Profit Breakdown: Is this fair?

I don't completely know on boardgames, but markup seems to be 60% of the manufacturer's cost. So basically if you're selling it for $15, they will sell it for $25.

IMO, the price looks good.

Edited: I figured my numbers were wrong...

-Steve

If you sell direct to retailers, figure in the cost monthly of drumming up sales, calling folks, etc.

Otherwise, you are going through wholesale distributors.

They'll buy the game for 40% of cover price. They'll sell to retailers for 50% of cover price.

So, figure if you have costs of $15 (your numbers, not mine) then you need to be selling the game for about $37.50. And that's just to make no more profit than you already have budgeted into your model (i.e., designers are paid for their work, printers are paid for printing, and your investors are paid a steep $7.00 per book).

Your model does not even detail costs for storing those books (you likely won't sell all 5000 at once unless you have an advertising budget which is not mentioned). Even with such a budget, if this is your first game you won't sell 5000 in the first month.

Then shipping, etc.

If you are selling straight to the retailers they will want the game for 50% of retail (unless you know them personally or unless you are charging them nothing for units they don't sell). If your cover price is $27.00, they'll want it for $13.50 each. You're already bleeding cash then. If you know them personally and you are effectively selling on consignment, then they might pay $15.00 each, but overall this sounds like a really poor business model.

Your silent investors ought to buy a vowel for this particular puzzle, because either they or you have no clue if you feel you can consistently get $7.00 profit per book for a book priced under $30.00.

You can easily do that with direct sales. Once you bring other people into the equation, then you are hurting.

Re: your figure on marketing, you shouldn't bundle that in with production. Look at it separately. After considering storage costs, etc. it _may_ be worthwhile to consider a full service fulfillment house to sell your product for you.

They'll charge 10-20% of the wholesale value (I think, I've never used one) but it'll save you some legwork. Some store. Others don't.

Honestly, with design/marketing, silent investor, and printing costs of $15.00 a book, I think it's time to go print on demand and print out 10 at a time and sell them direct yourself, cutting these investors out of the equation. You are more likely to make money and less likely to lose your shorts.

Lee

Resulting in a $2.00 profit for the investors, per book, not $7.00. Which is now a figure associated with the real world.

Manufacturer profits as high as $7.00 per book are involved with huge mass market sales figures and big companies. Or else, are probably resulting from convention or direct sales (where such profits are
not at all out of the question).

Let's take a case where the production costs are $8.00. Let's say the book goes for $30.00 retail. There's $4.00 of profit per book.

You print 5000 books. They cost $4 each. That's $20,000. Ouch! You are out $20,000 but you have 5000 books. Yeah!

Now, you spend $20,000 on marketing and game design (your figures for $4.00 cost per book, not mine). Ouch! That's another $4 of cost per book. Man, you are out $40,000 and now have 5000 books with actual content that you have marketed.

Hmmm... Let's say you sell 1500 through wholesale and 500 direct. You now have 3,000 books left, and $33,000 you just got back. That's $33,000 of cash influx, $40,000 to get started and 3000 books left. You are bleeding cash and have tons of books laying around.

Let's say you fire sale the rest for $5 each. That's another $15,000. Now you finally have made an $8,000 profit and have no books. Ugh!

Lesson -- really be a kick but salesman or get your backend costs way down. If you can't get the production/marketing costs down below 20% of your cover price you may end up bleeding losses if you owe fixed sums to investors.

If your production/marketing costs are $8.00 you really need to crank the cover price some or change to direct sales and print-on-demand.

Lee

Lee

Note that from other posts, this is a game with a ton of cards, not a book, so print on demand isn't an option.

It's also important to know that you'll have to pay taxes on any games you don't sell in that first year, carrying your inventory over. It's those very taxes that are the reason that you see tons of discount books in mainstream bookstores now, and the same reason that bookstores are instructed to tear the covers off and discard unsold books and magazines rather than returning them to the publisher.

-- Matthew

This is beginning to sound like the famous "missing $2 at the hotel problem"...

