Your Kickstarter campaign just finished and now you're ready to start taking pre-orders. You're wondering whether you should charge the full amount upfront or later when your product is in stock.
Having worked with thousands of sellers to process hundreds of thousands of orders, the team at Celery wanted to share 4 common problems stemming from charging pre-orders upfront:
1. Chargebacks can be a disaster
Despite being informed that their pre-order may not ship for months, some buyers become antsy and may issue chargebacks without warning. Your order will automatically be refunded and an additional payment processing fee of $15+ is levied against you.
Depending on how long it takes for your product to ship, we’ve observed that charging upfront can increase the chargeback rate by 5-10x. For products with ship dates over 6 months, we’ve seen the chargeback rate as high as 10% of total orders.
Chargebacks are painfully time-consuming to fight and are often ruled in favor of the buyer. Choosing to charge later can reduce your chargeback risk significantly.
2. Your customers might hate you
Charging immediately causes buyer expectations to become higher than ever. Any delay in the ship date or perceived lack of communication can trigger an emotional backlash that can quickly spiral out of control.
One unfortunate story is of a founder who was visiting his manufacturing plant in China. Because his Internet access was limited, he was unable to promptly answer his already nervous backers questions in the forums. Online blogs and publications were quick to pick up the story, which caused requests for refunds and chargebacks to flood in. This incident forever damaged both the company’s and founder’s reputations.
Don't let this be you.
3. PayPal can and will shut you down anytime
PayPal can be unpredictable and halt your sales without any warning. If you don’t have a track record processing a huge influx amount of payments, PayPal's conservative fraud detection algorithms may shut down your account without any warning and you risk losing sales at the peak of your pre-order campaign. From there, you’ll need to work with PayPal’s customer support team to prove that your business and product are “real” before they are willing to reactivate your account.
Furthermore, PayPal requires that any refund can only be issued within 60 days of the charge date. Otherwise, to refund, you will have to “pay the buyer” and may incur another PayPal transaction fee. Thus, for sellers who won't be able to fulfill within 2 months of the order date, this can become a very expensive problem to have.
4. It will cost you more (time and money) than you think
While Celery makes it easy for you and your buyers to manage your pre-orders, making changes to paid orders can be very time-consuming. If your product will not be shipping for awhile, buyers will often want to add or subtract an item or merge multiple pre-orders so they can shipped together. These types of operations are very complex and can quickly drain the resources of a small team.
While there are a number of disadvantages for charging now, there are also some benefits too (stayed tuned for a future post!). Based on our experience, charging now is most likely to negatively affect sellers who have long ship times (typically 6+ months).
Whatever pre-order approach you decide to take, we’re happy to walk you through pre-order best practices in more detail. Reach out to us at firstname.lastname@example.org with any questions or just to learn more!