Making Games for a Kickstarter Campaign, part 2

Making Games for a Kickstarter Campaign, part 2

 How do you Price a Board Game?

Money, get away
Get a good job with good pay and you’re okay
Money, it’s a gas
Grab that cash with both hands and make a stash
New car, caviar, four star daydream
Think I’ll buy me a football team

Money, get back
I’m all right Jack keep your hands off of my stack
Money, it’s a hit
Don’t give me that do goody good bullshit
I’m in the high-fidelity first class traveling set
And I think I need a Lear jet

Money, it’s a crime
Share it fairly but don’t take a slice of my pie
Money, so they say
Is the root of all evil today
But if you ask for a raise it’s no surprise that they’re
Giving none away, away, away

– Roger Waters (Pink Floyd)

A few days ago there was a post on reddit regarding what Frédéric Henry of Monolith said in an interview. The interview is in French, and although I speak French myself, it’s also FOUR HOURS long. So, I didn’t listen to the source, and can’t personally comment on what Mr. Henry said, but the redditor explained what he felt were interesting points, and it’s those that I’ll comment on. (Read the reddit post, which contains a link to the original interview, here).

There’s an interesting breakdown of the costs of good sold for Monolith’s upcoming Claustrophobia Kickstarter, based on 10,000 units produced. It’s as follows:

Claustrophobia financial breakdown:

  • $5 for figurine molds (tooling) ($50,000)
  • $2.5 for sculpture ($25,000)
  • $1.5 for illustrations ($15,000)
  • $20 for salaries ($200,000)
  • $26 for manufacturing ($260,000)
  • $1 for transport by ship ($10,000)
  • $12 for VAT (it’s an global average 15%) ($120,000)
  • $6 for royalties ($60,000)
  • $8 for ks ($80,000)

If they sell all 10,000 units on the KS at $79 each, the total would be $790k (which technically means KS’ cut is very slightly less than $80k). The total cost expressed is $820k. This means Monolith is expecting a $30k loss, even if they sell every unit. (This ignores expansions, of course, but complicating the example with those won’t change the overall point).

The basic rule of thumb for many publishers is to price a board game at roughly 5 times the strict manufacturing (print run) cost. Naturally this is a rough rule, not a strict one, as the factory will offer price breaks at different print run sizes. Additionally, if the market (i.e., consumers) would reject a particularly high price, the publisher may be forced to set it at closer to four or even 3 and a half times the manufacturing cost. In this case, it appears that Monolith is setting it at roughly 3 times ($26 per unit cost for a $79 game).

Suppose they had priced Claustrophobia at the normal 5 times rule. It would be a $130 game (let’s call it $129).

NEW Claustrophobia financial breakdown:

The following costs won’t change from previous:

  • figurine molds (tooling) ($50,000)
  • sculptures ($25,000)
  • illustrations ($15,000)
  • salaries ($200,000)
  • manufacturing ($260,000)
  • transport by ship ($10,000)

The following costs will be different:

  • $19 for VAT (15% of price for $190,000 total)
  • $10 for royalties, at basic same rate of 8% ($100,000)
  • $12.90 for KS ($129,000)

Suppose they still sell all 10,000 units on the KS, but this time at $129 each. The total would be $1.29 million. And the total cost would be about $979,000. Rather than a $30k loss as in the previous example, this would represent a $311,000 margin! That’s an outstanding ten fold change in the positive direction by adding a mere 60% extra to the consumer price (i.e., by simply pricing the game at the normal 5 times the manufacturing cost, instead of 3 times).

Monolith can make these calculations as easily and simply as me, and they no doubt did many calculations to narrow in on the price they wanted. So, why did they not do this? It basically comes down to the basic fact that in the free market (and the board game industry is fortunately particularly free of regulation), the consumer is king. Monolith is calculating that by pushing the price up to $129, it would drive away far too many potential customers.

Remember, we’re predicating all of this on actual sales of all 10,000 units. If they only sell, say, 5000 units on the Kickstarter, because of the higher price, they’ll still have a little over half a million in costs (especially given that they’re pre-printing this particular game; if they hadn’t, their print run would likely be less, and thus they would at least save some of that massive $260k line item). You can do the math yourself, but a quick back of napkin of 5000 sales at $129 each will show a rough loss of $66,000 – more than twice the loss of selling all 10,000 units at $79 each.

The very price that Monolith is using for the game shows how much of a risk they consider the Kickstarter to represent even though they’ve confidently pre-printed 10,000 units of the game.

Since this is a Petersen Games Production Diary, let’s move to the game we discussed in part 1, The Gods War.

