Tuesday, June 9, 2015

Crowdfunding: how we budgeted our Kickstarter Campaign

The Budget

Estimating the Anacostia Unplugged budget was no picnic. Determining our film needs (vs. wants…), calculating the extra fees and taxes, developing a fiscal sponsorship relationship with our partner non-profit Groundwork Anacostia, and predicting the reward and shipping costs took endless hours of research and calculation. My hope is that this entry will help explain to donors where the budget of nearly $50,000 came from. I would also like to support other innovators attempting to start their own Kickstarter Campaigns; I know I relied heavily on similar blog articles for information, and I will also share those here.

Crew- 35%

Creating an extensive online documentary series like Anacostia Unplugged takes a lot of time and effort. I’ve been funding this out of my own pocket for nearly two years now, and it has not been easy nor is it a long-term solution. So to make this work, I do need to get paid so I don’t have to keep starting and stopping, and can continue to give Anacostia Unplugged the attention and time it needs to thrive. Keep in mind that Anacostia Unplugged was never intended to be for profit, so I will not be making money off of the videos because that defeats the purpose of having them free and accessible online, as I believe they should be. That said, because Anacostia Unplugged consists of a small production team, the cost is reasonable. The following partial salaries were accounted for: the producer, director & primary filmmaker and editor (me), composer, and an assistant editor. If you keep reading, you'll see that my salary has also become part of the built in contingency fee. We also had initially budgeted in payments for musicians contributing their music, and young actors to help re-enact historical moments that will be featured in the first episode, but decided to remove those costs.

Equipment- 7%

The first thing we did is create a list of needed equipment, and a list of wanted equipment. For example, I’ve been using Final Cut Pro X on a Macbook ’08. While I love this Macbook, it has prevented me from being efficient and productive. As a result, I have had to rely on other systems throughout DC, and switching between computers has damaged some of my footage and just been an overall headache. So a computer that can handle higher levels of processing went on the needs list. A wireless external Sennheiser mic went on the want list. While this would be helpful, it is not essential, so we had to let that go (along with everything else on our want list). Other items that went on the need list: GoProHero3 (getting B-roll along the river), GoPro mount, extra batteries, external hard drives, a functional tripod (ours has seen better days), lenses for our Canon G20 DSLR cam-recorder, and website service fees. All very reasonable, and we can keep the equipment at a low cost because we have a strong equipment network we can tap into when other needs arise, (thank you Earth Conservation Corps). I’ve also already purchased anything else that was essential, like our one new cam-recorder, a Canon G20 DSLR.  

Location and Service Expenses- 5%

The big fee here was predicting the National Park Service Permits to film on NPS grounds. Initially, we also included transportation costs, but later removed that cost.

Kickstarter/Fundraising- 0%

This comes to 0% because we removed this fee from our Kickstarter Budget. What would have been included are the fees for purchasing business cards, t-shirts (mostly for volunteers), hiring a website designer, the logo design, tabling events (there is usually an associated fee), and crafts and food for our upcoming Special Event.

Post-Production- <1%

The copyright fees for the documentary series will ensure that it remains free and accessible online, and that no one can charge someone to watch an episode. I estimated this cost with the US Library of Congress.  

Contingency- 4.5%

Initially we built in a 10% contingency fee to cover the extra costs that come up that you do not expect (but will almost always arise). The magic 10% is what was recommended by a variety of online resources detailing how to build a film budget. To be clear, you take 10% of your needed budget, and do not include the extra taxes and fees. To keep the budget under $50,000, we had to reluctantly reduce our contingency fee to 4.5%. If needed, I will take from my built in salary the extra costs that come up. I am dedicated to making Anacostia Unplugged successful, so I accepted that my salary will also act as the contingency.

Kickstarter Rewards- 7%

At first I was at a complete loss with how to budget in Kickstarter Rewards, and how to decide what rewards to offer. I spent a lot of time browsing around other Kickstarter Projects to see what they offered at different pledge levels for inspiration. And then I stumbled across this blog entry, and found a formula to help estimate costs:    

Joey Daoud created a formula based off the total project cost and statistics he ran from other funded projects to estimate the number of backers needed at each reward level. Once you know the number of backers needed at each reward level, you can estimate the number of predicted rewards you will be purchasing, and their shipping costs. I took Joey’s formula with a grain of salt, but it seemed logical enough and gave me some numbers to work with. The one adjustment I made is that instead of budgeting in rewards for every backer, I made the prediction that on average 70% of backers will be getting a reward, opposed to 100%.

