The unasked question I’m going to answer here, is:
Since Kickstarter creators sell directly to customers (without the intermediary of distributors and retailers), why can’t they offer the game at the same price as they would to a retailer?
But more often than not, KS campaigns don’t quite offer that level of deep discount. Why not?
First, let’s acknowledge that in the past decade, Kickstarter has dramatically changed the tabletop game industry by lowering the main barrier to entry in this industry – capital. Indeed, Petersen Games only exists thanks to Kickstarter! But once a Kickstarter funded board game exists, it still enters the same industry as games published without Kickstarter. Or, it dies, having been a one time print run.
Let’s start with the tabletop game industry value chain without Kickstarter. Like all industries, this one has a chain from the product creator all the way to the end consumer. And also like all industries, there is some amount of negotiation between each link in that chain over the value each link deserves. I do not know the details of other industries, but I do know that the value each link in the chain for tabletop games is fairly rigid. Not to say it can’t be changed, but it’s long standing and well established.
Here’s how it breaks down, roughly:
Manufacturer: 20%
Publisher: 20%
Distributor: 10-20%
Retailer: 40-50%
Here’s an example, in case this is confusing:
Suppose there’s a game with an MSRP of $100 in a game store. That store paid $50 to $60 to its distributor. That distributor paid $40 to the publisher. And the publisher paid $20 to the manufacturer. To see how much value each link has captured, simply follow it the other direction: the manufacturer received $20, which is 20%. The publisher received $40, but paid $20 to the manufacturer. So, they only got 20% of the total value. The distributor received $50 to $60 from the retail store, but had to pay $40, so they are left with $10 to $20, which is their 10-20%. And finally, the retail store paid the most (among the supply chain), and therefore has, in many ways, the most control over the value they receive in the chain (i.e., they can choose how much to charge the end consumer). If it’s a hot game that people will buy at close to MSRP, then the retail store can obtain the most value (40-50%!!). Often, they have to discount it (especially if they’re online retailers), and so they don’t quite get that much. If they only get, say, 20-30%, the remaining value would go to no one (or, more properly, to the end consumer).
So far so good? The publisher, who thought of, designed and developed the game, captures about 20% of a game’s value. It’s a minority of the value, but that’s fine – I would expect that in almost every industry a given link in the chain only captures a minority. But it’s less than a quarter of the value in a chain with only four links – i.e., if things were split evenly you’d expect publishers to capture 25% of the value, which is not the case here. Alas.
In addition to only capturing a minority of the value, publishers have another challenge in getting these games to market that the other three links in the chain do not. As the publisher, there are many up front costs of goods sold that are NOT captured in the value chain as described above! If they are accounted for, then the numbers shift such that publishers take a very small amount indeed (at least on the first print run).
Let me explain. When a manufacturer makes a game, it costs them roughly the same whether it’s the first time they’re making it, or the second, or third, or fifteenth. (There could be upfront costs, such as steel mold tooling, but those would always be passed on to the publisher). Likewise, distributors and retailers have no special upfront costs for a new game. Their costs of goods sold for a game are the same whether it’s the game’s first print run, or seventh. (There could be some extra marketing costs for a new game, but that would be a very small proportion of their received value in the chain). They basically just buy the game from the previous link, and then sell it down the line.
By contrast, a publisher has a lot of up front, one time costs that apply to a newly developed game. Most publishers, except the very biggest, tend to use freelance artists. (How do I know this? Because a zillion freelance artists have reached out to us over the years asking for work, and showing art and work they’ve done for all sorts of publishers, from Fantasy Flight to CMON). The design process could be cheap (aspiring designers could act as freelancers for a relatively low price), but it can also be expensive depending on the amount of playtesting and time it takes to develop. Other miscellaneous costs such as editing and layout exist. And if the game has sculpts, this can dramatically increase the art budget, as a single highly detailed 3D model can cost thousands of dollars. Finally, these 3D models have to be turned into steel molds (an expensive process called tooling). These can also cost several thousand dollars per model.