 

The Gods War’s core game financial breakdown:

  • Figurine molds (tooling) ($44,000)
  • Sculpting 19 sculpts, the majority unusually large and complex, about $30,000
  • Illustrations, including the concept art and various large full color marketing images ($15,000)
  • $33.56 per unit manufacturing for $125 KS priced core game ($50,340 total, for 1500 units)
    • Note that this makes it a roughly a 3.7 times multiplier
  • Royalty to owner of IP, Chaosium, inc. – $12.5 per unit, $18,750 total
  • KS fee – about $18,750 for just the core games

You may be wondering where salary, shipping, and VAT are. We do not include VAT in the pricing model of our products, nor any aspect of shipping. Since the majority of our sales are to the US market, which has no VAT, we think it unfair to include it, averaged for all customers. Monolith is a European based company, where VAT is close to 20%, one of the highest in the world, and so naturally affects their business model more than it does for us. We include VAT (and all other shipping costs) in the shipping costs we pass along to our customers. In this way, no one is paying for shipping for someone who lives elsewhere. This is not a criticism of Monolith, but the way they do it necessarily means almost all non-Europeans, and particularly Americans are subsidizing European customers – a global average might be 15% if they’re weighting it based on their customer populations (which is wise for them to do). But many countries – especially those that tend to buy board games – have far lower VAT and import taxes (most of them have something around 10%,  but based on the manufacturing cost, not sale price, and so is only a fraction of the 20% in Europe).

For salary and general overhead, we have a standard policy of not including it in our calculations of how to price a board game. Obviously, we factor it into all our accounting, cash flow analysis and the broader business concerns we have. But for strictly pricing a board game, and analyzing the cost, we find it a difficult variable to include in the cost of goods sold. Obviously, you must include it to know if your product is actually profitable or not. But to say if the price of a game is $49 or $59, for example, salary is immaterial for us. Our team is never working on a single project at a time anyway, so parsing the specific payroll to various game projects would take pointless effort. At this moment we have 19 officially active projects at Petersen Games. Naturally, these are in quite varied stages of development, and not all team members are working on all 19 projects, but across the company, this is the case.

Now, back to the actual numbers. The above breakdown shows a total cost of about $177,000 to produce the core game. (I’m muddying the waters a bit by having the KS fee for the games as if they were all sold at $125 each, but this arithmetical dance won’t change the basic analysis).

The Kickstarter sold about 1,500 games with a KS price of $125 each. However, the overwhelming majority of backers got the core game at a 16% discount ($450 for all items which have a total cost of $535). For those backers, who effectively paid $105 for the core game, we only priced it at a 3 times multiplier (compared to 3.7 times). Let’s consider that each core game was sold as a constant $125 (and that only the expansions were discounted in the bundle pledge level). That yields a total revenue of $187,500. Counted against a cost of $177k, there was effectively a margin of only $10,000!

Of course, the Kickstarter received about $585,000. The difference is accounted for the expansion material. We didn’t include their revenue in our analysis, but neither did we include their substantial costs (which representing the overwhelming costs for The Gods War project overall). Needless to say, The Gods War experienced a loss overall, to the tune of a_lot_of money – much more than $10k. And when we consider that we didn’t factor salary and overhead into the pricing of the game, the project is even worse.

However, like Monolith’s plan for Claustrophobia, we never expected The Gods War to be hugely profitable initially. After all, the very first Cthulhu Wars KS funded at 1.4 million, and that project definitely lost money when all the costs of goods sold are accounted for. But we’re on the fourth print run of Cthulhu Wars, and so it eventually become the sustaining force of Petersen Games and the foundation upon which we survive. The Gods War, we hope, will one day prove profitable as well – due initially to a future Kickstarter to include 3 new expansions (Sandy has already designed them!).

Should we have raised the price of our huge game? Well, that would likely have encouraged even fewer sales, making it worse. Perhaps we could have gone lower, at say 2 and a half times the printing cost, for a $79 game? I’ll dive more into how expectations of print runs dramatically affect our pricing analysis in the next post (which I promise will come soon, and not more than a month away like the gap between this and the first post!).

– Arthur

 

Making Games for a Kickstarter Campaign, part 1
Making Games for a Kickstarter Campaign, part 3

1 Comment

  • by Deborah Petersen Posted September 19, 2018 8:09 pm

    Wow!!!! So much goes into making a game !! Arthur you are amazing!! You can tell by the way you explain things that you juggle a lot at your job. You are fantastic! Keep up the great job you are doing!

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