The Real Cost of a Crowdfunding Campaign (And How to Budget Correctly)

Posted by Andrew Hall on Jul 31, 2014 11:56 AM
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When it comes to managing and securing funds as an independent artist, crowdfunding has become a great tool to leverage a supportive community that can help you get to the next level. Whether it's for an upcoming album release or to help you branch out to a new touring market, this modern-day fundraising approach will allow you to offer some unique merchandise or special experience for your fans in exchange for their financial support.

Crowdfunding can be a viable way to generate income for a project, but it's far from the easy way out – it will still cost you time and money to set up the campaign, promote it, and execute the specific pledge goals you set, so it’s important to do your homework on how to run a successful campaign before you dive in.

Peter Alhadeff, a professor at Berklee College of Music, and Luiz Buff, a graduate of Berklee, conducted extensive research on crowdfunding, which we break down for you below. For more, please read their original article on

Crowdfunding basics

Most band campaigns will fall into one of two crowdfunding categories: donation or reward.

The donation model has participants contributing to help support the cause, without any expectations of a reward. They do this because the project is something that is important to them and their personal beliefs.

The reward model is when people are rewarded for their contributions. Usually rewards grow in terms of exclusivity with how much is contributed.

Even if you're using one of the most popular platforms, such as Kickstarter, Indiegogo, PledgeMusic, or RocketHub, it’s very important to understand only around 54 percent of people succeed in reaching their campaign goals.

So it’s crucial to...

Use data to set realistic goals

The first thing you should do when setting your crowdfunding goal is research similar campaigns to the one you are launching. You can benefit from their successes and shortcomings, and it will also help you structure your reward system to optimize for your ultimate goal total.

Take this spreadsheet, for instance, in which information from 102 successfully funded Kickstarter music projects completed between February 11, 2013, and February 23, 2013 was tracked:

crowdfunding table 1


You can see that the average pledge per backer increases as the average goal increases, so this will help with determining a starting point. Indiegogo offers tips on which reward pricing is the most successful, but it’s important to keep in consideration how much you are trying to realistically raise.

You can use this simple spreadsheet as a jumping off point to determine the cost of your rewards:

crowdfunding table 2


This isn’t a one-fix solution for structuring your campaign, but it’s a place to start. It’s up to you to determine how much is realistic for you to raise based on the size of your reach and fanbase. It also helps shape the idea that if you can offer a more substantial prize that only costs you time (like a private Skype lesson or an autograph), it will help you with...

Budget for all of the costs involved

If you don’t take into consideration things like how much it will cost to market the campaign leading up to hitting the goal, service fees and taxes (if you do hit the goal), and most importantly, fulfilling rewards in the agreed upon time frame, then the campaign could be all for nothing.

Just because you need $5,000 does not mean you should set your goal for $5,000. With service fees taking between 3-5%, plus taxes costing another 10%, in addition to potential costs for having to order in bulk to save on inventory and other unforeseen expenses, you should be accounting for all of this when determining your final goal.

You can even use this formula to figure out what your real goal should be:



The delivery of the agreed upon rewards is the most crucial part of these campaigns. If you don’t make good on your word to deliver the rewards on time, it will diminish everything you’ve done, and you’ll have zero credibility to try to crowdfund again. So making sure that your CDs, records, shirts, etc. are printed on time (so you don't have to overspend on overnight shipping or added inventory) will help you budget and keep profits where you expect them to be.

Now that you understand what goes into creating and budgeting for a crowdfunding campaign, you should be able implement these best practices to make your campaign a success. Remember, just like any fundraiser, these campaigns can’t be too frequent or the main source of income for your band business. You’re allowed only a few opportunities to leverage your community for an exciting reason, and with their support it should help you take your career to the next level – so make it count!

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Topics: Features, crowdfunding, Legal & Money


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