After accounting for all of these up front, one time costs to develop the game, the publisher can’t really “bake” these costs into the total value of them (otherwise known as the “MSRP”). If they did, then the game would cost too much for the consumer and no one would buy it. Thus, a game that hits the market for the first time has cost the publisher, uniquely, a lot of capital. But the manufacturers, distributors, and retailers have no such special difference between this new game and any other game.
Each game’s up front costs are different, but say, for the sake of example, that these costs divided out equal 10% of the per unit cost. If so, then the value chain for the FIRST print run, instead changes to the following:
Manufacturer: 20%
Up front COGS (art/tooling,etc.): 10%
Publisher: 10%
Distributor: 10-20%
Retailer: 40-50%
On the second print run, these up front costs don’t exist, and the publisher can capture the full 20% it normally gets.
Now, let’s see how Kickstarter DRAMATICALLY changes this model for us.
The up front costs for Planet Apocalypse, a KS campaign we ran a year ago, were in excess of $200,000 (the majority of these costs are tooling, as there are many unique figures, and they are fairly large). Since the funding level was a little over $500k, this means the up front costs represent about 40% of the value. Kickstarter itself takes about 10%. There are no distributors or retailers, so the value they get is 0%. That leaves us with 50% left over to split between the manufacturer and publisher.
You’d think that with manufacturing normally taking 20% of the value, there’s a full 30% left over for the publisher! Much more than the typical 20% portion. BUT, there’s a major catch:
Kickstarter offerings (especially ours) have deep discounts compared to the MSRP. So, for example, the Planet Apocalypse offered a roughly 50% discount for the top pledge level. That means the per unit manufacturing cost should represent twice (proportionally) what they normally do – so 40% instead of 20%.
So, here’s the value chain for Planet Apocalypse:
Manufacturing: 40%
Up Front COGS: 40%
Kickstarter: 10%
Publisher: 10%
You’ll notice this is HALF what a publisher normally gets! Why on earth would publishers bother to use Kickstarter??
Well, of course, that’s incorrect, because it IS better than a new game sold through regular retail markets for the first print run. If we went straight to distributors with Planet Apocalypse, for example, having to front 40% of the total print run’s value, then the value chain would look like this:
Manufacturer: 20%
Art/tooling/misc. COGS: 40%
Publisher: -20%
Distributor: 10-20%
Retailer: 40-50%
This is not an impossible thing in the business world. For example, pharmaceutical companies could have R&D costs for developing a new drug that equals hundreds or thousands of times the cost or value of actually making the pills and selling them to retail pharmacies – think of the Art/tooling/misc. as R&D spending. Whatever the link in the value chain that invents and develops the product (for the game industry, the publishers), this sort of thing can happen.
The publisher, on the first print run, has invested money, and once the product has sold enough units, especially over more print run, the publisher eventually recoups that money, and eventually their 20% take in the value chain becomes a positive sum.
In short, Kickstarter usually allows us to offer a game to the market when the up front costs would likely be too high for a small publisher to handle. Yes, I took a long way to say what we all knew already – Kickstarter provides indie companies like us to make big, expensive games!
But hopefully you can see that even with this, the value the publisher really keeps is fairly small. And therefore, it is not always wise for KS creators to offer games at steep discounts.
There’s another catch to all of this. What should we do with the 10% from Planet Apocalypse? Should we use it to cover our normal overhead (salary, etc.)? Or, should we use it to print an overrun of games to sell at retail later?
This is why The Gods War, as I’ve said several times, lost money for us. The up front COGS was too much, and rathen than even the low 10% value we should have gotten, it was a negative amount.
Planet Apocalypse had VERY thin margins, and the current Kickstarter – Hyperspace – will have slightly better margins, because we’re not quite offering half off. We’re offering about 40% off. So, the manufacturing per unit is going to be about to 33%, and the up front COGS, because the miniatures are smaller, is also unlikely to be a full 40%, but probably closer to 25% with any luck (and assuming we fund at a higher level than PA, which could be the case).
