Thursday, August 5, 2021

Kickstarter Fulfillment 101: Shipping Costs


You've found the second in a series of blog posts on Kickstarter fulfillment for the discerning RPG publisher, the first covering Pledge Management and perils therein. This time, I'm going to break down the exact formula you need to avoid losing money on shipping for your next project. I'll also show my work, analyzing every step in the formula in detail to ensure you never miss a hidden fee again. 

Compounding fees will sink your budget if you don't plan ahead and factor in some wiggle room. Recalling stats from my previous post, I narrowly avoided over $1500 in losses (nearly 1/3 of my profit margin for the entire Kickstarter) by using a pledge manager for shipping cost collection and carefully calculating a tangled web of fees via the following methods. 

My fulfillment for The Drain is still underway with a few outstanding orders and replacement packages left to ship out, but I estimate my true final costs fall within a 1% margin of collected shipping costs—an extremely relieving success in my book.

Ready for math? Let's dive in.

Calculating Shipping


Without further ado, follow this formula for shipping costs to protect yourself from misfortune:

Final Shipping Cost (Per Country or Region)
Actual Shipping Cost
Platform Fees
Payment Processing Fees
Packaging Materials Costs
Handling Fees
Distributor Transfer Fees
5% to 10% for Wiggle Room

Now Let's Go Through an Example


Let's create a simple, hypothetical campaign. We'll give them 100 backers, a low and flat actual shipping cost of $5, a distribution partner, and use of Backerkit.

Given: 
$5 Actual Shipping Cost
Backerkit Fulfillment (3.5% Platform Fee and 2.9% + $0.30 per order Payment Processing Fee)
$2 Handling Fee (including Packaging Costs)
$30 Distributor Transfer Fee (over 100 backers): $0.30 per backer.
10% Wiggle Room

(($5 + $2 + $0.30 + $0.30) / (100% - (3.5% + 2.9%))) x 110%

($7.60 / 0.936) x 1.1

Final Shipping Cost: $8.94

This final number should net the publisher $0 profit after all fees and assuming the 10% wiggle room gets eaten up by replacement packages (an inevitability) or other unforseen costs. 

If this hypothetical publisher ignored all the fees and just charged the Actual Shipping Cost, they're losing almost $4 ON EVERY SALE (if I did my math right). That's a straight $400 loss for our modest hypothetical campaign with 100 physical backers, totally unacceptable. If we plugged the above figures into my previous campaign instead, we'd be looking at over a $4000 loss—nearly all of my profits.

Note that the above doesn't account for the 2% campaign funds Backerkit initial load-in fee. Let's assume this hypothetical Kickstarter chose to subsidize those costs or factor them into their pledge totals, but another might choose to factor them into the shipping.

If the Above Example Made Your Eyes Glaze Over


I wouldn't recommend using it if you can avoid it, but if you struggle with math or just can't be bothered—here's a simplified heuristic formula that should get you pretty close:

Shipping Cost + Handling Fee + Materials Cost + 30% Total Fee Estimate

Using the numbers from our above example, you get: ($5 + $2) x 1.3 = $9.10 (pretty close)

Formula Analysis


Now that you've seen the what, let's get into the why.

Business Man says, "Invest in yourself!"

Actual Shipping Cost


To find this, you'll need to identify how you plan to ship your zines. If using a distributor, request their current rates for all regions. If you plan to ship them yourself, you might want to look into a label printing service like Pirateship (if US based) for large order quantities. The costs via these services will likely be lower than the costs at your post office. No matter how you find these prices, make sure they're accurate and up to date! Don't guess.

Make sure to weigh your parcels using the actual products and packaging materials you intend to ship with. Package weight and size has a huge bearing on shipping prices, so be sure to double check postage requirements!

Note that I was able to print a batch of USPS First Class (the cheapest method for the posters I was shipping) labels via PayPal after I realized USPS doesn't offer First Class label printing on their website. I wouldn't recommend PayPal for very large orders (their interface is clunky), but it's usable in a pinch if you don't have time to sign up for a dedicated label service. This is how I shipped my approximately 50 posters to backers, and it went off without a hitch.

