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[Mega]

I've heard some horror stories. But as an outline what are some of the 'actual' pros and cons of accepting pre orders from your customers/potential customers.

And what conditions should influence the decision to consider that path.

[Christian Knudsen]

Personally, I would only offer pre-orders if I needed the money for development. From following other projects, it seems that pre-orders can sometimes sour the relationship between customer/fan and developer a bit. Having paid for the eventual product, the customers often come off as more entitled and demanding in their attitude towards the developers. Also, sometimes new and inexperienced game developers will promise a lot more than they're actually able to deliver in the end -- if the game is even finished. And, finally, even though indie game development most often is (and should be) motivated by a love for games, the financial reward that can come from finishing the game and selling it can be a great motivator -- if financial success is achieved before the game is finished, that can actually have a negative impact on the game's development.

[PompiPompi]

With my game I intend to have a private alpha. That is, I am going to give it for free, but only for "handpicked" people. The reason I want to do this is because I don't believe that a preorder will generate a lot of sales. Not many people can pull off pre-orders and enough people paying, especially for something not finished yet.
You will end up with a few sales, and very few playtesters. And playtesters are essential in the stage you are forming the gameplay.
With the private alpha I am able to give people the game for free, but also not make it free for everyone, so I will also be able to sell it later.
If you do preorders, and then give your game for free for some people, it won't look so good for the people who actually paid.

[Leroy Binks]

An alpha is different than presales.  I intend to pimp my free-to-playtest alpha to every person that has ever expressed interest.  I want as many fans, (and critical fan feedback), as possible before it goes to pre-sale.

Once I am in the final stages of development, I am taking preorders and using them as a giveaway for Kickstarter or IndieGoGo.  The preorder sales will be used to help pay for marketing and advertising.  I think that if you use preorders to fund development, then you are endangering the reputation of your studio, due to the fact that the game might not get finished and having to issue refunds.  Also, if you do use those sales for development and you don't have the money to refund, things get even stickier. 

Judicious use of pre-orders can help with cash flow, but be cautious of what to expect from it.