This means that Hyperspace will likely have more products available at retail later, or we’ll be able to fund our company for a little longer!
And that is what Kickstarter does for a game company!
It seems almost every Kickstarter project handles shipping pricing differently. Some offer free or subsidized shipping, although most charge a fair amount. I’ve not personally seen too many examples of shipping prices that are obviously gouging, in the sense that the creator is expecting to actually profit off of shipping (although it could happen).
For Kickstarters like ours, in which we manufacture expensive board game and related products in China, then freight them around the world, there is a series of costs we have to account for. These include:
Labor cost to load the containers at the factory floor
Freight from factory to port
Port fees
Shipping the containers across the ocean
Arrival (unloading) port fees
Import taxes and fees
Freight to fulfillment warehouse
Container unloading
Product inventoried
Smaller operations than ours often have their KS rewards shipped to their home and then they and their friends and family handle a lot of the final processes. We don’t have this luxury, with the tens of thousands of products to pick and pack in a typical KS campaign. We have to rely on fulfillment warehouses which specialize in this service.
Much of the costs above, when divided out into the thousands of individual products shipped amounts to very little. It can range anywhere from $1 to $5 or more, per SKU (discrete product) we are shipping. So, it’s not a very big cost, but it is a cost for us. Our games are big, and we often ship a LOT of expansions along with them (looking at you Cthulhu Wars!) which means we usually need more container space per customer than a typical Kickstarter product, to fit all the products we’re sending out to our backers. Those costs do add up.
Once the product is inventoried at the warehouse, the most expensive part of shipping takes place – the actual fulfillment processing and mailing of individual orders. Fulfillment warehouses typically charge three key line items (though there can be more):
Pick and Pack
Materials/packaging
Final mile courier cost (postage).
The picking and packing is the physical labor of selecting an order’s SKUs from the inventory and packing it into a box to be mailed. Most fulfillment services charge a flat rate per order, which includes the cost to pack the first SKU into the box, and then to charge another, lower flat fee per additional SKU added to an order. Our warehouse, in all honestly, is not one of the cheaper ones, but they still only charge $2.25 per order, plus $0.85 per each item beyond the first.
Materials and packaging is often a fairly low cost, and this is usually a pass through cost in which they just forward the costs to us, without any markup (although, it would be hard to know if there is a markup). It often ends up being about 10% of the overall fulfillment cost.
The final mile courier cost – postage, essentially – is also a pass through. The fulfillment warehouse passes along the costs charged to them from FedEx; UPS; USPS; or DHL (or someone else). They also will have an account with these companies so that the postage is a little cheaper than it would be for a random person at a UPS store. The postage is typically the most expensive part of fulfillment. Take an average board game, which may weight 3 lbs., and the postage is going to be something like $10. Add the pick and pack of only $2.25 to that, and you can see where most of the cost goes. It’s even more obvious if someone orders several expansions. Each expansion might add a pound or more to the weight of the shipping box, each therefore adding a few dollars to the postage. But they are each only adding $0.85 to the pick and pack cost. When all is said and done, most of the money for shipping is going to FedEx, UPS, USPS or DHL (and after all, this makes sense, as they are also doing most of the working in actually getting the physical box to your home).
So, the fulfillment companies effectively make their money from the pick and pack – as well as the product storage if they are handling ongoing fulfillment (i.e., the cost to store our products in a warehouse on pallets from month to month). Our fulfillment company shows us the rate sheets that they are charged by the couriers (FedEx, etc.), and so we know that they aren’t marking these up. They don’t make any money from the postage, much as they may want to.
