Guide to Music Crowdfunding – Part 1: Fans with Benefits

By Bryan Kim on Bryan Kim 

This post is the first in a multi-part series on executing an optimal music crowdfunding campaign, gathered from my hands-on experience at Think Steady Inc. I’ll share a detailed roadmap of best practices, and if you’ll let me, indulge in a few off-the-wall theories on why they work. I’ll be discussing this fuller in person at SF Musictech Summit on Nov. 11, join me!

In October of 2012, I wrote a piece titled “Crowd Patronage” in this very blog, theorizing about how early music Kickstarter campaigns were illuminating a path to the new “post-Napster” music industry. The piece did well on Hacker News and a few other outlets, gathering a humble readership of technologists, musicians and music biz types who were interested in such ramblings. Some of these folks asked me to run their artist campaigns, assuming I was a music crowdfunding expert. I wasn’t.

Fast forward a few months from then, and the now defunct startup I had been working at did its defuncting thing, just as crowdfunding was doing its hockey-stick growth thing. Fresh out of a job but finally foolish enough to chase a vision, I dove headfirst into my ultimate ambition: figuring out how to pay for musician’s rent in a post-Napster world.

After a few weeks of research and tinkering with a few buddies’ campaigns, I took on my first client in proper, running The Grouch & Eligh’s Kickstarter campaign from conception to collection. That campaign finished as one of the top 25 most funded music crowdfunding campaigns ever (at the time). It was official: I had a fever, and the only cure was more campaigns!

Since then, I’ve directed more musician crowdfunding campaigns than anyone I’m aware of, which is only a little bit of braggadocio and more a testament to how early we are still are in the new era of “crowd patronage”. It’d be hubris to say I’m an “expert”, but I can say with confidence that I’ve tried a lot of things that have worked, and a lot more that haven’t, and have overthought the reasons for both. I hope to share these secrets with you in the next few weeks, starting today.

We’ll get into the nuts and bolts of these rules in the following posts. But first, I want to start with a higher level discussion of what to expect from a campaign: the good, the bad, the ugly… and most importantly, the surprising, long term benefits.

In other words, It’s not just about the money.

Bookkeeping

But let’s be real: you’ve probably seen the lofty dollar amounts screaming across the top of a campaign page. Impossible to ignore. Obviously the net revenue can be good.

What’s more, each transaction itself can be very profitable: A well designed campaign will usually generate on average anywhere from $50 – $75 per backer. And in most cases, artists can usually get away with higher margins against the cost of goods compared to their own merch store or iTunes sales (more on this later).

And that’s just on the basic merch/content type products. Crowdfunding is exposing whole new categories of soft goods, services and “patronage products” aimed for higher end fans – think experiences, memorabilia, premium content and other inherently scarce and untraditional “products” (more on this in the next “designing rewards” post). More often than not, a single backer can cover several months of rent in a single incoming pledge.

But it’s not all peaches. Unlike content sales, many of the rewards are not scalable. More sales = more fulfillment… and we’re talking way beyond shipping and handling. Increasingly, the product you’re fulfilling requires the artists’ own time and attention. And while these types of rewards can and should be priced to be immensely profitable, the time away from studio adds up. This is on top of the blitzkrieg that is the campaign itself. On balance it’s a good problem to have, but you better get used to efficiently coordinating your time or you will get buried.

All in all, take out the cost of merch production, shipping and handling, manager’s cut, transaction + platform fees, the artist should walk away with 35-50 % of total funds raised (pre-tax) for the “project” itself (assuming you price accordingly, which we’ll discuss in the next post). In the context of “fund-raising” you might be disappointed. Don’t be. After all, you aren’t a charity case. Instead, look at it as high margin sales with a minimum exposure to risk on the cost of production, because that’s what it is. Considering the alternatives – indentured servitude to major labels and/or credit card debt – a successful campaign is a pretty sweet deal.

The Pre-Album Cycle

You put a lot of blood, sweat and tears into your album. That’s a lot of effort to then shotput out into the world in just one measly album cycle. Why not have two cascading cycles for your album, instead of just one?

An album project campaign is inherently doubles as a “pre-album cycle”, which benefits you in more ways than one:

First, there’s the very obvious benefit of the pre-pre-sell. When else can you get away with selling a “product” that in many cases isn’t even completed. In any other consumer market situation, you have to work black magic wizardry to set these kinds of expectations with paying consumers. Oh, and one more thing… these “pre-pre-” campaign sales still count for week 1 Soundscan sales.

Secondly, there’s the emotional investment from fans. If you’re running your campaign correctly, you’re not just shilling stuff to your fans. Instead, you are making a genuine effort to get your fans involved in the process. We’ll get into the specifics of how you do this later, but in general, we’re talking lots of backer-only updates, exclusive content, first-listens/first-looks, direct one-to-one interactions with fans, names in liner notes, shout outs on social media, and just overall transparency with the entire process.

Done correctly, you should emerge from a campaign with at least a few hundred or few thousand super fans who are not only aware of your album, but feel an emotional attachment to it – even beyond the dollars they invested. By the time the album drops, each backer has their own little story to tell about their involvement. At this point, you don’t have to instruct your super fans to spread the good word – they already feel compelled. This is the army you should go into your album launch with, and crowdfunding is the siren call.

