How To Calculate COGS For Kickstarter Reward Tiers

Reward Tier Planner

Use the Reward Tier Planner to help design the individual items included with each reward tier bundle, those item prices, and plan the landed cost or COGS for each item unit.

Calculating Individual Item COGS & Prices

To help calculate your landed cost or COGS for each item included in a reward tier, use the COGS calculator, here.

Designing Reward Tier Bundles

The first thing you likely want to do is plan out what items are included in each reward tier bundle.

In the below spreadsheet, see how the reward tiers are broken down by columns, and then the individual items contained in each reward tier bundle are broken by rows:

(Shoutout to Marco Piana from Big Empty Blue for inspiration on the layout)

Calculating Landed Costs & Item Prices

It's important to view the landed cost per item unit (COGS), and then figuring a fair market price for each item. From there, you can calculate the MSRP price of the add-on items and reward tiers as whole -- and by using a percentage, the discounted reward tier price:

To elaborate on the MSRP price, it is best calculated using standard Keystone Pricing. The Keystone Price is how retailers will determine the product price for bulk Wholesale Pricing, and they are typically looking for a 50% discount from the MSRP (Keystone Price).

In essence, the Wholesale Price is typically 2x the COGS, and the Keystone Price is therefor typically 2x the Wholesale price.

SIDE NOTE:  big box retailers like Walmart will ask for merchandising deals as low as 30% to 20% of the MSRP, which leaves you very little after it's all said and done -- the key here to profitability is of course the massive scale of their bulk purchases.

There are a number of costs you will want to be aware of while calculating your Landed Costs, which are the costs associated up to the point of getting the product to your warehouse, such as:

• Cost Per Unit from the manufacturer
• Duties and Tariffs
• Inbound Freight per unit (2% is a safe estimate)
• Shipping to the warehouse or customer, weight of package ($7 for small items)
• Warehouse pick & pack fees ($1.25 for smaller items)

For the inbound freight per unit, you can use 2% as a safe estimate until your manufacturer and freight forwarding service (such as UPS, once it lands at the docks) can get you a better estimate once you are ready to actually place the final order.

Shipping costs to the customer can be estimated using EasyShip's shipping calculator.

Make sure to backcheck the calculated keystone price against a fair market price for competitor products. If your keystone price is not within a 20% range of a fair market price, it's important to find a way to bring the MSRP back into this 20% range. This will ensure backers are not shocked by the price or hesitating on price alone.

Methods of reducing the Cost Per Unit or Landed Cost might include:

• Searching for different manufacturer quotes
• Choosing cheaper components
• Simplifying the product design
• Flat packing your product in the packaging box so that the customer themself assembles it
• Choosing a dedicated 3PL per shipping region if there are enough orders in a specific region to justify it
• Choosing a more efficient logistical chain for your material sourcing
• A freight consolidator service that puts your product alongside other products in a single cargo container
• Picking a more favorable tariff categorization

For digital products, researching the fair market price is still incredibly important. Do you research using competitor product pricing to understand the fair market price for individual items. You can infer the fair market price of individual items on other Kickstarter projects by looking at the delta difference between their reward tier prices and the additional items included with each tier. For example, for a video game, you might see the base digital game key cost $30, while the next reward tier costs $40 for added Digital OST and Digital Artbook -- thus, the inferred fair market price for the Digital OST and Digital Artbook are $5 each.

Calculating Cost Of Sales

Finally, you will want to calculate the Cost Of Sales in order to figure the final net margin on each individual unit item or reward tier:

• Kickstarter platform fees (5%)
• Credit Card Processing fees (3%)
• Returns, refunds, and cancellations (5% is a healthy ratio)
• Customer Acquisition Cost

In the below spreadsheet, see how the reward tiers are broken down by columns, and then the individual items contained in each reward tier bundle are broken by rows:

Product Packaging & Handling

For smaller creators, you may be just shipping the product to your own house for pick and packing, and you can source your large boxes from ULine, or smaller cardboard boxes on Amazon for even cheaper prices.

A 3PL Logistical partner can certainly make the process a lot easier, though, especially for large Kickstarter campaigns in excess of 1000+ orders, so I highly recommend hiring a 3PL partner in that scenario.

Some tips and tricks here might be to explore Flat Packing, where your product is broken down and flattened to reduce the size of the box + shipping container. Think of Ikea furniture, where the customer must assemble the product at home.

Pirate Ship is the most popular DIY service for postage, pickup and shipping: https://www.pirateship.com 

An important feature of Pirate Ship is SIMPLE EXPORT RATE shipping, which can save customers up to 50% OFF shipping costs internationally. However, the package must be under 4 lbs to receive this special discount. 

For small orders batches to international countries, this can be a huge saver!

NOTE: Simple Export Rate will not be available on your Pirate Ship account until you first create an account and contact the customer service chat bot requesting it to be added to your account.

European Packaging

When fulfilling to Europe, there are important legal specifications that must be complied with, namely various markings on the product packaging, inserted paperslip or product box:

1. The CE / CE UK mark
2. The Publisher's name and address
3. The EU Representative's name and address (as required by EU legislation)
4. The UK Representative's name and address (as required by UK legislation)
5. Product identification details (e.g., batch number, serial number, model number) for traceability
6. All required warnings and instructions in English

Your manufacturer will typically handle these markings for you, as they are legally liable for compliance. However, some less reliable manufacturers may fail to comply with all required markings – make sure to get a test-print or small-batch order prior to mass-production so you can verify that all markings appear on the product box, or at least on the packaging itself and a paperslip in the packaging.

In the worst case scenario, where they mass produce the wrong production art on the box or otherwise missing the CE markings, serial numbers, etc. you should ask the manufacturer to apply stickers to the box prior to shipment or provide you with such stickers that bear the missing markings to apply to the boxes.

Closing Thoughts

Make sure all of your key add-ons appear at least once within the reward tier bundles. This ensures you sell the maximum amount of any particular key item and get the best prices from your manufacturer.

Dig deeper: How to plan Reward Tiers for Kickstarter