How to Calculate Crowdfunding Shipping and Fulfillment Costs

In recent years, crowdfunding has become one of the most common methods of funding startups.

According to CrowdExpert, global crowdfunding is a $34 billion industry with peer-to-peer lending of $25 billion, reward-and-donation crowdfunding of $5.5 billion and equity crowdfunding of $2.5 billion.

When startups choose reward-and-donation crowdfunding, a well-planned backer reward shipping and fulfillment system is imperative to ensure prompt delivery. In order to accomplish this, around 90 percent of successful crowdfunding projects outsource their shipping and delivery to a reputable company.

In order to understand the complexity of shipping backer rewards, here are six things to consider before launching a crowdfunding campaign.

“The cost” of products

If the rewards you offer your supporters are handmade, such as a knit hat or an origami doll, factor in the costs of the materials and the shipping. If necessary, it’s also important to factor in any transportation costs you might accrue. There are costs involved from the moment the items were ordered to the point of delivery.

Related: What to Do When Your Startup’s Crowdfunding Campaign Fails

The cost of shipment of products from the production plant to the fulfillment warehouse

In the scenario where items must be shipped from a manufacturing plant to a fulfillment warehouse, take note of the shipping expenses involved. A fulfillment warehouse requires items to be placed in boxes, packed, labeled and prepared for final delivery to the backers’ addresses. This is usually a third-party logistics and fulfillment service, which involves cost on your part.

Calculate cost of storage (if needed)

Once the items have arrived at the fulfillment warehouse, sometimes they must be stored for several days or weeks, due to various reasons, such as waiting for other products to arrive (multiple products in a box, for instance) or waiting for their turn to be fulfilled. Factor in the storage expenses per day to be on the safe side.

Amazon Fulfillment Services, for instance, charges per cubic foot on a monthly basis, starting from $0.64. Small boutique fulfillment and logistics centers like ShipMonk charge per size on a monthly basis, starting from $1 per bin.

The cost of mailers, boxes and filling

Boxes, mailers and filling cost money, which is not to be overlooked. Not all fillings are created equal, either. There are other packing materials to consider besides plastic bubble wrap, depending on the items to ship, like air pillows and Instapacks. Most shipping companies no longer accept Styrofoam peanuts and starch peanuts, as they are messy and bad for the environment.

The cost of packing and fulfilling products

There is also a cost of having workers pack, label and hand-pick packages in the warehouse. Usually, the more items to pack and the larger the box, the higher the fulfillment and logistic fees. However, the price decreases with order volume and the more shipments translate to better rates.

The cost of shipping products from the fulfillment warehouse to the backers’ addresses

Many entrepreneurs who crowdfund their projects only factor in this cost, which is a huge mistake. It is the final cost (but not the total cost) to be paid, after factoring in the all elements of the packages. The boxes and the fillings have weight too, so you need to include them in the total weight of the package. Use this figure to get the shipping cost imposed by the chosen carrier. Compare shipping rates by USPS, FedEx and UPS with this calculator.

Although there is no certain formula for calculating shipping and handling costs, it is wise to add shipping costs the backer’s pledge. This cost varies depending on the volume and the weight of the item and where it is sent. Another option is adding this in the crowdfunding description: additional shipping and handling fees apply for backers with overseas delivery addresses.

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Contact a fulfillment company to discuss your specific needs

A reputable company can perform every task discussed above and more.

Here are several things to ask when shopping for the most suitable fulfillment and shipping company.

  • Do they provide consultation every step of the way?
  • Do they provide different shipping options?
  • Do they provide detailed pricing information based on types of services and shipment types?
  • Do they handle batch-fulfillment programs (which is ideal for crowdfunding reward shipment)?
  • Do they have an informative website?
  • What are their policies regarding insurance?
  • How integrated is their software with crowdfunding sites?
  • Do they provide services that include tracking, notifications, missing inventory, address verification, shipping options, batching and others?

When crowdfunding, never underestimate the importance of shipping and fulfillment planning. A crowdfunding project requires not only a solid presentation video to attract backer rewards, but also a well-planned fulfillment plan. Hiring a reputable third-party fulfillment company is the way to go.

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