Let’s use our most recent Kickstarter as an example. The book, which is the main event for the Sandy Petersen’s Cthulhu Mythos Kickstarter, weighs a little more than 3 pounds. This means it’s unfortunately in the 4lbs. category of weight for shipping. In the US, that’s a postage average of $12.16 across the 9 shipping zones of the continental US (or an average of $12.50 if weighted by having most customers on the two coasts, which is likely). Add to that the $2.25 pick and pack fee, and it’s almost $15, which is what we’re charging. I rounded up to $15 to provide the necessary buffer for the inevitable mistakes in picking and packing which will require us to re-send (particularly for the mini, which I’ll get to below), and for any books or minis that arrive broken, etc. (It also helps to cover the packing materials, which are usually a roughly 10% cost of the given package mailed, which means we’re slightly undercharging our backers as to what the fulfillment bill will be to us). Additionally, sharp readers will note I didn’t mention that we also factored any freight fees into the shipping cost (the long list of freight line items near the top if this post). We have decided to eat the freight costs on this campaign. So, not only will the fulfillment cost be slightly subsidized, the overall shipping cost is subsidized much more so.
Now to the miniatures, whose shipping considerations are very different. All the miniatures, no matter their size or weight, in all regions but EU will cost our backers only $1 each. For EU, it will be only $1.50 each. The reason all miniatures are the same price is because the cost is almost entirely the pick and pack cost (of $0.85 per item), and not the postage – which is the opposite for bigger products like board games.
The postage beyond about 4 pounds (averaged across all 9 zones) averages an additional $1.50 per pound in postage (for US, anyway, it varies around the world, but not enough to change the prices for other regions, except EU). In other words, 4 pounds costs about $12.16, and 5 pounds costs $13.61, or about $1.50 more). Our minis average 33 grams (some are 200 grams, but most are 20 or 25 grams each). 33 grams is about one thirteenth of a pound, so by dividing $1.50 by 13 we get that each mini (on average) costs us an additional $0.115 in postage costs. Add that to the $0.85 pick cost to get $0.97.
However – it is more labor intensive to pack a mini into a box and protect it from damage, and it takes more packing material to do so, than board games. Our shippers actually wanted to charge us MORE to pick and pack each mini, but after discussion, they did not. Just imagine the difference of putting a few rectangular shaped boxes, already mostly self-protected, inside a larger box to mail, as compared to putting a handful of odd shaped, semi-fragile small plastic figurines into that same box to mail. It simply takes more time, effort and materials to put a bunch of miniatures into a box for mailing than board games.
In short, $1 is actually a really good estimate for us to have an almost revenue neutral fulfillment price, which is our long standing goal. We seek to neither make money, nor lose money, on fulfillment (though again, we’re eating the freight costs on this project).
Because we suspected the shipping prices may feel a little high for some of our customers, we decided to offer the minis themselves at very deep discounts. By definition, therefore, we can’t afford to subsidize the fulfillment part of shipping even a little bit. (Had we charged more like $2.45 for an Acolyte, which is what a Reaper Bones mini of the same size would cost on a typical online store, then we could have perhaps charged $0.50 for shipping each, and have covered our shipping costs in the marked up miniature price). We instead went for a discounted mini price, and a revenue neutral fulfillment price.
Also, despite what I wrote earlier about being revenue neutral, and despite the fact that we have shipped many Kickstarter projects, the final sum of invoices we’ve paid for shipping a given project has ALWAYS exceeded the revenue we’ve received from backers for shipping (especially for the original Cthulhu Wars Kickstarter, in which our shipping bills exceeded shipping revenue by almost half a million dollars!). Though that was a serious outlier, shipping is always subsidized to at least some small extent. It’s just how it is. But at least we try to get close to revenue neutral, at least for fulfillment, if not for overall shipping costs!
POSTSCRIPT:
After some comments on the Kickstarter page, I wanted to add this short, clear summary which further clarifies why the miniature shipping cost is the way it is:
The rationale for providing discounts in shipping as more items are added to an order is always about the reduction in POSTAGE per pound. But we are only factoring in $0.12 per mini for postage. Even if you add 1000 minis to your order, the postage for each is not going to average much less than $0.10 per mini. You can do the math yourself with any USPS (or other courier) rate sheet.
There is another part of shipping items to customers: the pick and pack. Another word for this is LABOR. All fulfillment warehouses charge a flat pick and pack fee, and ours charges $0.85 per item. That means if you have 100 items in your order (beyond the first), our warehouse will charge us $85, regardless of the postage cost or any other cost.
