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Subject: Pricing relative to manufacturing cost rss

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Michael Iachini
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I understand that one common arrangement for board game pricing, at least in the US, is:

- Publisher sells to distributor for 40% of SRP (suggested retail price)
- Distributor sells to retailer for 50% of SRP
- Retailer sells to customer for 100% of SRP.

So, for a $50 retail price game, the publisher is selling it to the distributor for $20, and the distributor is selling to the retailer for $25. The retailer then prices the game however it likes; probably the full $50 SRP for a standard brick and mortar store, probably lower for an online discount retailer.

Here's my question: If you're the publisher, what kind of profit percentage (margin) are you looking to make when you're selling to the distributor for 40% of SRP? In my example above, how low would your all-in manufacturing cost have to be (including shipping both from the manufacturer to you and from you to the distributor, assuming that the distributor is getting free shipping) in order for you to be happy selling the game to the distributor for $20?

Does your manufacturing + shipping cost have to be $10 or less? $15? How much of that $20 that you're getting from the distributor do you have to get to keep in your pocket in order to feel good about your business?

Opinions and experiences welcome!

Michael Iachini
Clay Crucible Games
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Carl Nyberg
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Don't forget about shipping cost from China!
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Rule of 10!

If it was $50 at MSRP the it was likely $5 to manufacture. I suspect there are sigficant other costs, but I bet a run of 2,500 $50 games nets the publisher around $100,000 out of which the owner may only see $18,000 - $20,000 after payroll, insurance, operations, taxes, and other costs like reinvesting in the next game.
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Michael Iachini
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bill437 wrote:
Don't forget about shipping cost from China!

Carl - Yes, this is what I meant by manufacturing + shipping: the total cost the publisher must pay to get a game into the hands of the distributor. So, explicit manufacturing cost plus shipping and customs from China plus shipping to the distributor.


medlinke wrote:
Rule of 10!

If it was $50 at MSRP the it was likely $5 to manufacture. I suspect there are sigficant other costs, but I bet a run of 2,500 $50 games nets the publisher around $100,000 out of which the owner may only see $18,000 - $20,000 after payroll, insurance, operations, taxes, and other costs like reinvesting in the next game.

Keith - This is helpful, but I don't quite understand your numbers. I'm guessing you mean the explicit manufacturing cost is $5, but that doesn't include shipping and customs and reshipping to the distributor; is that right?

I'm asking from the point of view of a publisher who knows the cost of getting the game made and shipped and is trying to determine the MSRP from there. And I'm gathering that the Rule of 10 you're describing applies just to the explicit manufacturing cost; is that right?

I also gather that this Rule of 10 is apparently something that's been widely discussed; my Google Fu is failing me here. Can you point me in the right direction?

Thanks!

Michael Iachini
Clay Crucible Games
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John "Omega" Williams
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medlinke wrote:
Rule of 10!

If it was $50 at MSRP the it was likely $5 to manufacture. I suspect there are sigficant other costs, but I bet a run of 2,500 $50 games nets the publisher around $100,000 out of which the owner may only see $18,000 - $20,000 after payroll, insurance, operations, taxes, and other costs like reinvesting in the next game.

Correct. There is alot of cost more than the printing side.
The designer: 3-5% or more depending on if they are a starter or seasoned.
The artist: An art or minis heavy game can be very costly before even getting to printer. Art can take a big chunk.
Office Space, Storage space, Employee fees if any.
Advertising.
Sales Rep (not sure on the term. They guy who goes around pitching the game to retailers.): These guys can end up make good pay too for all the travel. And a chunk of the profit.
Etc.
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Val Teixeira
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ChaosAndAlchemy wrote:

I also gather that this Rule of 10 is apparently something that's been widely discussed; my Google Fu is failing me here. Can you point me in the right direction?

I've also heard the 'rule of 10' and yes, it usually applies to the explicit manufacturing cost (i.e. what you pay the production company to make the game).

I'd suggest sending a geekmail to Travis Worthington - he's been known to be very helpful to indie publishers with these sorts of questions and will likely help you out if you keep your question clear and concise.
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Development costs, your building lease, etc. are not explicitly a part of your manufacturing cost. They are operational expenses and are taken from the net revenue rather than pre-subtracted. This should, of course, be a part of the pricing strategy in the end, but the rule of 10 is a gross oversimplification of a way to help pre-calculate this as a rule of thumb.