Hooking Your Patrons

From the whales that swim casino floors to the skybox'ed corporate sponsors of sports teams to the engraved philanthropists of civic orchestras to the royal patrons of Mozart – almost every major entertainment, cultural or artistic endeavor throughout history required some form of patronage. As we return to an internet-enabled version of this model, it becomes increasingly important to start finding your most valuable patrons.

In the past few decades, technological progress emerged with a succeeding series of physical audio playback formats (vinyl, cassettes, CDs) so commercially successful, it dwarfed any patronage model before it. The golden goose that became the recording industry made it almost foolish to waste any effort or attention on “upmarket” patrons, outside of the occasional hush-hush corporate gig or a trust funder’s 16th.

Alas, the perpetual copy machine called the internet forever devalued the golden record racket. But where the internet closes a door, it opens a window. Crowdfunding is the first point-of-sale turnstyle that just naturally fits into the cycle of direct, scalable and efficient fan-artist relationships.

These campaigns can often generate more revenue than an entire album cycle on a fraction of the total units, mostly based on the exponential effect of whales. In fact, the hallmark of a successful campaign is the backer power law: that is, around 10-20% of your most generous backers accounting for 40-70% of your total revenues. Failed campaigns tend to have a flatter distribution curve, bunched up around lower-end rewards, closely mimicking a traditional content pre-sale. The top 10% of your backers are usually putting in hundreds or thousands of dollars, in exchange for truly special or limited offerings. These are the rare folks who are not only super fans, but have the financial means to be patrons. For these folks, you’re not just selling stuff… you’re selling yourself.

Rinse, Repeat

Crowdfunding is hardly a one time, hit-it-and-quit-it, take-the-money-and-run affair. The transaction format as we know it today might continue to grow and evolve, or it might fade away as a fad. But the idea of offering the artist directly to patrons and whales should persevere, because it’s of real symbiotic value to both sides.

Going forward, cultivating and directly marketing to whales and other patrons will be critical for a musician’s career. Musicians and their teams will need to start thinking in the mode of client acquisition and retention demanded of B2B businesses; which is a monumental shift away from the nameless, faceless, shotgun-blast consumer marketing they had grown used to under the “moving units” recording industry model. Doing your first campaign comes with the long term benefit of identifying and initiating your relationship with these patrons, and in turn, jumpstarting your career in the new music industry.

So the next time you do another direct sell effort, you go in with a database full of hot leads. And if you’re putting out good product and good music, these direct leads should only accumulate over each successive sale.

Oftentimes, artists worry that they can only do a crowdfunding campaign once, because it would be expecting too much to ask fans for support a second time. This false assumption can cause hesitancy, as they feel pressure to get it perfect the first time.

In fact, the opposite is true. Backers and patrons who support a first campaign are much more likely to support another, especially if they had a positive experience. The assumption that crowdfunding is a one-shot deal is mostly due to the artist’s unfamiliarity with the format…. it just feels unnatural and foreign. Ironically, doing a decent first campaign initiates and naturalizes the behavior of online patronage, for artist and fan alike, so that both sides end up wanting to do it again.

Indie nerdcore rapper MC Lars has demonstrated this cumulative growth effect with his 3 campaigns. His first campaign in 2011 was for an album, and he raised $23K with 520 backers. He dipped back into the well a year later in 2012 for a smaller vinyl project, but still raised a very respectable $17.5K with 459 backers. It would take another 2 years before Lars did another campaign, but in the meantime, he took care of his 800 or so combined unique backers, making sure to maintain relationships via email, phone calls and messages with surprising downloads, first-listens, discounts or just to say hello. Alas, he dived back into the well again this past April for his next full-length album project, really popping on his third at-bat to the tune of $42K and 1,017 backers.

So think long-term and go build some relationships!

Outperforming Expectations

Several of my clients have had groundbreaking opportunities thrown their way in the wake of their their expectation-shattering campaigns. Anecdotally, I’ve already heard countless other stories of successful campaigns directly converting into a successful album cycle or tour.

It’s a wild west out there. Very few understand the emerging formulas for crowdfunding success or know they even exists. There isn’t even a real baseline expectation of what constitutes success.

But money talks. So if you can raise more money in a campaign than what a label could realistically advance for one album (which, btw, is very doable), suddenly you’re in the driver’s seat in more ways than one.

This makes for a window of early-adopter advantage, which by definition should fade over time as more artists learn the rules. The variance of success is so unfathomably wide right now, that if you follow an analytical and data-driven approach to success and really hit it out of the ballpark in your league, you WILL attract industry attention. Lucky for you, I’m going to get pretty specific in the next few posts.

For many years now, the industry has been setting ever fleeting measures of artist success in the vacuum of actual revenues – Youtube views, Soundcloud plays, Twitter followers, etc. Even sales based metrics, like iTunes charts, are losing meaning as content revenues plummet to insignificance.

Meanwhile, crowdfunding is birthing a market of direct fan sales that’s only growing exponentially. Now is the time to ride this wave. Revenue is a loud measure of success, let it speak for you.

This post is part 1 in a multi-part guide on how to run a kickass campaign. Part 2 will be about designing, structuring and pricing rewards, and should be published within 2 weeks. Sign up to the Bryank.im’s newsletter here and have my essays delivered straight to your inbox!

Or follow me on Twitter @freshbreakfast.

Thanks to Aston Motes, Danny Quick, Ellen Huet, Audrey Kim, Eric Bahn, Joyce Kim, Runae Lee and MC Lars for editing the above words for the better.

Once again, I’ll be discussing this fuller in person at SF Musictech Summit on Nov. 11, join me!

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