Is Kickstarter better than raising funds yourself?

Is this just a nerdy way of looking the gift horse in the mouth?

Normally people look to successful examples for information. But in this case, the particular way that my Kickstarter campaign failed is helpful in answering a question: Is Kickstarter better than raising funds yourself? And I’ve got some numbers to help answer that question. Let’s look at the two options:

• Kickstarter Option – You set up your campaign on Kickstarter’s website by answering a lot of questions and posting a video. You go bang on pots and pans to get friends and acquaintances to look at your project and pledge to it. Web strangers drop by and pledge some more money. If you make your funding goal, the backers’ credit cards are charged, and you claim 90% of the pledged amounts. (Kickstarter and Amazon want their cut.) If you don’t make your funding goal, then no money changes hands.
• Direct Option – You do all of the same stuff above, but with a few differences. The campaign will be hosted on your website. It will use some software like IgnitionDeck or Selfstarter to collect and track pledges. You will not pay 10% to Kickstarter and Amazon, but you will need to integrate with some payment processor, and they’ll end up taking 2-5%. (E.g. PayPal at time of writing is 2.9% + 30 cents per transaction.) For the analysis, I’m going to say the payment processor takes 3%. A good example of a successful direct crowdfunding effort is Introversion’s Prison Architect.

If you go with direct crowdfunding, you’ll get more money per pledge made. If you go with Kickstarter, you’ll make less per pledge, but you’ll probably get more pledges. With direct crowdfunding, you get only the fruits of your promotional efforts. You have to do all the work to get people to look at your website. With Kickstarter, you get the same benefit from your own promo, but also there will be pledges coming in from people you didn’t reach out to. There will be people who came in through Google searches, and regular philanthropists that land on Kickstarter.com to patrol for good causes/rewards.

And of course, there are backers who go out and do some promotion on your behalf, e.g. tweeting and Facebook-posting about your campaign, telling about it to their friends. They deserve all the credit and love for their efforts. (Deb, you rock!) But for the purpose of my analysis, I’m considering each backer as either generated by my efforts (even if indirectly) or Kickstarter’s.

There is a 7% spread that Kickstarter has to beat before they can be called worthy. The 7% is the difference between 10% per pledge (“Kickstarter” option) and 3% (“Direct” option). If Kickstarter brings in enough extra pledge money to make up that 7%, then you can say that from a financial point of view, Kickstarter is worth it.

I can answer this question a bit roughly using my project data. My project had a small number of backers (18), and it’s easy to see where most of them came from–me or Kickstarter. Also, it was a “worst case” project, one that you’d expect to receive the least amount of extra help from Kickstarter. It never was featured. It was of interest only to people in the Seattle region. And even under the Seattle list of projects, it never made the front page of Kickstarter.com. (You’d have to click the “next” button one or two times.) I don’t think Kickstarter’s treatment of my project was unfair. I’m just saying my project is a great choice for a “low Kickstarter boost” project to analyze.

Looking through the backers, I put them into three categories:

• 12 from me (these are people I know or people that were contacted by people I know.)
• 2 from Kickstarter (these are people that said they came to my project by browsing KS.)
• 4 from unknown origin (I’m not sure about these folks, and I don’t feel like pestering them.)

I didn’t use Kickstarter’s provided stats to determine which group people were in. I don’t think they can be very accurate. For example, if a friend of mine knows the name of my project already, she might browse directly to “kickstarter.com,” type in “Machine Court,” and find me. Kickstarter would track that as a pledge generated by them, but it was really me that generated it.

Kickstarter brought in at least 11% of my pledges by count of backers, beating the 7% difference between Kickstarter and Direct options. Kickstarter might have brought in as much as 33% of my pledges, if the 4 unknowns came from them. If you look at amount raised in dollars, people I know personally pledged more on average than the other two groups. But I am not very interested in those numbers because I expect that if the fundraising scaled up to say… hundreds of backers, the pledge amount average would even out, with only a small percentage of those being people I knew directly. In other words, it’s not surprising that your buddies would kick in more bucks than people that don’t know you, but you’ve only got so many buddies. In a more successful campaign, most backers that come from your promotional efforts would be strangers to you.

So even with my worst-case “low Kickstarter boost” project, Kickstarter brought in enough backers to see their 10% fee justified.

When I had finished that number-crunching, I thought “case closed.” I figured the ten percent Kickstarter tithe must be worth it in nearly every case. But I was laboring under a false premise. Thinking further, I would expect those percentages to scale differently on a project with more backers, due to factors like the following:

• The number of backers you bring in will not increase the number of backers Kickstarter brings at the same proportion. In other words, say you go crazy with the promo, buy Superbowl ads, get a Justin Bieber endorsement, and bring in one million backers. Kickstarter is not doing anything like that to match your efforts. They will not bring in 11% of one million backers. I use a logical extreme to make it clear, but you can see how a practical promotional effort could dwarf whatever Kickstarter contributes. Again, go look at Prison Architect. They raised over a half million with direct crowdfunding. Badasses over there.
• On the other hand, Kickstarter must have some powers that I did not see. If my project was promising enough, it would have made “top of fold” status for the Seattle region. If my project wasn’t regional, it could have gotten more eyes still. And if I was particularly lucky and well-positioned, Kickstarter could have featured my project, which statistically gives it an 89% chance of success. (Arguable to what extent getting featured is a cause and not an effect of previous success, though.)
• Finally, to what extent does the established name “Kickstarter”, its user-friendly site, and “social movement” feel contribute to closing pledges for backers that came from me? Most techy people I know understand what I’m talking about quickly when I say, “I have a Kickstarter,” so I don’t have to spend an eye-glazing minute of crowdfunding explanation with them. The Kickstarter site is beautifully designed, and certainly makes me feel cheerful when I browse around it. There must be some positive infuence that Kickstarter brings to all types of potential backers.

So it’s still murky which is the better option. Suppose you had a group of people on mailing lists, feeds, podcast/video subscriptions, etc. that would listen to things you announced. I think if that group of people numbered 500+, then you would easily outperform Kickstarter’s contributions to a crowdfunding effort, and Kickstarter wouldn’t be worth using. I don’t have enough info to say that “500” is the tipping point, but there would be some number where you are better off to dump Kickstarter (or IndieGoGo or any other fee-based service middleman) and do it yourself. I would guess that well-known authors, game designers, filmmakers, musicians, and podcasters would be better off ditching KS and going direct.

And then there’s plenty of reasons beyond the finances to take into account. Possibly, the all-or-nothing fundraising model or other restrictions like a 2-month maximum campaign length don’t suit you.

Or maybe the campaign is meant to stay small and personal, because it doesn’t need to be big. For example, a friend of mine raised about four hundred dollars to send someone to a course on building tiny houses. It made complete sense to me that he used ChipIn for direct crowdfunding.

Direct crowdfunding also serves a second purpose of increasing traffic to your website. There might be other reasons you’d like people to come to your site than to pledge a project. But if you are out pounding Internet pavement for promo, and just posting links to Kickstarter.com, then less people following that KS link will make the extra click to visit your site.

Hmm. That last reason is huge, actually. I may have just now decided to go completely direct on the next campaign. We’ll see.

Anyhow, that’s a whole lot of musing for somebody who is not yet an expert. I hope it was useful or at least interesting for you. Comments definitely welcome!