The Hardware Startup: Building Your Product, Business, and Brand by Renee DiResta & Brady Forrest & Ryan Vinyard

Author:Renee DiResta & Brady Forrest & Ryan Vinyard
Language: eng
Format: mobi
Publisher: O'Reilly Media
Published: 2015-05-19T14:00:00+00:00

Creating a Financial Model

Pricing your reward tiers is a challenging exercise in being cognizant of how much money supporters are willing to spend while still pricing in an appropriate amount of gross margin (the selling price of an item minus the cost of goods sold) — particularly if fulfilling this campaign is going to be your full-time job for a while. (It’s important to note that this section touches on the pricing considerations necessary for successfully executing a crowdfunding campaign. Chapter 10 includes additional pricing exercises relevant to growing a company. If you are planning to distribute your product through big-box retail stores at some point in the future, for example, you must build in enough margin now to remain profitable while keeping your price consistent across all channels.)

For now, we’re going to assume that you know what the total wholesale cost to manufacture each individual widget is and work through the additional economic considerations specific to determining cost of goods sold (COGS = cost of products, including production cost, freight/shipping, labor costs, factory overhead expenses, storage) per item for a crowdfunding platform raise. If your product is still in the concept phase, you must do extensive research on production before you initiate a crowdfunding raise (and be sure you’ve read Chapter 5 and Chapter 6).

Presumably, you have a fundraising goal in mind. You’ll definitely need one for a fixed campaign. You want the total amount raised across all reward tiers to move your project forward. Crack open Excel or other spreadsheet program of your choice, and model out your burn rate (the amount that your startup spends each month). Figure 8-3 shows a basic example of a crowdfunding perk pricing worksheet (download from this book’s GitHub repository to use it yourself).

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