Few things excite a creator so much as the moment when they finally hold their idea, in physical form, in their hands. You made something real. Pretty cool, right?
If your creation was meant for mass production -- or really, for any kind of professionalized production at all -- every copy that comes off the line could add to a mounting nightmare. That is, if you haven’t adequately accounted for production costs.
Production is one of the hardest things for crowdfunding campaign creators to manage. Few campaigns are developed by people with significant operational and manufacturing expertise, but few campaigns will ever succeed without one. If you’d like to see the difference between a great product idea backed by great operational expertise and one without that backing, just compare Apple today and Apple in the 80s. It’s that big of a deal.
You can still handle the pre-production prep on your own if you haven’t hired an operational executive or operations manager. It’ll just be harder, and much more labor-intensive. But an ounce of diligent preparation will save you a ton of cost overruns in the future, so it’s well worth your time to tackle the operational side of things well in advance of your campaign launch.
Know your costs
Source: user fancycrave1 via Pixabay.
You should have a firm understanding of your “core” offer, and your pre-production efforts should center on optimizing the cost structure of that offer. There are one-time costs and recurring costs to offering any physical product, and you’ll need to address both in order to keep your campaign on time and under budget.
If you’re launching a new board game, there will be one-time costs for the design of game elements, like the board, the game pieces or miniatures, any cards or custom dice, the rulebook, and any other components that need to be packed up into the basic box you’ll ship out. Design elements are the primary source of one-time costs. Luckily, they can generally be kept reasonable by working with talented freelancers, or by including a designer (or several designers) as part of your campaign team.
A tech product, like a new pair of headphones, or a microwave that makes food less cooked somehow, will need to be designed and prototyped, which will involve both digital and engineering talent, not to mention the various components you’ll need for a prototype. In fact, you’ll need to err very conservatively when it comes to components for your prototyping process, since so many things can go awry, and there are any number of minor tweaks that might ultimately lead to a radical reimagining of the product’s styling.
The one-time costs for the pre-production of engineered products are likely to be many times higher than the one-time costs for most games. Make sure you compile exhaustive lists of every service and component you’re likely to need along the way. It’s quite likely that any manufactured product will involve extensive research and analysis on the costs of components, so putting together a list of component suppliers before you start contacting manufacturers to produce your product will give you a big head start. Today, many parts and products can be sourced from Alibaba, which has emerged as not only the Amazon of China, but the Amazon for hardware startup supplies as well.
Managing the ongoing costs
Source: user Mixabest via Wikimedia Commons.
Once you’ve put together a prototype of your game or product that you’d be proud to send out to backers, you’ve then got to make sure that the prototype can be turned into a production-ready item that can be manufactured at scale. “Scale,” of course, means different things to different campaigns -- one crowdfunding campaign’s massive success at 500 backers might be another campaign’s abysmal failure. To determine the scale you’ll need for production to break even, you should investigate minimum order volumes (MOVs), and try to determine the quantities at which per-unit prices drop further from the MOV rate. This goes not only for manufacturing the product itself, but for procuring all necessary components.
Finding a reputable and cost-efficient manufacturer adds another layer of complexity to your project. While you can probably avoid working with a manufacturer if your main product is printed rather than assembled, you may also be able to put things together on your own if your breakeven point is set at a relatively modest quantity and you have mechanically adept people on your team. However, if your ultimate goal is industrial-scale production, don’t try to take the cheap route on your crowdfunding campaign -- find a manufacturer and start negotiating the rates early so you can better control your costs.
An additional consideration for some products will be the development costs for software and apps that might need to be included with the offer. Many “tech” products now come with their own apps, even if they’re just microwaves or lawnmowers. A number of games also incorporate some sort of app into their gameplay, but this is something that’s more of an option than a requirement. If you’re planning to sell a drone or a smartwatch, you’ll definitely need talented developers to work on the code that controls them, even if you happen to be a brilliant coder in your own right. High-quality modern technology, whether hardware or software, simply can’t be built entirely by one person anymore.
Price isn’t everything
With any of these considerations, you’ll have to think about the quality of the work and/or material provided rather than just the cost. Going with a bargain-basement printer, supplier, or manufacturer is liable to lead to disappointment and dissatisfaction across the board. Focus on finding value for the price, rather than a price that looks like a value.
Also keep in mind that any costs you think you’ll have are likely to come in well below the costs you’ll wind up incurring to produce and distribute your product. CrowdOx cofounder Aaron Hansen suggests that you always increase your initial cost estimates by 30% -- not including the costs of shipping, which can also add up quickly.
If you do your research and detail your costs well before launching your crowdfunding campaign, you’ll be in a much better position to stay within your budget, and on schedule for production, than many other campaigns. It’s not the idea that will give you problems, but the execution.