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!
