Niche Economy: The rise and fall of the group buy model in mechanical keyboards

A stock photo of keycaps, made by Maksimov Andrey. I don’t know which set it is, though.

I’ve been operating splitkb.com since 2019, where we sell DIY-kits for ergonomic mechanical keyboards. The niche had been around for quite a while when I started, and in the years from then up until 2024 it has seen a huge growth as well as a sizeable shrink. Thankfully, we’ve been operating stable in the meantime, seeing periods of growth and (thankfully) smaller periods of decline. All in all, I must not complain, but in this post, I will complain regardless: about the topic of group buys.

This post is a long read. It’s aimed at customers to shed some light behind the scenes, and it’s aimed at (prospective) retailers to learn more about the model, its risks and how to mitigate those risks.

I’m covering several aspects of group buys, including what a group buy is, how it compares to crowdfunding and preorders, why the model is still in use today, which risks are common during group buys, and what you should be mindful of when participating in a group buy of your own.

I won’t be going into concrete examples of retailers who went wrong. Plenty of examples can be found over at the r/mechanicalkeyboards community on Reddit. I usually do not have enough context of my own to provide complete insight in their specific situations anyway. As a vendor myself, I do know what’s involved with organising a group buy successfully, and nearly failed myself while helping to organise group buys a few times.

A final aside: as a vendor, I’ve grown reluctant to host group buys. The process is too similar to routine production, yet it’s often geared to only produce benefits once – it seems wasteful to me. I prefer to gear up slowly but steadily instead. Smaller risks, smaller rewards, but I sleep easier at night for it. I have great respect toward the few vendors who can, repeatedly, pull this model off with confidence and little delay.

What is a group buy?
Why does the group buy model still exist?
What are the risks of group buys?
What should you be wary of when participating in a group buy?
Conclusion

What is a group buy?

A group buy is kind of what it says on the tin: a group of people get together, pool up money, and they then buy a greater quantity of a thing than they could individually. In essence, customers are paying for a product up front, before it has been manufactured.

It is comparable in many ways to crowdfunding, and also looks a bit like preorders. I’ll explain the differences below.

Where did the model come from?

The model originated from back when mechanical keyboards were still a very small niche. If you wanted anything special, you had to approach a manufacturer to place a sizeable order. Of course, unless you had capital, you were in a tough spot – even if you did find a manufacturer who wanted to manufacture without prepayment, you still had to actually sell the manufactured goods or you’d be stuck with dozens or even hundreds of the product you wanted to make.

Nowadays, the niche is a lot bigger. There are companies operating within it, some of which have been established for quite a while, even before I started splitkb.com. There’s a larger group of people, and companies are sometimes capable of funding projects without the need to organise a group buy.

In this post, I talk about group buys as organised by a company. Most of the points do apply to group buys organised by individuals, as well.

How do group buys relate to crowdfunding?

Crowdfunding is best known from platforms such as Kickstarter and Indiegogo. There are a few key comparisons to be made between the group buy and crowdfunding models:

You participate in a group buy through a retailer, which is an established company who is registered at a chamber of commerce, or other relevant authority. With crowdfunding, you usually participate through a platform, and there may or may not be a registered company working on the project. This being the case, in a group buy, you form a contract with a retailer, whereas with crowdfunding you form a contract with the platform.
In both models, the product usually has not been manufactured yet. Depending on the project, there may already be prototypes or samples, and you’ll have to check the individual project to see how far along their progress is.
In crowdfunding, usually there’s an explicit warning that you’re not paying for a product; instead, you’re paying for the development of an idea. For crowdfunding, the risks are usually acknowledged up front, and the customer makes the decision whether to back it or not. For group buys, the product is guaranteed: you’re paying with the expectation for the product to get delivered. I’ll get back to this later.
In both crowdfunding and group buys, there’s a risk of delays or the product not being delivered at all. However, in group buys the retailer is obligated to deliver, whereas with crowdfunding there is no such promise. In practise, though, it can be hard to still get what you were promised if the project goes sideways.
Lastly, usually the period during which you can order is limited for both crowdfunding as well as group buys.

How do group buys differ from preorders?

With preorders, you pay up front for a product you won’t immediately receive, similar to group buys. The biggest difference is that with preorders, usually the product is currently being manufactured, and the design should already be verified with prototypes or even full prior production runs. As such, there’s significantly less risk when participating in preorders.

