Crowdfunding is a Numbers Game: Creating the Right Goal and Reward Levels

Imagine for a moment you’ve spent hours creating the “perfect” campaign. Your goal is to raise $10,000, you’ve set your campaign page to “live,” and the contributions are rolling in.

It’s now the day before your campaign ends and you’ve had 150 contributions. That’s more than you ever expected. You’re thrilled by the support, but then you look at the amount of funds raised. You’ve only reached 30% of your goal!

The problem soon becomes obvious to you. You’ve only offered your contributors three reward options: $10 (for the ebook edition of your book), $15 (for the paperback), and $20 (for a signed copy). When you were setting up your campaign, these seemed like reasonable options. But now you’ve done the math. Even if every contributor chose the highest reward level, you would still need 500 contributors to make your goal. You’re 350 contributions short.

Okay, scenario two: You actually have 500 philanthropic friends, and every single one of them contributes $20 to your campaign. Your campaign ends and you’ve successfully raised $10,000, the amount you’ve promised your publisher.

But when you look at your bank account, there’s only been $9215 transferred into it. You’d forgotten that the payment processor takes about 3% in credit-card processing fees. You’d also forgotten that of the remaining funds ($9700), PubLaunch receives 5% as a commission fee. And you still need to set aside funds for the printing and shipping of 500 signed copies of your book…

Crowdfunding is a numbers game, and you really do need to do the math.

Fortunately for you, we’re experts on this kind of thing, and this post is going to help you set the right goal and reward levels to help you hit not just your target but also your budget.

How to determine your real goal

Let’s look at scenario two first. The takeaway is that your budget and your crowdfunding goal are not the same number. When setting your crowdfunding goal, you also need to account for the cost of reward fulfillment, credit-card fees, and our commission. This may seem daunting at first, but the math can be broken down into just three simple steps. Let’s do it together:

Step 1: Add fulfillment costs to your original budget.

In our scenario, your budget is the amount owed to your future publisher: $10,000. Now we need to add the cost of reward fulfillment. Based on our market research on book crowdfunding campaigns, you’ll want to add about 15% of your original budget for fulfillment.

The math: $10,000 + ($10,000 x 15%) = $11,500

Step 2: Account for crowdfunding fees (i.e. commission and credit-card fees).

This is where it gets a bit tricky. You now know that you need $11,500 to be transferred into your account at the end of your campaign, but for every dollar that someone contributes to your campaign, credit-card fees and PubLaunch’s commission will be taken before you see that money. So before you can calculate your crowdfunding goal, you also need to figure out how much of each dollar contributed you’ll actually receive.

Since we know that PubLaunch’s commission is 5%, and that PubLaunch’s payment processor (Stripe) charges 2.9%, we can do this math quite easily.

The math: $1.00 – $0.05 ­– $0.029 = $0.921

Step 3: Calculate your crowdfunding goal.

Okay, so we now know that for every $1.00 contributed to your campaign, you’ll take home $0.92. The last step is easy: just divide your desired budget ($11,500) by the dollar amount you take home for every dollar contributed ($0.92) and you’ll know what your crowdfunding goal should be.

The math: $11,500 ­/ $0.92 = $12,486.

And you’re done! Your crowdfunding goal should be about $12,500 if you want to receive enough funds to fulfill your rewards and maintain your original budget.

Now that we have the real crowdfunding goal, let’s look at how you can avoid the first scenario by setting realistic rewards levels.

How to create rewards that easily generate your goal

Compiling a list of rewards will absolutely be your most difficult task when preparing a crowdfunding campaign. There are so many elements to consider. A good list of rewards should be creative, fun, and give contributors a chance to get in on the ground floor and be a part of your book project. But generating the reward itself is only half the battle. To reach your goal, you also need to make sure that the levels you offer will generate enough funds.

Let’s consider scenario one from earlier. The campaign had 150 contributors, which is above average for a book crowdfunding campaign and should be something to be extremely proud of. But when the highest reward level is only $20, it’s impossible to reach a goal higher than $3000.

The math: 150 contributors x $20 = $3000

It’s clear you need to consider the math when compiling reward levels. The trick here is to set levels for every type of contributor and ensure that you have the right number of contributors to reach the goal you need. You can take a step-by-step approach to this too.

Step 1: Build your list of contributors.

Building a list of contributors* is like creating a guest list to a party and trying to figure out how much food you’ll need before the invitations go out. First you want to list everyone who might come to your party (or contribute to your book project), and then you need to try to estimate how many will likely attend (contribute) and how many will be “maybes.”

To be safe, you’ll assume 20% will decline, but you’ll also add 10% for those you’re probably forgetting to add to the list.

The Math:

With a list of 155 people:

Yesses = 102 people (Mom, Dad, brother John, sister-in-law Barb, Aunt Susan, best-friend Sharon, Sharon’s husband Rick, friend Will, 5 cousins, 2 coworkers, 12 other friends, 75 third-wave contributors).

Maybes = 76 (12 coworkers from work, 6 friends, 4 fellow writers, 54 third-wave contributors)

Nos = 24 friends, coworkers, and third-wave contributors

Additions = 15 third-wave contributors

*For more on how to build a list of contributors, check out our previous week's blog post, "Building Your Crowdfunding Contact List."

Step 2: Categorize your contributors.

Now you’ll want to take your list of yesses and maybes and try to estimate how much they’ll be willing to contribute, and then assign rewards to each level. (To be safe, only use 50% of your maybes. And don’t forget about the additions!)

It’s often a good idea to ask your big contributors how much you can expect from them and what kind of reward they’re interested in. Remember that you can limit the number of contributors for a reward level. In the case of the $1000 reward level below, you’d likely want to limit that to two (and ask your parents to contribute early)!

The math:

$1000: Have my book dedicated to you = 2 (mom and dad)

$500: A private dinner and book reading, including a signed hardcover = 8 (brother John, sister-in-law Barb, best friend Sharon, 5 cousins)

$100: A signed hardcover = 24 (Aunt Susan, friend Will, Sharon’s husband Rick, 6 friends, 15 third-wave contributors)

$50: A signed paperback = 63 (6 friends, 2 coworkers, 55 third-wave contributors)

$25: Hardcover = 31 (3 fellow writers, 3 friends, 25 third-wave contributors)

$15: Paperback = 18 (6 coworkers, 12 third-wave contributors)

$10: Ebook = 9 third-wave contributors

Step 3: Check your math.

Once you’ve created your rewards and levels, check your math. If your estimate isn’t reaching the goal you need, then you either need to work on gaining a larger audience or reconsider your budget.

The math:

$1000 x 2 = $2000

$500 x 8 = $1500

$100 x 24 = $2400

$50 x 63 = $3150

$25 x 31 = $775

$15 x 18 = $270

$10 x 9 = $90

Total Contributions = $12,685

While the math for creating reward levels is easy, it’s also time-consuming. But it’s crucial that you set yourself up for success before you begin a campaign. For more information about creating compelling rewards, take a look at our Learning Center.