This exclusivity means that these products will have zero competition in ideal conditions. Therefore, the emphasis placed on applying competitive pricing is relatively tiny.
Nonetheless, looking at the pricing structure of other products in your category may provide you with a better approach while pricing your product. Hence, do spare some time browsing the pre-order rates of similar products.
9. Add a markup
Once you have arrived at the cost of the product using all the components mentioned above, it is time to add a markup on the product. Please note that because the price you have calculated is a tentative one, the markup you receive will help you face unwanted contingencies that are almost certain to come up.
Also, the remaining revenue after bearing the cost of production and managing contingencies can be used to prepare for entering the marketplace after the crowdfunding round.
How Easyship Helps Ace Your Crowdfunding Strategy
Crowdfunding is a rollercoaster journey for campaigners, and one of the most significant bounces you experience is figuring out the price of the product. It becomes even more challenging when the product is still a concept and you are not entirely sure about the actual cost of production. In addition, there is the possibility of unexpected events occurring that will further escalate your production price.
Therefore, while doing the math, make sure that the final price covers the cost of goods sold, a markup, and a slight margin over that to handle any possible contingencies. Besides, the price must justify the value it will deliver to the backers, or you may discourage the prospective supporters.
Now that you learned the major cost factors for your crowdfunding campaign strategizing your shipping policy is your next step to ace crowdfunding success. With Easyship, our shipping platform can help you create a seamless crowdfunding experience with features such as the following:
- Easyship Collect: Easyship Collect is the only shipping tool for crowdfunding campaigns. Let backers upgrade shipping, prepay duty, and tax, plus add the shipping insurance with this premium feature
- Crowdfunding Shipping Calculator: Start planning your next crowdfunding campaign with our crowdfunding calculator
- Shipping Policy Generator: Our shipping policy generator helps merchants and crowdfunding campaigns generate their shipping policy by providing tracking and insurance options, plus other vital information for your shipping process
Ready to ship? Sign up for a FREE Easyship account and get started creating your next crowdfunding campaign.
This blog was written by our partners at Easyship.
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