Some countries have strict rules about preorders, such as Germany, who is probably the most strict of all. Preorders are still allowed there, but subject to some strict rules, such as:

Retailers have to relay precise preorder dates. Terms such as “coming soon” are not allowed.
Retailers have to provide clear information on the total price including shipping and taxes, how and when the products will be delivered, and they have to provide customers with a cancellation policy.
All preorders are subject to a 14-day cooling-off period, during which the customer can still cancel it without being charged any fees.
If the retailer fails to deliver by the previously communicated date, customers can cancel their order for a full refund.
The retailer is obligated to fulfil the preorder contract, with a few exceptions (such as pricing mistakes or when fulfilment proves impossible). The retailer must make a reasonable effort to fulfil the contract, such as sourcing the items from a different supplier, even at higher costs.

That’s a pretty long list, and it has many consumer protections. Some of these rules apply within Europe as a whole, others apply within Germany. I’m not entirely sure whether the rules differ if you order from Germany within Europe, or if it’s only when you operate as a store within Europe, though – for my own store, I just assume the most customer protections possible, and strive to deliver products to people who actually do want those products.

Compared to crowdfunding and preorders, what is a group buy, then?

If crowdfunding and preorders exist, why use a different model? What protections does it give, and isn’t it actually a different model disguised as something it’s not?

I can summarise it as follows:

A group buy is a form of preorder that wants to offer fewer consumer protections, yet presents more risk.

That’s pretty harsh! Why is that?

Retailers usually don’t offer a cooling-down period, or only offer cancellations during the limited period where you can place an order.
Retailers usually don’t offer the possibility to cancel when the product takes longer to ship than what was initially promised.
Retailers usually don’t offer refunds when a product turns out to be different from what was promised.
Retailers usually are hard-pressed to provide after-sales service, as the product being sold is usually limited. This means that replacements or repairs can be hard get, or even impossible.
Despite all this, customers are paying the retailer up-front, having them hold the money while you’re waiting for the product to start being manufactured to begin with.

Do mind the usually. Some European vendors may adhere to the regulations set up around preorders, but I also know of some that don’t, or at least historically have proven not to. But at the same time, these consumer protections don’t exist in the United States or in many other places.

What about proxies?

Hold up, hold up! I forgot a little thing: it’s called “proxies”. In group buys, usually there is one retailer that is organising the project (the “lead vendor”): they collect the orders, instruct the manufacturer to start manufacturing, perform quality assurance, collect the money, pay the manufacturer and make sure that all the products ship out to the affiliated proxies and the lead vendors’ own customers.

Usually, a proxy collects the orders and money, and then relays a list of all items ordered so that the proxy can later receive a bundle with enough products to supply their own customers with. Often, the proxy pays for the goods only after production has started, and often even after production has finished.

Proxies are used for various reasons:

The proxy retailers have their own network of customers, which may be interested in the product. Those customers may participate in the group buy whereas they might not have learned about it otherwise.
Proxy retailers usually operate within the same area that their customers reside in. This decreases shipping costs and often negates the need for individual customers to pay import fees – the proxy, instead, pays these fees once.
It divides the operational load. Group buys usually come with a good amount of order fulfilment and customer support. Spreading the demand over multiple retailers can decrease the overal workload, decreasing the risk of overwhelming a single retailer.

Why does the group buy model still exist?

There are two main reasons why group buys as a model still exist:

Gauging interest: Retailers want to gauge the interest in an item before taking on the risks of production. Having customers prepay puts most of the risk on the customer, making it easier to justify the production of a product.
Gathering funding: Retailers, especially smaller ones, will not have the funds to manufacture their design. Having customers pay up front for the product provides them with the funds necessary to start manufacturing.

Both are legitimate reasons. Reading various threads on Reddit shows that some think the first reason proves that corporations are greedy, as there are definitely some larger companies still organising group buys while not needing the additional funds to kickstart production. On the other hand, if it works, it works: as long as people are still content with paying up front, I reckon the model will continue to be used.

Group buys are still commonplace, and they are at times necessary. Most of the time, they’re executed well. It’s the outliers you hear of and read about, and unfortunately, those outliers are getting more frequent.

The second reason is becoming less common, but definitely makes pooling money together a requirement. When borrowing money from a bank, the risk lies solely on the retailer, and it can be hard to justify manufacturing a product this way – if it won’t prove to be as popular, there’ll still be a loan to pay off. With prepayment, you know the demand is there, and can manufacture knowing that at least it’s been paid for.

There are other ways to gauge interest, such as with an interest check. I recall reading that 50% of the people entering an interest check would eventually convert to purchase the group buy item. However, that was some years ago. As the niche expanded, that number started to vary more between interest checks and group buys both.

What are the risks of group buys?

When comparing group buys to crowdfunding, I noted that group buys still pose a risk even though the retailer is obligated to provide the customer with a product. Why is that?

