One of the biggest issues we have had so far while working through the needs of our Kickstarter campaign has been figuring out what to set our minimum goal at. We have all of these miscellaneous costs and fees, several of which are on a sliding scale, getting bigger the more we sell. After failing to find an equation for this problem on Google, we put our heads together and came up with an equation that works pretty well. It starts by calculating the entire cost for landing your project at your door, then adds in shipping to get it out again, pads in the fees from Kickstarter and Amazon, and spits out the minimum units you need to sell, in order to pay for all of this. You can then use that number to find the “goal” you need to meet in order to fund your project.
If you’re feeling daring, or just plain resilient, let’s get started.
The Minimum Unit Equation
First, let’s calculate the unit cost.
Let’s say you want to print a graphic novel. Your price from the printer is 5,000 books for $20,000. Shipping from the printer is going to run $1,000. You do some figuring and decide it will cost $1.50 per issue to package, and add in a custom printed thank you card for a total of $7,500. You then add these costs up for a total product Cost of 28,500.
20,000 = 5,000 printed graphic novels
01,000 = delivery of 5,000 graphic novels to your house (hope you have a garage!)
07,500 = packaging, cards, etc. for 5,000 graphic novels
28,500 = total product cost (C)
You may have a much longer list than this if your project is made up of a number of components. The point here is to get a total cost of getting EVERYTHING into your home/office/workspace.
Now that everything is at your place, you’ll need to figure out domestic shipping of your graphic novels to your backers. After looking over the various options, you decide to choose the U.S. Postal Service (hold your criticism, please, its just an option, you can pick whatever you like) and a flat rate service for $5.60 per book. If you decide to offer international shipping you can tack on whatever you think is relevant after this process. For now, just stick w/ the domestic costs. Its not perfect, but it should be close enough.
$5.60 = shipping per book (S)
For a great look at the perils of not figuring out your shipping correctly, check out this article by card game designers, Albino Dragon.
You decide that since shipping will already run $5.60, and you want to keep your book under 20, that you’ll charge $12.40 per book, for a nice round $18. It sounds a little expensive, but it does include shipping.
So, $18 is the price you will charge a backer to pre-order your graphic novel (P).
We’ll finish this off with the number we’ll trying to solve for; the minimum number of books we need to sell in order to make the project a ‘go’. We’re going to call it ‘number of units’ and give the it a variable of U.
Finally, we need to remember that Kickstarter takes 5% of your TOTAL pledge money, and Amazon UP TO 5%. These tap into what you’re collecting for both the product AND shipping! Between the two, you are paying out somewhere between 8% and 10% and if you don’t account for that, you may find yourself paying for shipping out of your own pocket, or worse, find that you have fallen just below the threshold of being able to pay for the project. To counter this, we’ll figure for the worse case scenario of 10% and multiply the entire project by 1.12. Technically, this number is 1.1111111… etc., but we’ve rounded up for simplicity’s sake. You’re welcome.
So, here’s the equation:
PU = 1.12(C+SU)
And the numbers we have:
P = $18 (per item and includes shipping)
U = ? (this will be the number of books you need to sell to make this all happen)
1.12 = Fee padding
C = 28,500 (cost of getting all components to your door)
S = $5.60 (shipping per item)
Let’s go ahead and plug in the numbers we already know:
PU = 1.12(C+SU)
18U = 1.12(28,500 + 5.60U)
Now, we can multiply out the right side:
18U = (1.12 x 28,500) + (1.12 x 5.60U)
– or –
18U = 31,920 + 6.272U
Subtract 6.272U from both sides:
11.728U = 31,920
And divide both sides by 11.728 to solve for U:
U = 2,721.691678035470668, or rounded up, 2,722 units
What this gets you is the minimum number of units (in this case 2,722 books) you need to pre-sell in order to make enough money to pay for getting the entire lot to your house, shipping the rewards to your backers, and cover the 10% in fees.
You can then figure out the minimum cash requirement (or your “goal”) by multiplying the number of units you need to sell (U) by the price you will charge (P):
U x P = goal
– or –
2,722 units x $18 = $48,996
And your brain explodes.
“WHAT?!? I have to raise almost $50,000 to pay for $20,000 worth of books?” Yep. Math is fun. So are business costs. Let’s reverse this and we can see what happened.
2,722 units (the minimum you need) x $18 (price of book including shipping) = $48,996 (the “goal”)
First we give Kickstarter and Amazon their 10%. We’ll multiply our $48,996 by .9 (or 90%) to see what you get to keep after the fees are stripped out:
$48,996 x .9 = $44,096.40
Now, let’s remove the shipping costs. Remember, the shipping was $5.60 per book, and you’re selling 2,722 books, so that’s gonna put $15,243.20 into the U.S. Postal Service’s pockets and help keep Saturday delivery around for a little while longer:
$44,096.40 − $15,243.20 = $28,853.20
This $28,853.20 is only $353.20 over the original $28,500 total product cost (C), which isn’t bad considering we did a bit of rounding here and there.
As an aside, this really only calculates your break even point. Every book you sell after this is a profit of $10.60 after paying the 10% fee and $5.60 shipping for a potential profit on your 5,000 books of $24,146.80. That is, if you sell them all during your campaign. If you sell them after the campaign, perhaps from your online store, you can skip Kickstarter’s 5% fee and charge whatever you want and only have to deal with shipping and credit card processing costs.
Repurposing the Equation
Another possible use case for this is to find out just how low you can price your books, assuming you want to sell out a certain number of items. So, in this case, assume you want to sell out your whole run of 5,000 books. Instead of solving for U, set U to the number of books you want to sell (in this case the whole lot of 5,000) and solve for P. Without the extensive run through, here it is:
PU = 1.12(C+SU)
5000P = 31920 + 28000
5000P = 59920
P = 11.984 or $11.99
So, you can sell each book for $11.99 and barely break even. Not sure why you’d do that, but there you go.
Help a Guy Out?
Again, this is what we came up with when trying to figure out how much to charge for our project. None of us are professional mathematicians, but it seems to work reasonably well for us. If you can improve on this, please feel free to share with us. We can post it here, or link to your page if you have something that works better or under different circumstances.
Also, if/when we get to a point where we’re putting in add-ons for reward levels, we’ll probably have to update this equation to factor those in as well.
Hope this helps!