Kickstarter Pricing in a World of Different Shipping Fees, Taxes, and Tariffs (KS Lesson #266)

27 May 2019 | 28 Comments

The City of Kings creator Frank West recently reached out to me with a great question: “Should Kickstarter be a ‘1 price for everyone’ platform?”

The root of his question is that every country has different laws about import taxes, and those taxes are often calculated from some combination of the price paid by the consumer for the product and/or shipping. So how do creators offer backers from a multitude of countries the best, most transparent price without redundant or overinflated taxes?

I think Greater Than Games did a good job of explaining this quandary in their Spirit Island: Jagged Earth Kickstarter shipping section:

The VAT charges are based on the sale price + shipping. If we include VAT as part of the “shipping” charge, EU customs is likely to consider that whole charge to be “shipping” and charge VAT based on the full amount, including what we already charged for VAT!

That’s for the EU, but other countries have different rules and regulations. With existing and proposed tariffs, the US is even joining the mix of various taxes for creators to consider and pay.

So it would seem that after years of Kickstarter reward prices including a shipping subsidy (often resulting in “free” shipping for US backers), it might be time for creators to shift towards a model that has historically been somewhat unpopular among backers: The reward price is strictly for the product only, with shipping and import taxes added separately later via a pledge manager. This would be clearly and transparently communicated both in the reward description and in detail on the project page.

Perhaps the one bright side to this is that it provides creators an opportunity to take a good, hard look at the product price on Kickstarter. Because the lower the reward price, the lower the import taxes.

For example, say that I have a game that costs $10 to manufacture. The MSRP for that game will typically end up around $50 (5x manufacturing cost; this multiplier varies based on the publisher). The reason for that is when I sell that game to a distributor, they get a 60% discount–they pay me $20. So, other shipping fees and sunk costs aside, my profit per unit is around $10.

However, on Kickstarter, if I charge $50 for that game (and separately charge shipping and taxes), my profit is $40! That’s significantly higher than the $10 profit I’m fine with earning from distribution…in fact, it’s so much higher that it doesn’t quite seem fair to the backers, especially backers who are paying a 24% VAT on that price plus their shipping fee.

So why not charge $39 for that game on Kickstarter? Or even $30-$35? The margins are still excellent, and you’ll decrease the tax burden on backers. Of course, please budget carefully to ensure that your margins are still healthy after freight shipping, Kickstarter fees, and sunk costs like art and graphic design.

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Given the variety of taxes, rules, regulations, and shipping fees, how do you feel about creators who use this method to ensure that no backers are overcharged?

Also read: Kickstarter Lesson #201: A Step-by-Step Guide to Pricing Your Core Reward

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28 Comments on “Kickstarter Pricing in a World of Different Shipping Fees, Taxes, and Tariffs (KS Lesson #266)

  1. I mostly agree with what you are saying here (this coming solely from someone that is a KS customer) but I fear the sticker shock one might get when the pledge manager opens.

    Being from Canada I am always shocked when a $20 game has a $15 shipping charge. When I see games that do not list shipping prices or say they will ad them in a pledge manager I just don’t back them. The risk that my investment in a game could almost double is too high for me.

    Now if there was an option for me to back out at the pledge manager stage, if I felt the shipping and import taxes were beyond my budget, that risk would be alleviated. However that pushes a risk back onto the creator. If too many people back out at the pledge manager stage it could endanger the game’s production.

    I’m not sure what the solution is. One potential option is that if a KS creator has an estimate shipping+fees charge on their page as, for example, $25, but when the pledge manager goes live it turns out it is significantly higher (some percentage of the original estimate, say 100%), than backers could opt out, but if the actual charge, in this example, is say $30, the opt out option is not available.

    1. Matthew: I can understand your shock if the creator hasn’t clearly and transparently posted the shipping fee on the project page in advance. I think that’s really important for a creator to do up front, not surprise backers with it later.