Production: 5000 units @ 4.00 each = $20,000 (Investors will pay for this)

Investors: Now the investors will get $7 per unit sold ($7 X 5,000 units = $35,000) which will give them a profit of $15,000. (Question: Is this too much for a silent investor?)

Design & Inventing Game: I will get $4 per unit ($4 x 5,000 units= $20,000) for designing and inventing the game and I'm guessing I will spend about $5,000 from my profits on advertising and getting distributors since I'm taking that responsibility.

Retail: At this point the retailers (which are mostly "mom" & "pop" stores will buy the game at $15.00 and sell it at $25.00) All the games in my genre (Muslim Board Games) are running at 39.00 each and so far I haven't found any fun in any of them so I think the MSRP can be increased. (what do you think?)

You're looking to sell to stores at $15.

From that $15:

$7 goes to the investors. The first $20K of this money pays for the manufacturing. The rest is profit.

$4 goes to you. The first $5K pays for advertising. The rest is your profit.

Where does the other $4 go?

In your initial calculation, you counted it as manufacturing costs - but here you explicitly count that as being part of the $7 going to the investors (which, in turn, seems more reasonable, but that's just me).

It seems you really just need to make $11 per copy, which makes distribution channels more feasible - or a lower price selling to stores direct, or a bigger profit for you, or some combination of the above...

Joe

I'm not sure you've cleared it up. I think what was confusing was this statement:

So, from this, it sounds like the investors are paying the $20k to make the game and will get a $15k profit. Thus, it sounds like the $4/game to make the game comes out of the $7/game you're saying will go to "the silent investors".

Well, speaking just about as non-authoritatively as I can, my answer is "almost certainly." You're making 5000 of the things, so maybe that explains it, but I just don't see how you can turn an $11 profit (less your advertising expenses, I guess) on a $25 product. That is, frankly, amazing to me. I've done very little exploring into self-publishing, but my impression has been that any game with any heft (read: more than a deck of cards) will just barely make a profit if it makes anything. You, on the other hand, are talking about making money hand over fist. I guess when you can go up to 5000 units, maybe that's all it takes.

As others have mentioned, I don't know if you've taken shipping into account, and I would think that would be pretty substantial. In fact, didn't you say that the $4/game was to have the game made in China, and to get it sent here would bring the costs up to $5 per? Also, I don't know what "distribution channels" means, but if it's anything conventional I assume you can't just dismiss it as a flat cost of $5k or so. Any distributor is going to take a cut out of the price. As Lee mentioned, if you are using a distributor who uses a standard arrangement, and you sell them the game for $15, your game won't retail for $25, but for $37.50. That still may be ok, but you should take it into account.

The other factor, that only you can assess, is whether you can actually sell all 5000 of those copies. If you can't, that's a big bummer -- you've got a lot of games sitting around. You mentioned that there are few games in the Muslim community. In that sense, you've got the market cornered, but is there an actual market? Do Muslims want to play games? Are there enough Muslims in the states who do to move 5,000 copies? Or are you looking to send this one overseas as well? I have no idea what the answers to these questions are, but I would hope you've researched them quite a bit if you're asking investors to back such an ambitious print run.

If you can pull this thing off, I think a lot of us would look much more seriously at the possibility of self-publishing; $11 per game profit, with only a $20k investment! That would be great! Please keep us informed about how the process goes, I know that we could really benefit from your experiences. Best of luck to you!

-Jeff

Let me show you how it works:

Again, you are assuming 100% sale of all products, no storage fees, no taxes, and 100% sales to retailers who are willing to buy at more than 50% of the retail cost.

If you can make that work, more power to you. I've never heard of such a model ever working. Retailers tend to buy at 50% of cover price, many deal ONLY with distributors (to avoid having to do paperwork with tons of small vendors), and the only way they buy at more than 50% is if they sell on consignment.

If I were you, I'd only assume that these numbers were "good" if you pre-sold at least 50% of these games to retailers at $15.00 each. If you fail to get pre-sales, do yourself a favor and don't assume that this model will work.

