Calculating the amount of money you need to raise through crowdfunding can either be one of the easiest parts of setting up a project or the hardest, it just depends.
The basic method to determine is simple, look at your project determine how much it will cost to accomplish your project, then add in the cost of the rewards you are offering plus the costs of fulfilling those goals and last don’t forget to include the fees due to the crowdfunding platform. That total should provide you with your funding goal, simple right?
Now let’s break this down in to smaller pieces.
First let’s define the steps needed to accomplish your project.
If you intend to produce a film you can budget the costs elements of the film, writer, director, actors, cinematographer, sets, lighting, sound, craft services, post-production and editing. All of these items are easily quantifiable and their total gives you the production budget for the film, well maybe. Let’s say you are making an independent film, but a friend of a friend knows a big name actor who might be interested in spending a few days working with you on the set, but his cost exceeds your entire budget up to that point, do you increase your funding goal to get the big name or do you stick with local actors and your original budget. This is an issue that hits every film project no matter how big or how small and the answer may be the difference between the film making or losing money, or even obtaining distribution outside of the filmmaker’s YouTube channel. The greater issue for a crowdfunded film is how much more money can be raised with the big name actor. If the increase in budget size is less than the extra money you can raise, then by all means raise the goal. On the other hand, if the bigger name will not add anything to the fund raising, stay with the smaller goal. The great thing about crowdfunding is that you can exceed your fund raising goal and if you raise enough to hire Mr. Big Name actor then you probably do so.
Film are pretty easy to budget, but let’s say your project is starting a new business. The items to include in fund raising goal become a little more soft and squishy. For an entrepreneurial project you need to look at the project based on reaching milestones. Figure out your milestones and then budget to each one. Your first milestone might be completing a saleable prototype of the product you want to sell. The second would be delivered the finished product ready for sale into the marketplace. You as an entrepreneur need to figure out how much it will cost to reach each of these milestones.
What will be your costs for making prototypes, should they be made here in America or should they be outsourced to Asia?
What about going into production on your product, can it be made in the united States or does it make more sense to build it offshore, what are the time differences in having production done in another country and how does that effect your costs for freight and import duties?
Do you charge your project a salary for your time? If you were working for somebody else you would get a salary, but entrepreneurs often don’t make any money until the new business is starting to generate some cash flow. Who else will you need to hire to meet your milestones and how much should they be paid?
What are your legal and accounting costs going to be for running you business?
Do you need to rent space or can you start this business out of your garage?
Take all of these factors into account and then you have an idea of how much you need to raise to successfully complete your project. Remember we started this exercise by figuring out milestones for your business, it may be necessary to look at each of those milestones as separate projects.
The next issue is how much can you realistically expect to raise from crowdfunding for your project? The amount depends on several factors, including how big of a crowd you think you can attract to your project and the interest level of the crowd. Projects can raise from a few hundred dollars to two million dollars or more. Take an honest look at the network of people you can get to work on building funding interest in your project (for thoughts on how to premarketing your project read our earlier blog post). If you think you can generate a tremendous amount of interest and crowd size with your network and your project, then the sky is the limit on what you can set as your funding goal. On the other hand if the interest and the crowd is more limited than there may be some constraints on how much you can set as a funding goal. There are no hard and fast rules, but you want to make a careful consideration that your fund raising goal does not exceed your funding raising potential.
On FunderThunder if you do not reach your funding goal, then you do not receive any of the pledged funds. We want to give you every opportunity to succeed with your project and that includes providing you with the funds you believe are necessary for the success of your project, if you think it will take $5,000 to make your project a reality then only giving you $2,500 will not provide you with the proper resources and may well become a waste of your funder’s money.
Last but not least in figuring out your funding goal, do not forget to factor in the cost of fulfilling your rewards and paying the crowdfunding platform fees.