    2. I run Kickstarter campaigns for North Star Games. While I’m far from a KS ninja, we’ve been doing pretty well: $766k for last campaign, Oceans, more than $1m if you include money collected through pledge manager. In that one we charged for shipping in the pledge manager on the recommendation of friends at FunForge. I think there has been a little sticker shock, but as far as I can tell not much. We listed expected shipping prices on the campaign page and haven’t ended up straying far from them in charging via the pledge manager. One advantage to backers is there are some places where shipping price is lower than projected, because we found a better shipping arrangement during or after the campaign. I’ve also been issuing refunds at the pledge manager stage so anyone who does have sticker shock doesn’t feel taken advantage of. As a creator, I LOVE the flexibility of being able to continue working on shipping prices during and after the campaign, and it’s a pleasure to avoid KS’s clunky and mistake-punishing system for charging for shipping.

  2. It may be important to distinguish to the customers the difference between our shipping fees/tariffs/etc are part of our COGS. Any VAT/Shipping fees we charge them is only to cover the cost of getting it to them, as opposed to charging them for getting it to us. In today’s tariff aware/concerned reality, that could be important for the customer to understand.

  3. I’m from further away, and while customs aren’t necessarily as much of a problem the shipping charges can just be crazy, often more than the game itself. One of the issues is that you don’t really know when a KS will ship, so you can’t time it for a trip to a more central location.

    1. One note is to check how much your delivery service charges for handling. When a KS is expensive enough to require paying customs some delivery services charge a high fee to pay it so you’re paying a lot for shipping+customs+handling customs. UPS often charged three times what customs costs.

  4. Hey Jamey, thanks for taking the time to consider this question.

    It feels like this is a direction Kickstarter creators are going to be exploring more and more in the coming months and it’s great to get your thoughts. As you mention, I’d strongly recommend anyone splitting their prices clearly show the costs on their project page.

    Many retailers will be very concerned if they see a $50 MSRP game on Kickstarter for $39, but if it clearly shows the various taxes and other costs are added afterwards, bringing the cost closer to that $50 mark it will avoid these concerns and potential devaluation of the product.

    I would also remind people that “added tax” is experienced differently in different countries so please consider how you word these costs on your Kickstarter pages. When I first travelled to the US I found myself in a very difficult situation when I entered Starbucks with $10 and purchased two coffees totalling $9.80. Only to find the final price was around $11 (more than I had on me) as taxes were added afterwards. In the UK all taxes are included in the printed prices, so I never even considered this as a possible situation. I often consider this situation when writing copy for a global audience.

  5. Personally, I’ve gone away from backing boardgames on Kickstarter any more. Kickstarter is supposed to be for the little guy with a good idea to get the funding to make his thing happen, but the only people who kickstart games anymore are established game companies that use Kickstarter as a way to 1) not have to invest their own capital into making their latest game and 2) use Kickstarters as a way to increase their profit margin.

    Shipping charges on Kickstarter are honestly not that big of a concern for me, unless there is no estimate at all…or if the estimate is excessive. My hesitancy to use Kickstarter is more of an issue with the current practice than shipping and custom concerns.

    1. This is a great point and one that I’ve been thinking lots about lately!

      As one of those “little guys” I’m struggling to understand whether I should just keep my first KS US only to get the learning curve figured out??? I’m also considering limiting the games I create to backers and then perhaps offer some copies after the campaign on my own website, where I could customize shipping for overseas customers more accurately? I dunno.

      The learning curve with KS in general seems daunting at times and I’ll admit the whole shipping/customs thing is very confusing to me! I’m gonna figure it out somehow tho! :D

      1. Eric: It’s fine (not ideal, but fine) to ship internationally from the US, but I would highly recommend not limiting backers based on location. People really don’t respond well to being told they can’t buy something due to who they are or where they live.

        1. Yeah, the disappointment there would be a factor for those not able to participate in the campaign. From a brand standpoint, that could even negatively affect perceptions later if/when I did decide to ship internationally… hmmmm. Ok, thx! Much to consider!

          (I commented again below, no worries if you wanna consider this a response to my other question!)