If an order does have 100 items, the owner of the fulfillment warehouse IS NOT going to tell his low wage worker: “Hey buddy, because this order has so many items, I’m going to reduce your hourly pay while you work on it.” Can you imagine that? Or, if he told his whole warehouse staff: “Hey guys, since this Kickstarter we’re fulfilling has over 4000 orders, after we pick and pack the first 3000, I’m going to give Petersen Games a discount, which means I’m going to pay all of you less per hour to pick and pack the last 1000 orders.”
Hopefully this explanation makes it clear. With big heavy boxes like board games, we could theoretically reduce the shipping cost if you added a lot of them, but we’d be reducing it because the postage per box would get cheaper. But we’d never lower it below $0.85 per item because that pays for the guy who actually selects the item and places it in the box with packing material and tapes the box shut.
I have a story I’ve been dying to tell, but could not for many many months, for the sake of Petersen Games’ relationship with our main factory. Our primary factory – which manufactured The Gods War – has been involved in a legal battle with a former employee of theirs, and I’m now finally able to discuss this with our customers.
I decided to post this as a “production diary” rather than a Kickstarter Update for The Gods War, as it reveals some of the kinds of things that can happen when working with a factory in China (or anywhere, for that matter) – things that can impact us and our backers greatly, even though we can’t always discuss it openly***
Eighteen months ago – in the Spring of 2017 – I got an email from the manager over tooling and plastics for our main factory. This wasn’t odd, since we communicated from time to time (normally I would work with her superior, but we had met many times in China and were certainly on a first name basis). However, it came from a new email address, and, knowing I was in the middle of getting quotes for the Cthulhu Wars: Onslaught 3 project, provided a quote of her own, for plastics only.
Although we work with a main factory, we have a few we’ve used over the years, depending on the project, and when I get quotes, I always get quotes from all factories I have contact information for (there are some factories who have given quotes for virtually ever Petersen Games game, and we’ve never used them yet). I assumed she was working for a new factory at first, but since the price was so dramatically low, I asked, and she said she was working as her own agent, and had quit our main factory.
However, given our strong relationship with this main factory, I asked them what happened to her, and heard a very different story. Throughout the next several months what unfolded was, to be trite, a terrible mess. Apparently, this former supervisor had taken a series of criminal actions that caused a lot of damages to the manufacturer’s operation. This person had locked the office so no one could work for some time and had stolen computers. Later it was discovered that some molds for plastic figures were stolen! To get them back, money was extorted. The factory had to file several lawsuits against her (and this is the main reason I couldn’t say anything until now). And in the midst of this, to enable things to even function, the manufacturer had to move to a different location and recruit a new staff for plastics and tooling, requiring all projects to slow down while the new employees were trained and got up to speed on the current projects – notably The Gods War.
This is the thumbnail summary. Suffice it to say, it was a mess. And if you could “hear” the tension in my updates whenever I wrote progress reports for The Gods War, much of that was because I couldn’t talk about any of this!
To be clear, this is NOT at all the only reason The Gods War has been delayed. The initial problem was that we launched the Kickstarter before all the sculpts were even completed. That was clearly a key failing of ours (which we have since rectified by never launching another Kickstarter unless our team had prepared the game to the point where we could send it to China). Also, our decision to make the sculpts very large and complex meant that it took far longer to tool than even any of our Cthulhu Wars projects. However, the unfortunate litigation and challenges faced by our factory for the past 18 months has greatly affected their ability to make Cthulhu Wars: O3, as well as The Gods War on the schedules originally planned between them and me.
Luckily, it is now at the point where things are resolved, and projects are no longer being affected by these unfortunate events.
And that’s my production diary for today. A harrowing tale for Halloween. Except this one’s true.
– Arthur
*** Here at Petersen Games we do try to discuss everything as openly as we can, but legal disputes are not always fair game for public updates for Kickstarter backers or blogs like this one. Luckily, I’m now able to discuss this, as it will be eye opening for those who want to be informed on the insides of things.
