The global shipping industry has operated in a harmonious dance of infinite moving parts for decades, but all it took was one virus-sized domino to fall over and throw the global trade infrastructure into chaos.
One of the most disastrous effects of this global shipping crisis is the staggering increase in cost to ship. As of now (Sept 2021), the market price for one 40 ft. shipping container coming from Southeast Asia is hovering around $25,000.
Before COVID, the average cost for the same shipment was about $3,000! That’s more than an 8X increase, and it’s unclear if this will improve any time soon. Growing demand from consumers in e-commerce coupled with clogged logistics networks and skyrocketing shipping costs is a recipe for economic hardship.
Let’s illustrate how detrimental this can be:
| Pre-COVID Shipping Cost | Current Shipping Cost | |
|---|---|---|
| Cost of Goods | $30 | $30 |
| Fees | $60 | $60 |
| Shipping | $3 | $24 |
| Price | $100 | $100 |
| Profit Margin | $7 | -$14 |
Conventional solutions for improving profits exist, but none are without some inherent drawbacks.For larger products like furniture, the cost to ship could now cost more than the cost to produce it! It’s a complex situation with no clear-cut answers. Though, one thing is for sure: healthy businesses need healthy profit margins.
For instance:
| Solution | (+) Pros | (-) Cons |
|---|---|---|
| Increase Prices | Mitigate financial losses due to shipping costs | Risk losing customers and revenue both short & long term |
| Decrease Costs | Keep prices at a competitive rate Maintain profitability Extend the timeline that the business can run with cash on hand | Potential to negatively impact company infrastructure Layoffs Worse customer experience |
| Extend Days Payable | Improve your positive cash flow cycle and keep cash in the bank Stabilize prices and the customer experience | Debt accumulation Weaker balance sheets for future investments and debt financing |
At LaunchBoom, we don’t feel that any of these are viable long-term solutions, nor should they be accepted as the only ones available to you.
The best-case scenario is to create a negative cash conversion cycle, where you can sell your product before you have to pay to fulfill it. Luckily, there’s a way to achieve that scenario that we know a thing or two about implementing–crowdfunding.
Here are the 5 reasons crowdfunding is the best solution for businesses during the 2021 shipping crisis:
1. Gets cash in your hands now
The largest benefit to crowdfunding is that it effectively serves as a stimulus check. Like mentioned above, crowdfunding is a natural negative cash conversion cycle. Backers are investing in you to fulfill your promise of production and distribution.
By getting money in your hands, crowdfunding gives your company the financial cushion and flexibility it needs until things normalize again.
2. Crowdfunding has 6-12 months of shipping delay built in
When the cost to ship your goods from overseas is a daunting $25,000+, it’s only natural to assume you’d have to raise your prices in response. The cost-saving benefits of manufacturing in Asia have been upended, and either the producer or the consumer has to pay the price.
Crowdfunding presents a way to avoid this altogether.
Let’s say you launch a campaign at the start of 2022, and the cost of shipping hasn’t improved. You’d think you’d have to increase costs to compensate, right? Well, not necessarily.
Remember that crowdfunding is different from regular e-commerce. Customers are not expecting to receive their product with free two-day shipping. There’s an inherent understanding that companies are using funds raised to do things like pay for manufacturing and build up inventory.
By the time products are ready to be sent (mid-late 2022), more shipping containers will become available and transportation bottlenecks will have had more time to smooth themselves out. As an added bonus, you can take the time to plan out a sound distribution strategy with the natural delay built in.
Backers get the satisfaction of feeling they’ve paid an acceptable price, and businesses can have some peace of mind knowing they’ve made their money back—a win-win!
3. Avoid upcoming holiday season shipping demands
Avoiding having to ship during the holiday season will save you a significant amount of money.
Thanks to the predictable consumer demand around the holiday season, shipping prices are set to increase once again as retailers and e-commerce sellers scramble to stock their shelves with inventory.
It’s very likely that customers will be seeing increased retail prices as a result of the inflated shipping costs you’d be paying.
However, even if you were ambitious enough to launch a crowdfunding campaign at the end of 2021, (though we don’t recommend it) you’d still be able to avoid the impending surge in holiday shipping demand.
In fact, you’d even be contributing to alleviating the burden on the global transportation network by keeping products off of boats, trains and trucks!
Use the holiday season to map out your grand crowdfunding strategy, and save the launch date for next spring. By then, buyers will have had time to recover financially (and emotionally) from the holiday madness.
4. Compile a strong customer base for future sales
One of the most valuable benefits of crowdfunding is building your customer base as a new business, or adding to it as an existing business. This will pay dividends for you over time.
Every backer that you get during a crowdfunding campaign is just the start of their journey with you as a customer. If you provide a great experience and continue to build your brand and release additional products over time, those customers will come back as repeat purchasers and increase their lifetime value.
When the dust settles from this shipping crisis, you’ll have a strong list of loyal clients who now have familiarity with your products and trust your brand, and can be leveraged into future sales that are much easier to make!
5. Crowdfunding is viable for businesses of any size
Lastly, no matter how big or small your business, it’s important to remember that crowdfunding can be a viable option for you.
We believe that crowdfunding is more important than ever, and it doesn’t need to be seen as just a way to launch a new venture. Businesses around the world are feeling the same effects of this crisis, and the time for out-of-the-box thinking is now.
This guest blog post was provided by the Launch Boom team – https://www.launchboom.com/. If you are looking to launch your product on Kickstarter or Indiegogo, check out Launch Boom. They have worked with thousands of brands and have helped raised millions and millions of dollars. If you are interested in learning more, click on this link for more information – https://www.launchboom.com/apply/
