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
- 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!
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.