There are quite a few risks involved in organising a group buy. It is possible to mitigate most, but not all of these risks. Generally, the further along a product is in its development cycle, the lower the risk will be.

Here are some examples of aspects that can pose risks, going by their stages in the development cycle.

Development and prototyping

During very early development, there may only be renders available of a product. Those renders may or may not incorporate all of the technical details.

For keycaps, if there are only renders, then it’s likely that there hasn’t been done any colour matching yet. The designer may rely on standard colour swatches, which fully mitigates this risk. If custom colours are used, however, then physical samples are needed before signing off on production. This process can be time-consuming, and if it takes multiple tries, may be costly as well.

For keyboards, if there’s no prototype yet, then functionality that’s entirely new may prove to be more challenging or costly to implement than anticipated. If the product is clear-cut and the designer and manufacturer have experience making this kind of product, there’s usually little risk, but small details can at times still have large, unexpected impact.

Do mind that there’s a big difference between a prototype run and a manufacturing run. During prototyping, some operations are done performed manually, and because only a low number of units is made for prototyping, you usually don’t notice any hiccups in the process design. During manufacturing, you may process dozens to hundreds of units, and so any small flaw will get magnified – processes may take a longer time than expected and small issues may prove problematic after all. This is a potential reason why a company can be “suffering from success”.

Manufacturing

The prototypes are made (hopefully!) and were considered to be sufficient enough to start manufacturing. Nice! If the group buy started during the development phase, then several months may have passed at this point already. The fact that time passes during each of these steps is very important, as its impact on various factors will increase over time.

Many of the issues that come with the passing of time at this stage have to do with money:

Inflation can have increased, possibly significantly. If there’s an inflation of 3.3% in a country, year over year, then waiting for half a year could increase costs by 1,65%, decreasing the margins by 0,825%. That’s less than a percent, but it can add up. It can be mitigated by arranging pricing agreements with the manufacturers up front.
The same goes for material costs. Raw materials may increase in price due to various circumstances. This, too, can be negotiated with the manufacturer up front, but there may be clauses about raw materials in the contracts, so be mindful.
When paying the manufacturer in a currency that’s different from the one you’re retaining funds in, currency fluctuations can prove to be an important factor. In a group buy I organised in the past, I didn’t mitigate this problem by opening an account in a specific currency, and after about a year passed, the difference was around 3% – which proved to be a very significant amount.

Of course, it’s not just money: the products actually need to be manufactured, too. During manufacturing, there are still many things that can go wrong.

Weather and environmental events can cause delays. For example, earthquakes, fires and heavy rainfall have proven to shut down (parts of) factories in the past. You can’t predict this, and it’s hard to mitigate – it’s just part of life. The same goes for worldwide events like COVID, which was unprecedented in its impact for almost every aspect of our lives, including manufacturing and logistics.
Raw and processed material availability can cause delays, too, whether that’s metal, plastic, or electrical components. Sometimes, a part is just out of stock and a replacement can’t be procured easily. Depending on the part to replace, the design needs to be revised, which usually requires another prototype to be made as well.
Mistakes happen. An employee working for a manufacturer might select the wrong material, dye or surface finish, and they may even apply it to the entire batch of product. Similarly, when packaging various items together, it can be easy to mess up their count or mix up items. Depending on the quality assurance process, this may be caught in time, but the impact can be large. In many cases, the manufacturer will take responsibility, but that is not always the case: maybe the light grey will just be dark grey, and that’s just how it is.

Quality assurance

The goods are now manufactured. With some luck they’re still sitting in an assembly line at a manufacturer. Here we go: quality assurance!

The items that are manufactured need to be approved by someone, hopefully before they’re packaged and sealed. The standards to which they should measure up need to be documented, shared and understood. Ideally, both the lead vendor, any involved proxies as well as the customers all know to which standards the product is being made, so that everyone agrees when it’s finally ready.

There can be disagreement about these standards, such as what constitutes “A-stock” without any blemishes, “B-stock” with perhaps some small scratches, and “C-stock” with visible scratches or dents. Does a specific product comply with the expectations of B-stock, or does it still qualify to be A-stock? It’s good to know this kind of thing up front, especially so that the manufacturer can still rectify things before it ships over an ocean.

This process usually doesn’t cause much of a delay, and if they, do, it’s because they haven’t been communicated well up front. What I see more frequently is that these issues are noticed by the customers themselves, meaning that both the manufacturer as well as the lead vendor or proxy failed to either inspect the product, notice the problem, or both.

Fulfilment

The goods are approved, and they’re on their way to the lead vendor. Maybe arrangements were made to ship items directly from the manufacturer to the proxies, too – that’s nice and quick, but does require the manufacturer to perform the quality assurance, or else each individual proxy would have to do it.