Platform and Payment Processing Fees


No matter which platform you use, you'll almost certainly run into fees. Generally, you'll be looking at a 5-10% loss if you fail to budget these into your shipping costs. Here's a brief overview of some common costs:
  • Kickstarter Fees: 5% platform and 3% + $0.20 per pledge payment processing fees
  • PledgeManager: 5% platform and 2.9% + $0.30 per pledge payment processing fees (Stripe default)
  • Backerkit: 3.5% platform and 2.9% + $0.30 per pledge payment processing fees (Stripe default)

Notably, to factor in these fees you should NOT multiply your shipping costs by the added fees (calculating it this way will lose you money). Instead, divide by 100 minus the total fee %. That way, when the fees are deducted you will zero out to the base shipping cost.

Packaging Materials Cost


Most distributors will factor materials cost into a flat handling cost, but when shipping pledges yourself it's best to calculate them separately. Packing could again be a whole blog post in its own right, so I'll just give a very brief overview here: Buy materials in bulk, err on the side of stiffness + safety (I prefer rigid mailers for zines), keep track of all your costs.

Handling Fees


These are most relevant when using a distributor ($2 seems about typical for handling from most outfits), but it's worth considering placing a value on your own labor if handling the shipping yourself. Researching shipping costs and methods, organizing backer reports, importing and printing labels, packing boxes, and delivering them to your post office is a massive time investment.

Personal note: I spent a full 2 days just packing and shipping out 50 poster tubes for my Kickstarter, and that was with the part-time help of family members. If we were calculating the value of that labor based on my local $15/hr minimum wage, that's over $500! Even if I was just counting my own labor, I'd need to charge a handling fee of nearly $5 per backer to appropriate compensate myself for my time. I didn't charge my backers any handling fee for that labor and wouldn't charge anything that high for future projects, but you should be doing calculations like this when thinking about your budget and pledge costs.

Distributor Transfer Fees


If you're working with distributors, an easy way to lose a big chunk of money is forgetting that you'll need to reimburse them for the cost of the shipping—doubling up on payment processing fees. If you use a service like PayPal or Stripe, that means losing another 3%. Ouch!

Particularly if you're dealing with large sums (I've collected about $8000 worth of shipping fees!), you should look into cheaper methods like a wire transfer or check. With my bank, I'm charged $30 per transfer to domestic banks—making that method nearly 10x cheaper than PayPal.

Wiggle Room


A certain portion of your packages (I've seen 3-5% quoted before, but it could be even higher in the Covid era) WILL be damaged or lost in transit to your backers. Many retailers and publishers offer free replacements for damaged packages (I have been), which means you're both paying for shipping and handling again out of pocket AND giving away product stock (you overprinted to account for replacements, right?).

Add onto this the possibility of fees from unexpected sources, sudden cost increases, erroneous quotes and any other number of very realistic misfortunes, 10% starts to feel like a conservative margin!

Decisions, Decisions


While including all these steps gives you a highly conservative and low-risk number, they don't each apply to all situations and projects. You might want to subsidize some of these costs for backers (I did in some cases, you're welcome Canadians) or bake them into the cost of your pledge instead. What you shouldn't do is handwave them away and hope for the best. Even if you plan to subsidize most of these costs, you should do the math and figure out what kind of losses you're really working with.

You might feel hesitant to pass these fees onto your backers, which is an instinct I understand. I certainly don't want to charge people more than I absolutely must and I recall the sharp sting of an unseemly shipping cost deterring me from a purchase. When making these decisions, never lose track of scale—a given fee might mean less than $1 to your individual backers, but hundreds or thousands of dollars to you.

Before leaving you, let's address a core ethical assumption to all of my advice here: We calculate these costs and fees with the goal of charging backers an amount accurate to the total shipping and handling cost and walking away with no losses or profits. If at the end of a project you find yourself unexpectedly profiting from shipping, you might consider adjusting your calculations lower for your next Kickstarter. Be fair and honest, including to yourself.

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