One of the most common errors in a crowdfunding campaign plan is to miscalculate the cost involved. Getting this wrong can be a major problem because even a successful campaign may not provide you with the funds you need.
There is a reason why our crowdfunding preparation, due diligence and audit process – commonly referred to as TAMP – begins with Targets. One of the key Targets we want to know is “How much do you want to raise?” This is hardly surprising but in our experience the number stated is often either vague or even wrong. Vague is not a crime or even bad as long as you know its vague and not settled yet. Being wrong and discovering it early enough is also not a problem as this can be rectified.
But being wrong and not realising it and running a campaign on a false premise can be a real problem because you might run a successful campaign and then discover all that hard work has not provided you with enough cash to do what it is you have said you are going to do or to pay all the bills associated with your campaign. Don’t fall into the trap of overlooking costs.
Of course the purpose of the TAMP process is to resolve these types of challenges but we can’t be with all of you helping out, much as we would like to, so here is a quick guide to the things which often get forgotten.
The purpose of the TAMP process is to resolve these types of challenges
Depending on the type of crowdfunding methodology you are planning to use from donation to equity, each may have greater or lesser relevance to you – but at least you can prompt yourself as you go down the list.I have grouped them very roughly to help you think about some of the key areas costs are incurred.
Producing rewards can be costly especially if they are physical items. Materials and time can actually knock a hole in any money raised if this hasn’t been costed in. The piece that is often forgotten over an above the cost of hand embroidering someone’s name into a tee shirt or something similar, is the fulfillment cost. Package and posting can be ruinously costly – do not forget this.
If your campaign is to launch a new product to the market and the reward IS the product but you have yet to take it to manufacture DO NOT assume Alibaba and a Chinese manufacturer will “just be able to do it”. Think again. Manufacture can be extremely complex, particularly for an innovation. It can take time and several tries to get it right. Specialist tooling is incredibly expensive in the short term. Knowing this is one thing but getting a proper professional assessment of this is very important. there are many really good providers out there that will fabricate a mock up for you and look at the wrinkles in the process. Get that supply chain and the costs associated with it nailed.
Platform costs are generally reasonably well understood with most people figuring this out even if there is considerable variation out there amongst the many hundreds of platforms. But watch out for small print and unexpected costs. As Tom Waits would have it – “The large print giveth, the small print taketh away.”
Settlement and payment can be costly depending on who you use and who you bank with. Currency fluctuation issues can also be tricky if you are operating across several countries.
TAX – the recent VAT changes on digital product is Europe DO APPLY to crowdfunding and to digital rewards even if you are NOT VAT registered. This can turn into a big overhead. Also – in the UK – the taxman says your crowdfunding campaign is part of your revenue – they can, and will, tax it.
If you are planning a DIY campaign – it might lower some platform costs but it is rarely free or costless. What extra software might you need to integrate and display a campaign, process your transaction and keep your website safe from hackers?
Some folks do need professional services, so don’t know that they do, and some don’t need them. Recognising you might need some of these more specialist things done is the first step. Then ask “Who will or can do it?” If not you or part of your team it is likely to cost you.
Here are a few examples of what you might face:
- Who is your lawyer? If you are planning an equity campaign DO NOT leave home without one.
- Due diligence – getting all those contracts verified and checked to reassure nervous and suspicious investors can take a lot of time, and specialist review. So “What terms do you have with your suppliers?” for example or “Who does own that property you have?”
- Intellectual Property – should you protect it and if so how? Are your breaching anyone the IP of someone else? This type of specialist service is not free, and when it comes to protecting IP it can be VERY expensive.
- Who shoots and edits that fabulous video? Maybe you, maybe not?
- Who does the photography of your superb new product mock up, and of you and for all the other PR and marketing type activity you will do?
- Who checks or even writes that compelling copy and PR and who runs that A&B testing campaign to check your messaging?
- Who will tidy up your books to a level that you can convince a lender or investor to splash the cash? Who will write that business plan?
- Do you need a better team? Do you need a new Business Development Manager for example to convince the investors? Recruiters and headhunters, in large part, don’t work for free.
Whilst you are running this campaign who is running your business?
Who does the day job? How much will it cost in staff time and what is the potential knock on on your business? Will you still be earning money whilst you prosecute your crowdfunding campaign? If not then what will that do to your cash flow?
Now this is not an exhaustive list . Nor is this intended to say “Don’t Do It!!!” Far from it. It is intended to make you think about what might have slipped your mind till now and it says do it well, do it properly, and do it with your eyes open.
Reassess your crowdfunding target now and ask yourself – is it accurate and is it enough?
Why not tell us what unexpected costs you encountered in your campaign?