Assuming that the quality assurance is now done, let’s see what’s up next:

The retailer now has a large influx of goods that need to be shipped. Depending on their operations, that may interfere with their regular order processing. Either way, shipping may take a few days or weeks, depending on the vendor.
When a system is under stress, small problems get magnified. Small problems, like a label printer not working, a type of package being out of stock, or even just a staff member falling ill can cause delays and clog up operations. If this leads to more customer support questions, too, then it can start to impact more processes. The smaller the company, the more drastic the impact: time spent answering questions can’t be spent on shipping products, for example, but it’s still a necessary task all the same.
Operational challenges aside, if a lot of time has passed, then shipping costs may have changed. Many retailers charge for shipping ahead of time, and do not take into account changes in shipping rates. During 2022, for example, the DHL Express fuel surcharge tariff increased from 18% to 28,5% at its peak, meaning shipping costs increased by 8,9% across the board – not even taking into account the “emergency surcharge” and the infrequent but still occurring “peak season surcharge”. This trend was similar across most shipping providers. These costs can take retailers by surprise if they don’t account for it.

Customer support

Communication and support cannot be understated. The process of a group buy can be lengthy, and transparency is vital. However, that transparency and support does not come free!

Compared to a normal product, for a group buy:

You’ll see a vastly longer time between the moment an order is placed and the order is shipped. In the meantime, customer support load is increased: shipping addresses change, people may want to change the contents of their order, and people will wonder about the status of a group buy regardless of how well a retailer communicates proactively. All these questions end up having to be answered by support. It can be mitigated to some extent by proactive communication, and for the very fancy retailers there may be some amount of self-service.
The products are usually limited. If a parcel gets lost or damaged in shipping, or if a product gets damaged or breaks down over time, then it’ll be a challenge to provide replacements or repairs down the line. In Europe, the warranty period has a minimum of two years, after all. It can be mitigated to some extent by ordering enough “extras”, products that are essentially kept in reserve.

Business continuity

It’s a bit of a catch-all category, but business continuity essentially means: “the show must go on”. The lights cost money to run, the rent needs to be paid and employees are usually not volunteers.

First up, let’s talk about order cancellations and claims:

When processing order cancellations, many payment providers do not refund the transaction costs to the retailer. Meanwhile, retailers often do fully refund customers. With payment fees including currency conversion with some providers, as much as 5% of an order’s value may be lost when processing refunds, though it’s usually closer to 3%.
If a vendor doesn’t handle their customer support well, they may see customers trying to issue claims with their payment provider, leading to claim costs. A chargeback costs a retailer around €15, while a PayPal dispute fee costs €16, excluding the aforementioned non-refundable transaction costs. PayPal’s saving grace is that the fee is only levied if the claim is escalated: a retailer can resolve the claim themselves and only lose out on the transaction costs, which they would’ve lost anyway.

Usually, these are costs of doing business, and all is fine. However, if a retailer fails to live up to their promises and can’t keep a handle on their support queue, the claim costs may quickly eat up their capital. While retailers should take claim costs into account when calculating their margins somewhat, an unhealthy claim rate is not something you can really account for.

Equally important, especially for small businesses: health. Whether it’s physical health or mental health, a lot can change over the course of months. And with some group buys lasting for years due to various reasons, it does unfortunately pose a valid risk. Smaller businesses can be more fragile, as the availability of one key person can determine the success or failure of a project. Larger businesses can mitigate this by having multiple people be capable of performing communications and payments, but smaller companies usually do not have this luxury by virtue of lacking the budget for capable and dedicated employees.

As I’ve personally experienced a few times in the past five years, when a process is under stress, it takes all the more effort to rectify whatever was causing the stress, while also having to keep up with an increasing backlog of work. When the business continuity is at risk, for example due to a lack of liquidity caused by excess claim fees or increased shipping costs, the only ways to recover are by increasing effort and improving liquidity, both of which cost money. If a project has ran out of control, it’ll be all the more difficult to recover. And if a retailer is running multiple projects, it takes a skilled professional to remedy the situation fully.

Retailers declaring bankruptcy isn’t necessarily a scam, but rather the compounding effect of unexpected conditions and mismanaged processes.

Lastly, when it finally does come to a bankruptcy, it’s usually not pretty. Proxies hold on to the funds while production is ongoing, and if a proxy falls over, then the funds usually evaporates with it to pay off the debtors with a higher priority. While customers have a legal right to their product, the bankruptcy prevents them from getting it, and thus the only way to get the product is to pay another partnered vendor to still get the product they originally paid for. It’s often not even a scam: it just got out of hand, and there wasn’t enough funds to recover from the unexpected fees.