In the last post, I discussed the breakdown of costs and the general rules for setting a game’s price. This time I’ll dive more into how the print run size effects all this – especially when you’re not able to afford to pre-print everything like Monolith shrewdly has!
Game Sales Dramatically Diminish Over Time
The first, and most important thing to keep in mind, is the general nature of board game product sales. The first print run is almost always going to be the biggest, and you’ll experience the most sales in the first months following release. Sales will naturally diminish over time. While there are certainly exceptions, such as “evergreen” products like Settlers of Catan and Ticket to Ride, which sell fairly consistently year to year, as well as sleeper hits whose popularity can grow over time, most games get one real chance to make an impact, and then they’re gone.
In Robert Leonhard’s enlightening book, The Art of Maneuver, he describes a similar phenomenon in the lethality of weapon systems employed by militaries. For our purposes, I’m really just using this to show the graph:
Most know that my Dad, Sandy, is an immense Lovecraft and horror fan; what some may not know is that he devours military history like popcorn as well and can literally discuss even obscure historical military matters for hours. I’ve been cursed with this appetite as well, and indeed we are in the midst of an email discussion (with my grandfather as well) regarding the distinctions between the characteristics of air superiority vs air supremacy this week!
Here’s the real graph I would make if I had even the teensiest graphical ability in me:
You may note that this is in stark contrast to my statement in the previous post that our plan for The Gods War is that we intend for its profitability to be established over time. Also, this is in opposition to Monolith’s stated expectation that Claustrophobia will not initially be profitable, but will be so with future print runs and sales. There are a few explanations which combine to explain the phenomenon in total.
It’s all about the mix of products
First, if there were a way to have the initial game profitable from the outset, we would certainly elect to do that (as would Monolith, no doubt). While the ultimate decision to set the price of the product is up to the publisher, there are many constraints we have little or no control over. Publishers don’t get to decide the costs our factories charge (who are themselves constrained by their suppliers and the cost of labor), nor can we determine the demand dictated by consumers (who are constrained and influenced by various factors – publishers can influence via marketing – but there are many others we can’t affect). Other costs such as what freelance artists and sculptors charge, while negotiable, are likewise subject to constraints on both sides. The point is that there is going to be a range a given product can realistically be priced at, but that price range isn’t magically one that guarantees profitability! If costs and demand force a game into a price that isn’t profitable, that’s just how it is. The fact is, not all individual products lead to profits.
Hence the subtitle of my post – you need to accurately prophecy that all the time, effort, and investment you put into a product will lead to true profits. It isn’t guaranteed to do so, even when a Kickstarter is funded many times more than the funding goal. As we’ve seen in the previous post, the price a publisher sets for the game can make a dramatic difference as to whether it makes a profit or not. And as we see above, the price a publisher sets is constrained by many factors outside its control.
Obviously, the sum total of a publisher’s products need to make money for the publisher to continue as a business entity. An individual product can fail, so long as there are other sources of profitability. This is one of the reasons it’s so hard to make money on Kickstarter, or as a small publisher (or small business in general). Profits from a single product can be a real gamble; but if you can make LOTS of products, then their aggregate can lead to success. So long as a publisher can juggle its cash flow properly (i.e, paying for overhead and the costs of goods sold as they come due), then it can continue until profits emerge. Sandy, the sole owner of Petersen Games, pays himself a salary (which is considered part of the company overhead), since this is his full time job, but he doesn’t have profits beyond that as a source of income – yet. This is why we are still a Kickstarter based company – we don’t have spare capital to make anything but very small games without up front cash. This is very typical for small, young companies. It is not destiny, it is because we are still very much an “indie” company.
