Building Your Business Business Financing Understanding Fees on Crowdfunding Platforms By Zack Miller Zack Miller Zack Miller wrote about crowdfunding for The Balance and is the founder and editor of Tearsheet. learn about our editorial policies Updated on September 20, 2022 Fact checked by Lars Peterson Sponsored by What's this? & In This Article View All In This Article Crowdfunding Business Model Kickstarter's Fees Indiegogo's Fees The Bottom Line Frequently Asked Questions (FAQs) Photo: Drazen_ / Getty Images Kicking off a crowdfunding campaign requires some smart planning. Of course, it's worthwhile to do the essential things you should complete before you begin crowdfunding, such as setting goals and devising a reward strategy. And whether you have a lot of money to promote your crowdfunding campaign or you're running your crowdfunding campaign on a budget, it's important to understand how the crowdfunding platforms like Kickstarter and Indiegogo charge you. Because no matter what, you're going to end up pocketing less money than you raised and that can impact your bottom line (especially if you're producing some type of physical product). Key Takeaways Crowdfunding is a popular way to raise money to launch a product (or even a company).Before entrepreneurs take the crowdfunding route, they should understand the fees crowdfunding platforms charge. In general, a campaign that raises $100,000 will see about 8% of that diverted back to the platforms to cover fees and credit card transactions. Crowdfunding Business Model Rewards-based crowdfunding is one of the most popular forms of crowdfunding and one of the most profitable. These websites don't charge fees to the people—your potential customers—who contribute money to back projects. The way crowdfunding platforms make money is by taking a percentage of the money that is raised during the course of a project. You'll also have to pay a credit card processing fee that is upwards of 3% of each transaction. Again, this eats away at how much money you actually bring home at the end of your crowdfunding campaign. Let's look at how the two major platforms charge, so you can begin to plan your crowdfunding campaign and budget accordingly. Kickstarter's Fees Kickstarter is the dominant player in the crowdfunding space. As such, it's hosted nearly $7 billion in crowdfunding pledges since it launched in 2009. Kickstarter charges project creators two fees: Kickstarter's fee: 5% of total funds raisedCredit card processing fee: 3% + $0.20 per pledge. Pledges under $10 have a discounted micro-pledge fee of 5% + $0.05 per pledge So, let's do a quick numerical example. Let's say you crowdfund a nice round dollar number for your widget. Let's say it's $100,000. Kickstarter fee: $5,000 (5% of $100,000).Credit card processing fee: $3,000 (3% of $100,000, not including the per pledge fee of $0.20). The fees you'll pay will actually be more than $8,000 because of that $0.20 per pledge fee. But let's say that you have 1,000 backers for your project. That would add another $200 ($0.20*1000) to the total. So, at the end of the day, you'd end up with less than $91,800 on a campaign that raised $100,000 on Kickstarter. Indiegogo's Fees Indiegogo was a pioneer in the rewards crowdfunding space and continues to raise tons of money for crowdfunding campaigns all over the world. The interesting thing about Indiegogo is that this crowdfunding platform offers two types of campaigns: Fixed and Flexible. Fixed crowdfunding means that a campaign has to hit its original funding goal. If it does, money changes hands. If it doesn't, no transaction takes place.Flexible crowdfunding means that the person running the crowdfunding campaign gets to keep the money they raise, regardless of whether the funding goal is reached. Here's how Indiegogo's fees break down in each category: Fixed Crowdfunding (or all or none) Indiegogo's fee:If the funding goal is reached: 5% of total funds raised.If the funding goal is NOT reached: 0% because contributions are refunded to backers.Credit card processing fee: 2.9% + $0.30 per pledge Flexible Crowdfunding Indiegogo's fee: If the funding goal is reached: 5% of total funds raisedIf the funding goal is NOT reached: 5% and you keep what you earnedCredit card processing fee: 2.9% + $0.30 per pledge As you can see, Indiegogo's fee structure is similar to Kickstarter's. The main difference is the option to choose between fixed and flexible funding options. Using the same details as in the Kickstarter example above, and campaign that raised $100,000 from 1,000 backers would send: $5,000 to Indiegogo$2,900 + $300 to the credit card processor The take for the creator is $91,800, the same as Kickstarter, despite the slight differences in credit card transaction fees. The Bottom Line Crowdfunding offers a powerful way to raise money efficiently while simultaneously creating a crowd of early customers backing your product. But, raising the money is just the beginning of the crowdfunding campaign. Next, you need to produce and ship your product—an expensive endeavor. Add to this the fees you need to pay out to use platforms like Kickstarter and Indiegogo, and you see how much pressure it puts on the crowdfunding process (and how important proper budgeting and planning is!). Frequently Asked Questions (FAQs) What is the cost of crowdfunding? Looking solely at the fees charged by the leading crowdfunding platforms and not the costs for product development and production, creators can expect to pay about 8% of the total raised in fees (5% in platform fees and 3% in credit card transaction fees). How much does a Kickstarter cost? Kickstarter charges a 5% platform fee. Project creators on Kickstarter will also have to pay 3% of the total pledged (plus $0.20 per pledge) per credit card transaction to the credit card processor. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Kickstarter. "What Are the Fees?" Kickstarter. "Stats." Kickstarter. "Fees for the United States." Indiegogo. "Choose Your Funding Type: Can I Keep My Money?" Indiegogo. "Entrepreneur-Friendly Pricing."