  6. There are things missing in the Crowdfunding take take home calculation. Platform fees (Kickstarter, IGG), Backerkit fees, and Marketing budget just to name a few.

  7. @Jamey – So for first-time creators or indie publishers, is there any rationale you’d give around maybe just doing a US only campaigns? Or at least doing a US campaign first, in order to start tackling the KS learning curve in general?

    @All – Does anyone know of any examples of small press / indie publishers who only serve US customers? Just curious.

    I definitely want to serve an international audience. However, it seems there’s so much to account for with international shipping/customs and I suspect it’s a main pitfall creators encounter. Being an indie game designer + small press publisher = a daunting prospect when it comes to this topic!

    I’ve also thought of just offering initial rewards thru a KS campaign, then having an allotment of games available later on my website where I could field international orders. But it’s not clear to me yet if that’s a good path. Either way, gotta define a “sustainable” path somehow, you know?

    Thanks for this post Jamey!

    1. Eric: Nope, I don’t have rationale for that. The backlash isn’t worth it. Again, it’s fine to simply ship *from* the US with expensive international shipping fees, but to tell non-US backers they can’t support your project because of who they are or where they live simply isn’t something I can recommend.

        1. Shipping from the US might possibly be enough to put people off, I know it puts me off. At least if the option is there (and is clearly stated) they can make their own decision about whether the product is worth the additional cost.

  8. Interesting post Jamey.

    I recently backed a KS, that estimated their shipping price of the coins as 10-19 Euro — after their refund window closed, they opened their pledge manager and I found myself paying close to 20 euro for shipping — on a 25 euro product, I felt cheated and disappointed. Had I known I’d be paying $35AUS for some coins on shipping alone was bollocks.

    I feel as long as you’re transparent and have a really GOOD idea of the shipping cost, the method could work. This instance, I felt ripped off – I was left with the decision to lose my $39AUS or fork out another $35AUS to get what I had planned for.

  9. Some interesting thoughts in this post. But regarding the argument for lowering reward levels, isn’t VAT based on manufacturing cost? I’m referring to this statement: “Because the lower the reward price, the lower the import taxes.”

    1. Hey Renee, VAT is charged at different points in time.

      When you import games into the EU you will be charged VAT based on the manufacturing cost. This can be reclaimed if you are registered in that receiving country as a VAT based company.

      VAT is also collected on any items you sell in the EU, this amount is based on the RRP. So if I sell a game for £50 to a customer, then I will have to give £10 of that away to cover the VAT. This cannot be reclaimed.

  10. Am I right in understanding that, in the US, if your state has sales tax, and you purchase from another state on Kickstarter, you’re still technically *meant* to declare that purchase and pay the tax on it? Just no-one ever does? I feel like this is the one thing that makes a huge difference between Europe and US, that we actually have enforced sales tax (VAT) here. It might also make EU backers feel less ripped off if there’s an understanding that US folk will be paying the same charges, just after they get the goods, direct to the government (if they’re not naughty).

  11. How does a creator charge shipping for complex combinations of add-on type pledge levels? My campaign will have some accessory kits that can be purchased by themselves or (ideally) in addition to the main product. I would like to charge a different shipping price for the accessory kits if they are purchased without the main item. Ex:
    Pledge Levels:
    1) Small Accessory Kit= $4 (+$2 shipping if purchased w/o Main Item, +$0 if purchased with main item)
    2) Large Accessory Kit= $8 (+$3 shipping if purchased w/o Main Item, +$1 if purchased with main item)
    3) Main Item= $20 (+ $5 shipping)
    4) Main Item + Small Accessory Kit (x.xx% discount when purchased together!)= $23 (+ $5 shipping)

    Basically I want to charge shipping based on the final combination of items backed, not on each individual level. I know that I can just have a ton of different pledge levels for every combination and country but I want to keep things simple. Can this be done in Kickstarter or a service like Backerkit?

    Thanks!

    -Casey

    p.s. Jamie, I hope you know how incredibly useful and informative your blog has been to me. Thank you so much for all your hard work.

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