One of the biggest challenges facing any Kickstarter project creator is accurately estimating shipping costs before launching the project- especially for a physical product that’s not yet produced. I’ve always built shipping costs into pledge levels or had different levels depending on location (domestic vs. International). Kickstarter has made listing shipping out for different zones or countries easier, but, it’s still a flat rate based on that country or zone, which isn’t necessarily accurate. Historically I have been close on shipping cost estimates but almost always either above or below the exact shipping paid. Let’s look at the consequences of that, why it’s a problem, and talk about options for shipping with pros and cons of each. Ultimately, it’s up to you as a creator to choose a method to use. Hopefully this critical thinking about shipping will help you decide- or at least think about it hard before launching a project.
First, a few consequences from the creator estimating shipping incorrectly on the high end (i.e. your shipping estimate is wrong and it is too high):
- You may miss backers who otherwise want to support your project but are turned off by the high cost they must pay to receive it. Remember if international, they may also be charged by customs for importing whatever you’re sending. Sometimes this is cost prohibitive and they simply won’t back your project.
- You’re overcharging backers. This is obviously bad for backers, but, in addition, if you’re in the USA, you are considered “profiting” on the shipping. If you profit on shipping, and are paying sales tax for any backers within your state, you may be liable to base the sales tax on the full amount paid by the backer. If you don’t profit on shipping, generally, you don’t charge sales tax on the shipping. This is subtle, but important. Remember that state sales tax laws vary.
- You’re giving more money to Kickstarter (and Amazon) who both charge percentages based on the amount of the transaction (KS=5%, Amazon=3-5%). This isn’t so subtle and can be a lot of money.
Next, a few consequences from the creator estimating shipping incorrectly on the low end (i.e. your shipping estimate is wrong and it is too low):
- You must still ship the reward and as a creator, absorb the additional cost to you. More on this in 3, below.
- You may attract more international backers which could skew the amount of funding raised by shipping (that is not going toward creating your project) vs. the amount going toward creating your project. Example: A reward is $20 USD and costs you $5 to make it. To ship it overseas actually costs $45. $65 goes toward your goal by an overseas backer. You actually receive $58.50 after KS / Amazon fees. But you’re going to spend $45 when you ship it and remember it cost you $5 to make it. You have a margin of $8.50. Not terrible, but, what international backer will pay $45 extra plus import duties to receive your $20 reward? Maybe a few, but, it drives up your funding raised when it’s actually just barely covering you.
- You may lose money. Take the same example pledge. Now, what if you estimate the shipping overseas incorrectly as $25 and charge backers for that amount? The total pledge is $45 for an international backer ($20+$25). When you run these numbers, you’ve lost money on that backer pledging for your project ($45 *.90 = $40.5 after KS / Amazon worst case fees -$5 cost to make -$45 actual cost to ship = -$9.50. You just paid $9.50 for that backer to have your reward. You paid them! Again, you paid them! Multiply that by every international backer at that pledge level. Let’s say there was just 100 international backers at that level… you’ve lost $950.00!
Finally, here are a few consequences, of estimating shipping exactly right:
- Actual shipping costs may turn away some backers, especially internationally. Note: There are some strategies to mitigate this as will be discussed in Further Reading.
- Shipping rates change. Unless you fulfill the rewards soon after the project was started (not finished, because you can’t change rates once you start), you may find yourself short of funds required to actually fulfill your rewards because of rate increases later beyond your control. You estimated shipping at the time- exactly right- so there is not float.
- You’ve lost 8-10% of whatever you charged for the reward’s shipping portion to Kickstarter / Amazon fees.
Strategies for shipping
Let’s look at three ways (not all) you could approach shipping that are fair to you and to your backers and the pros and cons of each. For all strategies, you must accurately predict the weight of your reward and the size. Accuracy is based on this so spend some time on it. Remember to account for any stretch rewards you may add to this base reward if they’ll increase size or weight of what you have to ship.
- Limit fulfillment to certain zones or countries. Shipping in the USA is easy and fairly predictable. International shipping (as I define it, “from” the USA) is when things get tricky. You could choose to limit where you’ll fulfill your rewards (or certain rewards) to certain countries (or zones like the EU, through consolidation), see Further Reading. To do so, you can specify locations for each reward on Kickstarter and specify the flat rate to that location. It’s applied to a backer’s pledge when they checkout.Pros: Restricting shipping to limited zones or countries means you have to estimate costs for fewer areas. Compare this to shipping to any country- and it’s harder to predict. You’ll probably be pretty accurate with fewer flat rates. It’s also easy to do this through kickstarter’s existing reward creation tools.
Cons: You’re excluding backers who aren’t in these limited countries or zones which could ultimately hurt your project regarding funding. You’re also still paying KS and Amazon fees on shipping costs. Some of the other consequences mentioned above also still apply.
