This is the ninth post in our 30 Day Ask Clay Crowdfunding Q&A.
I’m answering a new question every day in June.
Submit your question by going to CrowdfundingHacks.com/AskClay, where you can see all of the questions and all of my answers.
Full Transcript
Hey everyone…this is Clay Hebert from CrowdfundingHacks.com…and today’s question is…
How should I price my reward levels?
This is a great question and something a lot of creators get wrong.
Before I explain the answer, I want to explain why so many creators get this wrong.
People conflate crowdfunding with fundraising and charge higher than MSRP. That’s a mistake.
I’ll explain…
In charitable fundraising, let’s say a fundraising gala for your favorite charity, the whole point is to overpay for what you’re getting. The chicken dinner doesn’t cost $100 per plate.
The price of the chicken dinner is “above MSRP” or “manufacturer’s suggested retail price”.
You put on a tuxedo or a cocktail dress and intentionally overpay to support the cause.
That’s fine for fundraising but rewards-based crowdfunding is not fundraising.
That’s the mistake that most crowdfunding creators make. They price their reward levels “above MSRP”, just like the chicken dinner at the charity gala.
When you see a new author charge $15 or $20 for the digital version of their book, that’s “above MSRP”. Anyone can get almost any book they want on Kindle for $9.99. Amazon has trained us that MSRP for a digital book is $9.99 and I can even get Malcolm Gladwell’s book for $12.99, so why would I pay $20 for a stranger’s book?
In rewards-based crowdfunding, you want to price your rewards “below MSRP” for one big reason:
Price your rewards below MSRP to account for fulfillment risk.
When someone orders something from Amazon or Zappos (or if they walk into a local store) there is essentially zero fulfillment risk. They’ll get exactly what they paid for, either immediately or in the case of Zappos or Amazon, with free one or two-day shipping. No risk.
In crowdfunding, there are a lot of elements of fulfillment risk…
- The product may not be complete yet.
- It may not arrive anytime soon.
- It may not arrive by the promised fulfillment date.
- It may not arrive at all.
- When it does arrive, it may not be what they had expected or hoped for.
Your backers are the people who are willing to pay you cash today for the promise of you and your team fulfilling what you promise at some point in the future. They’re not just backers, they’re your first, best customers.
These backers are taking a chance on you creating and successfully fulfilling your new thing. They’re giving you their hard-earned money on a promise and trusting in you weeks or months before your product even exists. For that, they deserve a discount.
So to recap…
Rewards-based crowdfunding is not charitable fundraising.
Because early backers are paying you now for basically a promise of production or delivery at some point in the future, you should price your rewards “below MSRP” to compensate for that fulfillment risk.
As always, you can submit your question or see all of the crowdfunding questions and my answers at http://crowdfundinghacks.com/AskClay
