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Guide to Preselling Your Product Before Opening Your Business

Guide to Preselling Your Product Before Opening Your Business
Susan Guillory
Susan GuilloryUpdated January 6, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Starting a business can be a catch-22 — you need money to create the products you want to sell, but you can’t bring in revenues until you create products to sell.Or can you? In fact, there is a way to bring in sales revenue before you actually produce your products: It’s called preselling.A presale can be an effective way to validate your idea, build excitement for your product, and raise capital at the same time. However, there are also challenges involved in preselling a product. Here’s what you need to know.

What Are Presales?

A presale is a targeted sale of a product before it’s released. Rather than spending a lot of time and money on making a product and hoping it will sell, you sell it before it gets made.While it may sound like a borderline scam, it isn’t. The goal of a presale isn’t to deceive your customers. In fact, your sales page should make it clear that your product is in development, and you’re offering a special deal to those who want to support its development and get a better price and first access in return.

How Does Preselling Work?

A presale is a startup funding strategy that typically involves doing some initial market research, setting up a sales page, and marketing your vision to direct traffic to the site. Typically, a presale sales page will make it clear that the product is not yet live and that you are offering a reduced price to those who want to support the product and gain early access. You can also let customers know when they can expect to receive the item. People can place their orders on the site and when the product is complete, you’ll ship it out to them.Recommended: Tips for Starting a Small Business 

Pros and Cons of Presales as a Strategy

A presale can be an effective way to raise funds for your startup, but it’s not for everyone. Here’s a look at the pros and cons.
Pros of Presales as a StrategyCons of Presales as a Strategy
Avoids wasting time and money developing a product that doesn’t meet a market needIf you’re unable to produce what you promise, your company’s reputation could suffer
Provides valuable input that you can use while you are still developing your productTime constraints of the presale could cause you to compromise on qualify
Can help you avoid taking on debtWon’t help you build business credit

Pros

Preselling allows you to validate that there’s a market with a need, that your product idea fills the market’s needs, and that the market is willing to pay enough for your product to build a business around it. This helps you avoid spending time and money building a product that’s not what the market wants. By testing the market with a presale, you’ll also have a better sense about what to build. Customer feedback can help you create a more marketable (and profitable) end result.A presale also provides funding that, unlike a business loan, doesn’t have to be paid back (along with interest).

Cons

A presale requires putting your business’s integrity on the line. If you are unable to produce what you promise when you promise it, you could end up doing serious damage to your company’s reputation. A presale also puts you under certain time constraints. You’ll have to develop the product and work out any bugs in the time frame you promised your customers. If you hit any snags, the time pressure could force you to compromise the quality of the product. Being late with the product or producing an inferior product will disappoint your customers and could spell trouble for your business.While a presale can be a good source of startup funding that doesn’t need to be repaid, it won’t help you build business credit in the way that taking out a small business loan (and responsibly repaying that loan) could. Without a strong credit history, it may be difficult for your business to get financing with competitive rates and terms in the future.Recommended: 13 Ways to Fund a Startup 

Presale Example

Let’s say you’re developing subscription-based accounting software. It serves a unique need that your competitors can’t match.Your product is still in the research and development phase, so you decide to pre-sell subscriptions. You market the presale across social media and via an email campaign, offering a steep discount to anyone who buys the presale option.This campaign is successful and you have enough money to complete the development of the software, while also incorporating feedback you received from your early customers. You launch and those presales customers are the first to use your product and, assuming they are thrilled, they spread the word, creating a positive buzz for your product.

3 Elements of Successful Presale Strategies

Here’s a look at three key steps that can help you run a successful presale.

1. Gathering Feedback

A good first step is to spread the word about your idea and request feedback either from existing customers (if you own an existing business) or your network (if you’re starting a new business). You can do this by sending out a survey, posing a question on social media, or conducting interviews and focus groups.At this stage, your goal is to identify the target market for your product idea and learn about what frustrates them. You’ll also want to find out if there is competition and, if so, what’s missing in the current options.

2. Sell the Vision

After learning what your customer wants, you’ll want to hone your product idea to meet their needs. You can then create a sales page that shares your vision. Ideally, you’ll want to include plenty of detail about what you plan to create, such as the product's features and how it will impact the problems they face and make their lives better. Though you don’t have a finished product to show, you can share a mockup or prototype so people can envision what the product will look like.Also, consider offering an incentive with a discount for early adopters, along with a payment method or way for people to contact you who are excited to learn more.

3. Market it in the Right Places

Now you’re ready to launch your presale. Consider reaching out to everyone in your email network, plus anyone else who might be excited about what you’re doing and want to support you. You can also ask people in your network to share your sales page with their networks. Also, consider promoting your presale through your social media channels and/or blog. Creating a video and sharing it or hosting a live Q&A can also be effective.However you market your presale, you’ll want to be sure to close the sale when you said you would, sending out reminders as the deadline draws near. 

Crowdfunding vs. Presales

Rewards-based crowdfunding and preselling have a lot in common. Both allow you to raise seed money from a large number of people who receive something in return for their “investment.” But there are also some key differences.With rewards-based crowdfunding, the process takes place through a crowdfunding platform and the reward might not be the actual product — it might be a company t-shirt or a discount on the product. If you don’t meet your fundraising goal, you don’t get to keep any of the money. The platform also charges a fee, which is often a small percentage of the funds raised.With preselling, on the other hand, you use your own sales page, market to your network (rather than the general public), and the money people pay goes right into your bank account. 

Alternative Ways of Funding a New Business

Preselling isn’t the only way to raise funds for a startup or new product. Here are some other options to consider. 

Small Business Loans

There are many different types of small business loans. With a traditional term business loan, you receive a lump sum of money upfront, then pay it back (plus interest) in regular installments over the term of the loan.While traditional banks typically only lend to businesses that have been established for two years or more, alternative online lenders tend to be more flexible. You may be able to get a small business loan, such as a short-term loan, startup business line of credit, invoice factoring, or equipment financing, from an alternative lender with only a short length of business history. You’ll likely receive smaller amounts and pay higher interest rates than more-established businesses, however.

Grants for Startups

There are different types of small business grants available from nonprofit organizations, corporations, and government agencies. Often they are reserved for certain types of companies or those in specific industries, and each has its own application requirements. The key difference between grants vs. loans is that grants don’t have to be repaid. Since this is essentially free money, competition for grants can be stiff. If you meet a particular grant's requirements, however, the chance for free capital might be worth the hard work. Grants.gov can be a good place to start your search.  

Crowdfunding

As mentioned above, rewards-based crowdfunding is similar to preselling, except that it’s done through a crowdfunding platform and requires meeting a specific threshold before you can keep the funds. The platform also charges a fee. There are also other types of crowdfunding you might want to explore, such as equity crowdfunding (where donors receive a stake in the company), debt crowdfunding (where the money pledged by backers is a loan and must be repaid with interest by a certain deadline), and donation crowdfunding (where people give to a campaign for nothing in return).

Small Business Loan Rates

If you would prefer to raise capital for your business without having a presale, you may want to shop around and compare small business loan rates. With Lantern by SoFi’s online lending platform, you can quickly access financing offers matched to your needs and qualifications with one short application, and without making any type of commitment.

Frequently Asked Questions

How do you successfully pre-sell?
What is the pre-sales life cycle?
How is pre-sales different from sales?
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Photo credit: iStock/SrdjanPav
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About the Author

Susan Guillory

Susan Guillory

Susan Guillory is the president of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.
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