As someone else noted, most small games don't sell out the first time very easily. Generally you get your most sales in the first quarter and then, unless you re-advertise the product, announce an expansion, etc. you'll see declining sales (with a few spikes around holidays, etc.) over the remaining life of the game's sales.

On first glance, however, it looks like you'll lose your shorts. You asked for feedback. Several of us have pointed out a number of things you have left out of your model and at least two of us have told you we have never heard this vast level of profit margin on games (except via direct sales, or if you have channels to large numbers of retailers where you can sell on consignment).

Good luck. Prove me wrong if you can, because if it works, it sounds like and awesome business model.

I recommend, however, that you do a more disaggregated cost breakdown including costs for advertising, fulfillment, storage, shipping, production, artwork, layout, etc.

If you are selling to wholesalers assume 40% of retail price is what they'll buy at. Retailers, for 50% of retail price.

Don't assume ANY profit for yourself or your investors. Pick the maximum price point you think your game would reasonably sell at and see what profit the numbers say you'll get. Make the model inform you, don't try to twist a logical model around to make it give you false positives.

I built a spreadsheet for our new game and it was an eye opener. Certain types of production were viable and others just weren't. I didn't pre-decided how things would work. I plugged in the numbers. The model told me my profit margin and what would and wouldn't work. A real eye opener. Made me more realistic real darn fast.

Lee

Two questions:

How much would YOU sell the game to retailers for and how much would your investors make?

Impossible to say without more details on the game itself, prices for games of comparable style and quality, etc. If that game is a CCG and you are selling it to wholesalers for a retail cost of $10.00 then you are losing money on each sale.

If it's a specialty niche market game with a retail price of $40 then you may be making money hand over fist if it costs you only $5.00 altogether to print, market, ship, etc.

Moreover, you're again running a model where you sell all 3,000 at once. You want to think about a sales cycle of at least a year, and probably more in most cases. You want to make projections about the number of games sold (and that may mean accepting that without a hot seller, you may not be selling all those games you produced).

Additionally, you need to decided what your marketing budget is. In some gaming magazines a full page ad may cost $1000 or more.

So, you are looking only at printing costs. You need to REALLY look at:

* retail cost of the game (must be competitive with products of comparable genre and quality unless targeted at a very specialized niche market)

* sales cycle (how many will you sell per month, and how many will you sell in total after X amount of time)

* determine the percentage of wholesale sales, sales to retail stores, convention sales, and direct sales

* taxes

* trademark searches

* art costs

* layout and design costs

* printing costs

* warehousing costs

* marketing costs

* costs to setup a limited liability corporation to cover your assets if you get sued

* fulfillment house costs (if any)

* travel costs (to attend gaming conventions, business meetings, etc.)

* guaranteed return on investment for your investors

* packaging costs -- do NOT assume that the cost to print the trivia cards or game board is all that's required; factor in these too

Determine some of those details and make a spreadsheet. Your goal is not primarily to calculate profit. Your goal should be to calculate the minimum number you need to sell to make NO profit. If that number represents an unlikely sales figure for you, then you can't make the game or you need to cut corners. Period. If your likely sales are larger than your "break even" number of sales, then the equation will tell you how much profit you'll make.

If you ask for wild guesses I'll say, "you'll lose your shorts" to discourage you from making any decisions on threadbare information. If you want a better estimate than that, then come up with concrete numbers. Don't assume any profit. Assume that you are going to lose your shorts and go bankrupt. Make the numbers prove you wrong. In the gaming industry, that you will make little or no net profit is probably more often true than making a killing unless you are selling games where:

a) the game is delivered as a book (RPGs)
b) the game involves few custom components and is cheap to manufacture
c) to the total sales volume is very high

Call around -- ask appropriate magazines how much ads of various sizes will cost. Determine who is going to buy your game, etc. Do some legwork up front.

I made the rather foolhardy mistake of assuming once that printing CCGs was going to be dirt cheap because printing shrinkwrapped decks was relatively cheap. What an idiot I was. Printing the tuck boxes and display boxes is so expensive that it's only practical to do it (for us at least) if we print multiple products simultaneously and use the same packaging, card backs, tuck boxes, etc.