- You could offer “Free” shipping and build the average cost into the reward. As Jamey Stegmaier mentions, no shipping is “free”, but, there are ways you can greatly reduce costs to yourself and backers, especially to key zones or countries where consolidators may work with you. This technique has worked well for Jamey and it’s linked in Further Reading.Pros: “Free” shipping could encourage more backers (even though the cost is built in).
Cons: “Free” really means it’s built in to the reward. No shipping is free, so be careful with this one. If you build in the cost to the reward based on some average you calculate, you may be ‘making’ more money off of some backers who are close by. This isn’t really fair to those backers IMHO. It’s also harder to predict your bottom line. Plus, you still give more money to Kickstarter and Amazon- remember whatever you raise is subject to their fees.
- You could charge shipping outside of the Kickstarter campaign, after the campaign is complete. The way this would work is you’d still estimate the costs backers will pay based on their location and your reward size and weight, packaging, etc. and communicate that in the reward write-up and project page. Be very clear that each backer will be charged actual shipping based on their location once the rewards are ready to ship. In other words, you will either collect this as part of a pledgemanager / backerkit / crowdox survey, or, invoice each backer individually through PayPal or Square (PayPal for international because of fewer exchange issues, Square for domestic because it’s cheaper).Pros: This one is a list because there are many:
- You bypass Kickstarter making 5% off of everything you charge for shipping (You still pay some amount for any invoicing/processing). This can be significant.
- You invoice at the time of shipping (I’d say within 1 month) in order to charge based on the current shipping rates). This means you don’t need to worry about changing rates (other than potentially explaining it if shipping rates change significantly since you passed on your estimates to backers).
- You can lower your Kickstarter project goal. Since shipping doesn’t count toward the goal, you don’t have to build in and account for those costs based on your best estimate (and you really have no idea).
- Pledges are all pledges toward your project (not shipping it) and they cannot drive up funding in a false manner (i.e. the problem of having a lot of international backers at 65 per pledge, but, only 20 goes toward your project’s production is now not a problem).
- You don’t have to be exactly correct with your estimate (But be close). Since you clearly state that “exact shipping will be charged upon survey”, you’re being fair to both yourself and backers. People understand that it’s not cheap to ship things, especially internationally, and I think generally, expect to not be over or undercharged shipping.
- The tax implications of “profiting on shipping” are no longer a problem.
- If for some reason you cannot deliver what you’ve stated you could deliver, the backer has not also lost money by paying to have a “phantom item” shipped to them (as long as you haven’t yet invoiced them). Note: Always deliver. Just always do whatever you can to deliver or you’re done with crowd-funding.Cons: Another list, because there are several:
- You have to invoice everyone later (which takes time) or depend on a 3rd party pledge manager to collect shipping fees (which costs money, but probably less than the money you may lose if all of your estimates are wrong and they’re already collected through KS).
- If your estimates are wrong on shipping costs to backers, this could put people off. I’d recommend doing your best and stating clearly that the estimate is not exact and may be higher or lower depending on their location.
- If a backer doesn’t pay the shipping invoice, you must either bug them, refund their pledge (my recommendation, but you may lose 10% to fees and they lose some % because of receiving money via PayPal), or choose to ship anyway and take the loss (not recommended).
- Paying a shipping invoice may be inconvenient for a backer at a later time. For example, they may have disposable income at the time of your project end, but, what if they don’t have it when you send them a shipping invoice?
- It’s a bit different than how many kickstarter projects have been run so far- so you have to communicate well, try and ensure everyone understands what you’re doing so they’re not surprised later to receive an invoice, why you’re doing it, when they must pay shipping, and how much to expect to pay.
For my next project, a re-launch of Polyversal, I’ll be trying strategy 3. Chris Bennett of The Phalanx Consortium recently used this method when fulfilling a recent Kickstarter project and had good success with it. Personally I think the pros outweigh the cons because it takes some of the shipping unpredictability out of running a campaign. As long as you do your due diligence on estimating costs for backers up front, communicate what will happen (invoice later), and have a plan in case someone doesn’t pay the invoice, I think it’s the most fair and accurate method of shipping items to backers. Couple this with EU-Friendly, Canada-Friendly, AU/NZ-Friendly strategies and working with consolidators overseas (more on that in further reading), you can really save money for yourself as a creator and your backers.
When planning a Kickstarter project, you need to spend a lot of time planning how to cover shipping and how exactly you’ll fulfill any rewards you produce. Otherwise, you’re doing a disservice to yourself and your backers. So, spend time to think these things out for every physical product you’ll produce and ship.
As a backer, what do you prefer? As a creator, what other ideas do you use? Have I missed anything?
Check out the Stonemaier Games blog regarding shipping and fulfillment. Start from the first post and read through them all- because his strategy changes over time. Pay particular attention to the tips on EU / Canada / AU/NZ / USA friendly.
Check out this blog post related to Option 3 above.