We do believe The Gods War has plenty of potential profits to reap down the road. “Blockbuster” style games – big box, big miniature, epic, expensive games – have somewhat of an advantage over the typical board game. If they can capture some element of the current gaming zeitgeist (like Zombicide, Kingdom Death: Monster, and to a lesser extent Cthulhu Wars have done in recent years), then they experience some level of sustained sales. Note, however, that in all three of these Kickstarter game examples, the publishers have elected to offer new versions (Zombicide and KD:M), or lots of expansions (CW). The actual initial products have generally still experienced diminishing sales – Zombicide may be evergreen, but I’d bet that newer editions have dramatically outsold reprints of the first edition in recent years. In other words, these initial products become entire game lines such that they are like a microcosm of the business as a whole. Just as single products may lose money, but the business continues due to other products, so can core games, or initial releases of a major game lose money, but set the product line up for profitability over time as new versions and expansions are released. We hope that The Gods War will become a profitable product line over all, the way Cthulhu Wars has (again, the first Cthulhu Wars Kickstarter did not end up making money).
Super totally unrelated ( 😉 ), but check out our new Cthulhu Wars novel we released on Amazon, here.
What about non-blockbuster style games?
Ok, so what if we’re not talking about a game that is going to initiate a full product line, like Cthulhu Wars and The Gods War? What about things like Startropolis, Theomachy, and Dicenstein?
The hope is that single games are profitable from the outset. If they aren’t, then they likely won’t ever be profitable, due to the law of diminishing sales for board game products. Hopefully you don’t have too many of those, as a publisher, or else you’ll eventually go out of business. There’s not really another way to say it.
Setting the first Print Run Size
Since the initial print run is going to be the largest, and experience the most sales, the desire is often to make it be as big as possible. After all, if you order more, you’ll get price breaks from your supplier. But printing more of a game doesn’t automatically generate more demand, obviously. We’ve all seen which albums you see in every bargain bin. No one should ever pay more than like $2 for a pop album. I always buy my Katy Perry CDs after it’s been out for two years 😉
So, how do you determine demand? This is one of the (many) great blessings of crowdfunding platforms. The Kickstarter campaign itself tells you lots of things (not everything) about the demand for your game. Here lies another rough rule of thumb – that you take your Kickstarter backer quantity, and then overprint in a range of 50% to 100% more. In other words, never more than double the Kickstarter backer size.
We learned this the hard way. Theomachy was an unexpected success for us in early 2015. It was a card game (with great art!), designed by Historical Games Factory in Poland, and translated to English (with Cthulhu elements added in conjunction with Sandy for the English language version). It didn’t really have any right to make more than $100,000 on Kickstarter, but it did. And because it was so successful, we planned on printing exactly double (100%) more than the KS backers – around 2000 units total (KS ended up with just shy of 1000 backers). But our printers gave us a quote with such a nice price break at 4000 units! We knew printing 300% more was crazy. So, we negotiated with them and said we would be willing to go up to 3000 units of each Theomachy core game, if they would give us the 4000 per unit price, but for only 3000 units. And guess what? They did! So, to “save” money, we printed 200% more than our Kickstarter backers – twice as much as what the highest rule of thumb dictates. Like with all “savings” deals, if you didn’t really plan on buying the thing anyway, you aren’t actually saving anything. In a real sense, you can never save money by spending money. As predicted by the rule of thumb that says you shouldn’t print more than 100% your backers, we still have units of Theomachy in our warehouse from the first and only print run. Granted, it’s still as good a game as it ever was – and we do still sell it a little here and there, and yes, we’re down to several hundred left, which means we’ve actually sold far more than only 100% more than the KS backers. However, it would have been wiser to spend less back in 2015, to make a smaller print run, and to therefore have zero stock of Theomachy right now. Every month it sits on its pallets in our warehouse we have pay for the space (it’s not much, but it’s still an expense we wish didn’t exist). Did I mention it’s a really good game, though? 😉
Contrast this with Dicenstein – which was Kickstarter the same year, but for which we set the print run after Theomachy hit the market and we experienced first hand how quickly the sales start to drop off. The Dicenstein Kickstarter ended up with a little more than 600 units sold. Since 1000 units is often the minimum quantity you should ever consider, we made that our print run (about 66% more than the KS backers, in the middle of the rule of thumb). That was the right decision. It sold best shortly after release (as predicted), but then sales dropped. Since we really had slightly fewer than 400 to sell (the 600+ for KS backers), it still worked out, and we are very close to having no copies left. Because I personally love the game – and think it could still sell – I am pushing for a small reprint sometime next year. But it’s not guaranteed, because the minimum we’d want to do is likely 1000 units, and we know it will almost certainly not sell as many as the first round. The designer is working on a way to use fewer dice so the price can come down – so we’ll have to see. Remember, different editions can work out!
