"Kickstarter Funded!" Now where does the money go?


Kickstarter has taken off in the last year, with the success of some big name projects. The crowd sourced funding model has allowed people with great ideas a chance to succseed even without the blessing of traditional big publishing venues. I've chipped in on a few projects myself, include the hyper successful Double Fine Adventure project which raised over 800% of its initial goal and was the second kick starter project to break a million dollars.

One of the reasons that the Double Fine project itself is exciting, is because part of their project goals is to make the entire development process transparent to the backers. Since they got their funding in March, their private backers forum has had 37 post; 11 major updates from artist, programers, and writers giving a surprisingly in depth work at their work process; and 5 videos posted from the behind the scenes documentary.

In the spirit of backer exclusivity, I don't want to reveal any of the information they have given on the development of the actual game. But there was one update shortly after their project funded, where they laid out just what happens to all that money the Kickstarter raised. This will give us an interesting look at what happens to Kickstarter projects after the countdown has reached zero, and the real work actually begins.

Following the money

So after several weeks of trying to get the word out and begging for backers, a kick starter project gets successfully funded. Now what?

In the case of Double Fine, they raise $3,446,371 which was well over their original $400,000 goal.

The first thing that happens to that $3,446,371 is that the Kickstarter and Amazon fee's are taken out. Amazon gets 5% for every payment made through kick starter, and the Kickstarter people themselves get a 5% cut. There also end up being a number of payments that don't go through for various reason such as failed money transfers, or bounced checks. After those initial settings and fees are taken into account, Double Fine was left with $3,099,660.

Next, they have to worry about all of the Backer rewards. All of those tier rewards they promised for donating at certain levels have to be produced and paid for by the projects team. This means actually manufacturing any rewards, images, t-shirts; and then for any physical rewards there is the cost of packaging and shipping to all of the eligible backers. For the Double Fine project which had over 87,000 backers, the final cost for making and shipping the rewards came to $473,231. Or 15% of the raised funds.

After all of that, Double Fine and 2 Players Production (the documentary film team) had $2,626,429 left to split between themselves. About 75% of the total amount they raise, but still several times larger then their initial goal. They said, while they originally figured they would be able to hire 3 people to work on the project for 6 months, they would now be able to hire 11 people for a year.

How that money gets divided up between salary, tools, development, and production is an exercise for their project managers; and is part of the of the backers only information about the development process. Although any one who is interested but missed the kick starter can get a per-order for the project here, and get access to the backer only forums.

An example of what not to do

So that was an example of one of the most successful projects on kickstarter. What about projects that have a much smaller budget? As a point of contrast, here is a funded kickstarter project that had a slightly different experience post funding.

Last year, there was a project called Star Command, for a smart phone game that is kind of a cross between Star Trek and X-com. They managed to succeed in funding their project, raising almost $37,000 compared to their original $20,000 goal.

What happened with that money is a cautionary tale that, to their credit, the Star Command team made a post about to their backers in one of their updates. They revealed a lot of interesting information about how the money was used, why it disappeared so fast, and what the team thinks it might have done differently knowing what they know now. To sum it up as before...

As before, Amazon and kickstarter took their 5% cuts, and the failed transactions were taken off the top. This left the group with $32,000.

After that, they ended up having to meet all of their backer reward promises. T-shirts, stickers, buttons, and so on... The production and shipment of all of those rewards ended up costing $10,000, almost a third of the money they raised, leaving the team with only $22,000 left.

That money then went towards the actual production of the game including music, development tools, advertising, and attorney start up fees for their company. Outside all of these initial expenses they were left with $6,000 to put towards the employees time working on the project. But because for most of the developers this was a labor of love, and they did not actually spend this money before the end of the year, it counted as income for their company so it was taxed down to $4,000. This is for a project that's been in development for close to a year now, at least.

The Star Command team just posted an update recently, so development on their project is still moving along. The Kickstarter funds was not their only source of funding as members of their teams have taken out loans to ensure it gets to completion as well. But it is surprising to see just how fast the money can go, for some of these ambitious Kickstarter projects.

Update: Additional Example, Banner Sage

I just got an update today from yet another Kickstarter, The Banner Saga, which has just released a public update, complete with a video showing just what $22,000 worth of backer prizes looks like. Heh.

Quick rundown of the numbers, which you can read more about in their update:

  • $730,000 raised
  • Take out 10% for Amazon and Kickstarter, and failed payments leaves $650,000
  • $22,000 to make prizes for the 4000 backers who qualified for physical prizes. Another $22,000 to deal with shipping including international shipping in some cases. Leaving $600,000.

Of that $600,000 they have left for the actual project

  • 50% of that is currently going to outside contractors. This includes additional programers, a sound design team, composer, animation, QA, Writer, Interface artist, and a community manager.
  • 5% set aside for mundane business expense including office lease, and production tools both software and hardware.
  • Another chunk is set aside for hosting and networking to support the game post release
  • The rest is being set aside to evaluate where it's needed as the project continues.
  • All of the founding developers are not taking any salaries, and are living off their own savings until the game starts making an income.

Asking and Giving 110%

So if a project team decides that it can get by with a $9000 budget they are going to have to ask for $10,000 at least. Probably more because of fee's, taxes, production cost, and unexpected expenses. Most Kickstarter projects don't reach multi million dollar amounts, and a lot of those smaller scale projects are probably already accounting for a bare boned budget by developers who plan on working under on a shoe string budget.

Rewards are also a big factor that the project team really has to consider. If the t-shirt reward is set at the $20 donation level, and that t-shirt cost them $15 to print and ship; they are actually getting less money at the $20 donation level then the $10 level that only has digital rewards. So if you ever wondered why some projects require you to be donating at least $75, and 'all you get is this lousy t-shirt', its because these backer promises can account for 15-30% of the total amount they raised.

Of course that's also the reason why digital rewards or custom content for a project can be some of the most common rewards, and in many cases some of the most interesting as well.

Groups like Double Fine have the advantage in that they already have an established company and project teams. They took into account during the kickstarter process just how much the rewards would cost, and how that would factor in to the donation amounts and reward levels. Having a much larger number of backers is also a boon in that the cost per person for backer rewards goes down with mass production.

So the next time you see a Kickstarter project and wonder why they are asking so much, it might be interesting to figure out just how much of that they will actually see.


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