Something group buy organisers could take into account is the handling of funds. If possible, lock funds into a third-party escrow account after closing the order window but before starting production. That way, at least the production effort can be paid for in full even if any issues arise with a proxy. If that were to happen, the customers may only have to pay shipping fees twice. Of course, shipping fees could also be locked away and released at the appropriate stage of the group buy. Even if the group buy organiser themselves does not organise this handling of funds, it can be wise for individual retailers to still do so on their own accord, even if it wouldn’t be on a third-party account.

What should you be wary of when participating in a group buy?

With such a big list of issues, you may wonder if it’s safe to participate in a group buy to begin with. The answer isn’t very clear-cut, but there are some hints you can look at. Even then, it’s not guaranteed, with even some high-profile retailers not fulfilling their obligations in the past year.

When buying a product that’s listed as a group buy:

Check whether the product photos are based on a real, physical product, or if they’re renders. If only renders are displayed on the product page, see if you can find real photos on the retailer’s or designer’s social media pages.
Check how far along the product development is. If you’re buying keycaps, check if colour matching has been performed and if there are photos available of the matches. If you’re buying a different product, photos can suffice. Align your expectations with those photos, instead of with any renders provided.
Check for community experiences with the retailer you’re buying from, and with the retailer that’s organising the group buy. The way they handle disputes, on average, will also approximate how they will handle disputes should they occur in this group buy. You can use sites such as Trustpilot for this, but a search through Reddit will also unveil things. Do mind: when searching on social media, usually the negative stories are highlighted. What’s important is the trend, not necessarily individual cases.
Check the communication channels of the vendor. If they communicate frequently about group buys they’re currently running, chances are that they’ll do that for new group buys as well. Especially on forums like Discord, if you see many people asking for status updates or refunds, that’s usually a bad sign.
Check the estimated delivery date, and make sure that it’s not too far in the future, and specific. There may not need to be a specific date, but a year and month is the least they need to do. If it’s over a year, think about whether you’ll still want the product by then, and whether you’d still want it after it gets delayed.
Pay with a credit card, PayPal or both. That way, if a dispute does occur, you can fall back on a chargeback or claim with the payment provider. Take note of the claim window, as it’s usually between 6 to 12 months from the date of payment. I recommend putting that date in your calendar, so you remember to check the group buy status by then. If there’s any sign of trouble, or if you’re having doubts about the progress, try to cancel your order with the retailer and raise a claim if they don’t comply.
When in doubt, don’t participate. It’s easy to lose your money, so if you’re not confident in a retailer or a specific project, simply don’t participate. If it proves popular enough, there’ll might be extras or a rerun in the future, so there’s no requirement to give in to FOMO.

Conclusion

It really is a long read, so to those skipping straight to the conclusion: I feel ya 😌 These are the key points worth remembering:

Group buys are actually preorders, but named something different. If consumer protection laws apply to your retailer, know that the rules for preorders are applicable, and you may have more rights than your retailer lets on.
For customers to regain confidence in the group buy model, retailers need to put in place and act upon consumer protections, whether required by law or not. They need to act professionally and courteously, not just in exceptional situations, but on average across the board.
To weed out bad actors, local governments need to enforce these customer protections. I feel like this is wishful thinking, though, and it’s also after the fact: whatever punishment is dealt out won’t replace your funds or product, so prevention is better than the cure, as usual.
Retailers need to evaluate and mitigate risks up front, instead of dealing with aspects on the fly. They won’t need to communicate all that to customers, though transparency can help in restoring confidence. Ultimately, mitigating risks up front serves to improve the continuity of the business, so even if it’s out of mere self-preservation, evaluating and mitigating risks is the right thing to do.

While confidence in the group buy model is at an all-time low, judging by the social media channels I keep up with, there’s no reason to be wary of in-stock orders. As long as orders and customer questions are processed within a reasonable time, you should be able to sort disputes out with the retailer directly. And if there are still doubts, you can rely on your payment provider such as your credit card or PayPal to handle the dispute on your behalf.

I hope the people tied up in group buys affected by the various bankruptcies in the past year are still getting their products, as other retailers step up to play a part they shouldn’t have to play. Major props to them for taking responsibility and extra work!

I also hope the remaining retailers take their job of providing to the community seriously. It’s not so small as to be a playground anymore; there are real stakes and serious money involved, and it needs to be handled appropriately.

Thank you for reading! If you have any comments, please leave them over at the splitkb.com Discord server, or on the social media threads you might’ve seen this article posted to.