Back to a big game – Cthulhu Wars – for a moment. Because Cthulhu Wars is so costly to make, and it has many expansions (which each tend to cost as much as an average “core game,” rather than a much cheaper expansion), we tend to never be able to meet demand at all. This is the opposite problem. There is always more demand than we can supply, given our limited funds. This is a separate challenge, I may address in a future post.
Next time I’ll talk about the board game industry value chain and where the publisher sits.
Comments, questions, concerns all welcome! Post a comment below.
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!).
I’m frequently asked questions about what goes on in the bowels of Petersen Games. When I post in a Kickstarter update any details regarding the production process and how things are made, or day to day business on the development side, there is always a lot of positive feedback. Our fans clearly like to hear about this stuff! So, I’ve decided to start writing a production diary for those who would like to know more about what goes on chez Petersen Games, and in particular the game development and production process – or, how the game actually gets made. My first post is going to be more of a missive and apology, than a “production diary.” Nevertheless, it’s what I feel is a good starting point. I welcome your comments and feedback! Here goes:
Recently, a thoughtful fan left a comment in response to the delays one of our Kickstarter campaigns is experiencing and used the following analogy:
This is my restaurant. It’s not calamari! You don’t understand, I don’t eat things with tentacles, things with tentacles eat me!
It’s a comment that I found to be very insightful on the surface, made me stop and think, and really drove the customer perspective home to me. There’s not much that could be said in response at the time, so I said I liked it and that it got the point across – which it did. The truth is, delayed Kickstarter projects can be catastrophic for us because time is money for any business. Delays inevitably raise our costs, while the revenue we’ve received for the project is a fixed amount! Additionally, any project delay has a downstream cascading effect – they push back the moment when we can launch another Kickstarter, further compounding the problem. My point is that it’s not news to us that we’d be much better off delivering our game on the timeline we originally promised it – it’s a situation that could destroy Petersen Games forever if it continues indefinitely.
I’ve been pondering that perspective, and while I agree with it to a certain extent, I feel like there is additional nuance that may not have been considered. In a restaurant with a long wait, you still only get to eat the food once. That’s it. If you want to eat more another day, you have to return to the restaurant, experience the slow service again, and frankly, you have to pay again! When The Gods War finally arrives in our backers’ hands in a few months it will be true that they have waited more than a year longer than anyone ever anticipated. But from that point on, it will be theirs to have and to game with anytime they like. They will never again have to wait for it to be in their possession, nor will they have to pay for it again!
This reminds me of a great quote by Shigeru Miyamoto, designer of Mario and Legend of Zelda: “A delayed game is eventually good, but a rushed game is forever bad.” To me, that’s a more accurate description of the experience of waiting for The Gods War, and we have taken great pains to ensure that The Gods War is a quality gaming experience. Every part of the game was carefully designed and tailored to create one of the best gaming experiences Sandy could conceive. He believes it to be a better game than our flagship title, Cthulhu Wars, but of course, that’s very subjective (I for one, slightly prefer Cthulhu Wars myself).
As production manager and on behalf of Petersen Games, I apologize profusely for the delays in getting The Gods War in our backers’ hands. But I believe it really will be worth the wait. And remember, if there was something we could have feasibly done to make it arrive faster, we absolutely would have done that thing!
That being said, every single Kickstarter project we work on is a learning experience. We are by no means a perfect company, nor do we claim to be – but we are constantly striving for improvement, transparency and accountability to our backers. We actively solicit feedback from our fans, and want you to know that your voices are being heard!