Get a spreadsheet going. That's what I'm doing for our current project. It really is very enlightening. It shows you where the "fat" is in your model, because you can put hypothetical numbers in and run them again and again.

Lee

Conservative, but not outrageous. If your markup for retail costs were x4 and you were producing a large quantity at once then unless you had a hit game you might be losing money if you failed to sell all of your games produced. You have more room to move here because you are producing your games "on demand", so you could make money with higher production costs.

BTW -- enlighten my feeble mind. What's "JIT"?

The rule of thumb: you need to try to keep your costs to 1/10th of the retail value of the product to have a pretty stable business model.

You can probably go up as high as 25%, but then things are starting to get dangerous and you're likely to lose money.

If you are at 25% of retail then I recommend you plan on selling most of your games direct and you skip wholesalers. This is possible with POD.

Alternately, for a smaller operation (or to get some customer recommendations for ad slicks), sell on consignment. That's right. Charge nothing. Give it to a retailer, and ask for a percentage of the retail sale (50%) for every one he sells. Most retailers (if they have space) don't mind a diversity of products if they don't have to pay for them, and if you are bringing the products to them (instead of them having to track you down to get copies in the store, etc.).

Wow. That's cool that you can make games for that cost. Cool.

A clever point, and one I rarely see. I'll say one thing to offset this point though. If your investors are your friends, and they are gamers, they may be happier with low returns if they get new finished games tailored to their preferences. That's a great feeling for a gamer.

That said, don't presume that level of happiness. Compare it to the level of interest the $$ would make sitting in a savings account. Were it not invested, it would probably be there. If you can't beat the local savings rate people won't be happy.

Honestly, since investors are taking a risk, they want to make MORE than the local savings rate, because for no risk they could put stuff in a savings account. Risk should be rewarded (in the mind of the investor), which is why people play the stock market. Further, beyond risk, the money is tied up (they can't get it back early). So some investors may want a return at least as high as a bank CD (check at your bank if you don't know what this is), if not substantially higher.

I'd say with POD you could go as low as x4, but then your margin exists solely for safety, not for profit. You probably won't be making enough to make it economically justifiable as a business, just a self-paying hobby unless you sell at very high volume.

Lee

Just curious, does anyone have or can anyone make an excel spreadsheet (read template) where a person could fill in how much everything might cost and then have the sheet fill in what the retail cost would be at 4x,5x,6x...10x cost? I think such a tool would prove invaluable at making all of these costs more easily understandable. Right now all these different costs are getting thrown around by you guys, I think if presented on a spreadsheet template, with perhaps an example sheet, it would make the numbers A LOT easier to grasp. Anyone have such a thing already or is anyone willing to make such a beast?

-Michael

Thanks, Steve. But...I don't think this is really what's wanted; I think you also need to include a row for "number of games", and then divide that by the total to figure out what the 4x cost per game would be so you know what retail will be. I think it's easier to do it this way than to assume up front you know the "per game" cost of marketing, say; typically, you just know how much you've spend/expect to spend on marketing total, so I think assuming fixed costs for all the entries, and then finding the per game retail price might be more useful. Shouldn't be hard to change.

Other than that, thanks for doing this!

-J

Heh heh heh. Well that's an eye-opener. Just for fun, I had my big-box game quoted out by a printer a few months back, and for a print run of 1500 the cost was about $18000 or so, which I thought was pretty decent. Adding in some fairly conservative costs for marketing and such in your spreadsheet, I got a per game cost of $14.40. At 10x pricing, this would retail at $144! It's a good game, but not that good. Yikes!

I've got one for CCGs. I wouldn't call it state of the art. It was made for quick and dirty stuff. It's got two pages, one for decks and one for boxed sets of cards. I didn't include a specific line for the costs of foil wrapping individual packs, etc. For POD, you probably aren't doing that. For offset, that cost can be factored into "printing costs".

http://members.aol.com/veritasgames/ccg_cost_models.xls

RPGNOW.COM (in their POD area) has info on how much it would cost them to do POD for you (instead of doing it yourself).

http://www.rpgmall.com/pod.php

Lee