Once I predicted the number of estimated rewards needed at each pledge level, I was able to estimate total costs and the associated shipping costs. For example, with the formula we predicted that in total approximately 898 people would be getting a post card. We then estimated with vistaprint.com how much it would cost to purchase and ship 898 post cards. For the remainder of the rewards, we decided to select items that would fit in USPS flat rate envelopes and the smallest flat rate box, to reduce shipping fees. We used the USPS flat rate prices since there was no way to predict where we will be shipping all of the rewards, even if I assume most of them will be staying in DC, I had to somehow account for the price it would take to ship an award to a Anacostia Unplugged fan in CA. I then picked up all the different sized boxes and envelopes at the local USPS office, and pieced everything together to make sure costs were accurate. For example, originally the reusable bags were going to be water bottles, but once I realized that the water bottles didn’t fit into the envelope, I decided that shipping was going to be way too expensive and switched to reusable bags. In terms of international shipping costs, I read an article that recommended having international backers add $10 to their total cost to help account for shipping, so that’s what I did. 


Unfortunately, as a whole taxes and fees account for 45% of this budget. Below you will find out why:

1. Fiscal Sponsorship- 8%

Figuring this out was quite the adventure and took months of research and preparation. Once I decided to use Kickstarter to fund Anacostia Unplugged, one of my friends asked whether companies and large donors would get taxed off their donations since the money would be funneled directly to me opposed to a non-profit. I talked with Kickstarter, Amazon (who used to manage the accounting with Kickstarter), pro bono lawyers, and then STRIPE (who took over for Amazon by the time I launched my Kickstarter), etc., and eventually figured out that a non-profit could collect the initial funds from Kickstarter as my fiscal sponsor so that all donors receive their tax benefits. I talked with a few of our partner non-profits, and Groundwork Anacostia kindly agreed to become our fiscal sponsor. We have been filming members of their Green Team for over a year, and they are very involved in the community, so it seemed like a good fit.

Groundwork Anacostia and I have been working closely for a few months to determine how a fiscal sponsorship relationship would work in this scenario. The following agreement was reached: “As the official fiscal sponsor of Anacostia Unplugged, we receive and administer all funds that Anacostia Unplugged will use to carry out the documentary series, and will send all required acknowledgements to donors of tax-deductible contributions. The Board of Directors of Groundwork Anacostia has the final authority concerning fund solicitation and use of the funds received for Anacostia Unplugged.” I will maintain artistic ownership of Anacostia Unplugged, and will credited for the series. This kind of relationship can get tricky in the eyes of the IRS, which is why all of the stipulations above were agreed upon. The 8% fee will help cover administrative costs for having them handle the money.

A lot of people have asked me why I haven’t become a non-profit or a business, and the short answer to that question is that as of now, Anacostia Unplugged is a short-term film series not a long-term project, so as of this very moment, it would not be worth the time and money to start up a non-profit or a business. Therefore in my opinion, crowd sourcing was the most appropriate and logical first step to obtaining the necessary funds.

I’d also highly recommend reading this article to obtain a better grasp of the different ways fiscal sponsorship agreements can function: http://grants.firesafecouncil.org/Fiscal_Sponsorship_Six_Ways_To_Do_It_Right.pdf

2. Income Taxes- 29%

Unfortunately, the IRS has not caught up with crowd sourcing initiatives, and all funds raised are taxed, opposed to being able to specify what is equipment vs. salary. So when Groundwork Anacostia funnels that money back to me, it will be seen as my total income and I will be taxed accordingly from DC and the federal. While this number is extremely daunting, it is accounted for (opposed to getting a big surprise later) and this is the way the system works for better or worse. I would also be taxed regardless of the fiscal sponsorship relationship, so in this case, at least donors get some benefits even if I cannot.

I’d also recommend reading this article on Kickstarter and taxes: http://nofilmschool.com/2014/04/crowdfunding-taxes-kick-starters-hidden-bite-stop-the-bleeding

3. Kickstarter Fees- 5%

Kickstarter keeps 5% of the total funds raised.

4. STRIPE Fees-3%

STRIPE is the firm that manages the money, and holds it throughout the Kickstarter Campaign. They are the ones who will ultimately redistribute the money back to the donor if the project is unsuccessful, or move it to Groundwork Anacostia (in this case) if the end funds are met. STRIPE keeps approximately 3.2% of each donation made.

I hope this entry helps shed light about the amount of time, thought, and energy that went into creating our budget. I very much want everything to be transparent because if you are going to donate your money, you should know exactly where it is going. So now you know! Please feel free to reach out with any questions at: anacostiaunplugged@gmail.com.