how-does-kickstarter-make-money

How Does Kickstarter Make Money? The Kickstarter Business Model In A Nutshell

Founded in 2009 by Perry Chen, Yancey Strickler, and Charles Adler with a mission to help bring creative projects to life, Kickstarter uses an all-or-nothing model funding model (if a project does not meet its financial goal, no money changes hands between the creator and the backers funding the project). The company primarily makes money via transaction fees.

Origin Story

Kickstarter is a Brooklyn-based public benefit corporation and is best known for its crowdsourcing platform.

It was founded in 2009 by Perry Chen, Yancey Strickler, and Charles Adler with a mission to help bring creative projects to life. This means the platform is frequented by a diverse range of creatives, including musicians, filmmakers, comedians, journalists, and gamers.

From 2012 to 2017, Kickstarter embarked on an expansion strategy that saw it establish a presence in the UK, New Zealand, Australia, Singapore, Hong Kong, Mexico, Japan, and most of western Europe.

As of November 2020, the platform has launched over 500,000 projects worth $5.4 billion.

Kickstarter in numbers

Kickstarter has become one of the largest crowdfunding platforms, and the place where many business ideas have been validated and launched. To gain a bit of context it’s worth looking at some of its key statistics.

stats-kickstarter
stats-kickstarter
Source: kickstarter.com/help/stats

Kickstarter revenue generation

Kickstarter uses an all-or-nothing model funding model. This means that if a project does not meet its financial goal, no money changes hands between the creator and the backers funding the project.

As the company highlights:

We established the all-or-nothing model when we launched in 2009 as a measure to protect creators, and to minimize risk for everyone. By not releasing funds unless a project meets its goal, this ensures that creators have enough money to do what they promised and they’re not expected to complete a project without the funds necessary to do so. This also assures backers that they’re only funding creative ideas that are set to succeed.

Thus, the company argues that this model increases revenue generation for both Kickstarter and the creator. Financial goals encourage creators and backers to rally together and create a sense of urgency. A sense of community is then created when both parties cross the finish line together and successfully fund a project.

For projects that are ultimately unsuccessful, Kickstarter does not collect a fee and the money is returned to the backers.

Transaction fees

For a project that does meet its financial goal, Kickstarter takes 5% of the total amount of funds raised.

A third-party payment processor also takes a fee of 3% plus 20 cents per pledge. However, small pledges under $10 have a discounted fee of 5% plus 5 cents per pledge.

For users in the United States, this third-party processor is usually Stripe.

In the case of $10,000 raised by 100 pledges, the creators will receive $9000. Kickstarter then takes a $500 commission and the payment processor another $500. Given its relatively low operating costs, the commission Kickstarter receives is relatively profitable.

Kickstarter maintains that its fee structure has set the industry standard for crowdfunded creator projects. In other words, the company believes in paying the creator as much as possible by eliminating the numerous intermediaries in a traditional funding process.

These include agents, distributors, dealers, record labels, publishers, and fiscal sponsors.

Benefit Corporation certification

In 2015, Kickstarter was reincorporated as a Benefit Corporation in the United States. This means the company gauges success according to how well it delivers on its mission. While profits are important, they are no more important than socially responsible decision-making and goals.

Key takeaways

  • Kickstarter is an American crowdfunding platform that was reincorporated as a Benefit Corporation in 2015. Its mission is to help bring creative projects to life for a diverse range of creators.
  • For successfully funded projects, Kickstarter charges a commission of 5% of the total amount raised. A third-party payment processor – usually Stripe – also takes a cut for facilitating the transaction.
  • Kickstarter encourages projects to become fully funded by creating a sense of camaraderie between backers and creators. Ultimately, this financially benefits both the creators and the company itself.

Main Free Guides:

Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"