Publishers are unlikely to discuss anything in an open forum like this though. It may violate their best interests in terms of negotiating with manufacturers and typically manufacturing contracts aren't widely shared. Shipping is a whole different matter since I'm assuming you'd want to go with sea freight shipping and working with a freight company that can also line up the transition to a domestic partner shipping to your warehouse.

Pricing strategy can go a lot of ways, but ultimately only you know your expenses. It's not a bad idea to build your pricing strategy off of your expenses while remaining cognizant of the pricing effects on consumer demand. In the world of boardgames, I'd expect most people expect to pay somewhere around $50 MSRP. FLGS and online retailers often trim 10% - 20% off of that, but that only affects their bottom line really.

Let's assume it costs $10 to get an individual game manufactured and shipped to your warehouse. Rule of 10 would price that game at $100 MSRP, but we both know your game better be incredible for that price. I've watched a copy of Guderians Blitzkrieg II sit on the shelves at my FLGS since release and it's widely considered a great game!

You're either going to have to negotiate better on your manufacturing and/or shipping, simplify your components, or consider how badly it'll hurt your personal profit by only clearing $3 - $5 per game.

Let's assume you sell for $60 MSRP

So you're selling that game to distributors for $15 and they're selling to retail for $30 and retail is selling it at $60 MSRP, but more likely at $56 or $48.

Assuming you produce 1,000 copies and sell all 1,000 to distributors (and I have no idea what your sales agreements look like with distributors so I don't know if they're on the hook to sell them or if they can negotiate an out where you are forced to buy them back after some poor sales performance criteria are met.) here's what things might look like:

That's only $5,000 in revenue that probably won't cover your expenses for the game development, warehouse space, operational costs, and whatever you pay your staff. For that reason, I really cannot imagine publishers are out there paying more than $5 shipped per unit for any game that hits retail at the $50 MSRP price point. You're also going to have to do some great volume as well with probably 2,500 to 3,000 units as the initial minimum order. The breakeven for development needs to sit around 500 - 600 guaranteed direct sales (hence the P500/P600 models that are floating around) so that you're only taking a bath on your operational costs you'd incur simply by owning a business anyway.

This is why people make a living as consultants. They can bring this kind of expertise to bear. The "guild" model has worked in other industries. We saw it in the USA very successfully work in the Napa Winery community where each vineyard helped their neighbors out while still remaining highly competitive in their own right. Perhaps looking for a "mentor publisher" who would be willing to help you evaluate this from a place of specific knowledge (outside the forums) would be a useful thing to hunt down. After all ... if they're nervous to help on the side, they must be nervous that their games aren't that good and new competition will only hurt them!
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Michael Iachini
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I appreciate all of the input here, but I'm surprised that I haven't seen any tiny publishers step in to offer an opinion on the basic question:

If you are getting $20 per copy from selling your $50 SRP game to a distributor, how much of that $20 do you need to be pocketing above and beyond the manufacturing and shipping cost in order to feel good?

So yes, this is the amount to cover your overhead, your designer royalty, recouping your art costs, paying yourself a salary, setting something aside for future game development, etc.

The Rule of 10 implies that you have to be pocketing $15 of that $20... Well, actually, since it seems to exclude shipping and let's say it's costing you $5 per unit for total shipping (in bulk for a $50 SRP game), I guess the Rule of 10 is implying that you have to be pocketing $10 out of that $20.

Is that your experience, small publishers? I personally would be happy pocketing only $5 of that $20, but then again, I'm very small with very low overhead and such. And it's also possible that I'll sell some units directly to customers for something closer to SRP.

I'm not looking for actual numbers from people's actual publications; I'm looking for opinions of what would be "enough" for a small publisher.

Thanks!

Michael Iachini
Clay Crucible Games
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Matthew Proper-Lee
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This is third hand info, so make of it what you will, but from informal discussions with smaller publishers, I think you want to keep to the rule of 10 (pocketing $10 not $5 of that $50 retail estimate).

While you're small, $5 works fine, but if you end up growing (whether or not you intend it), you leave yourself no room to save up to pay for another person to help out, and you still will not be able to afford to make this your full time job. I'd also argue that leaves you vey little wiggle room for the inevitable problems like replacing lost/incorrect pieces and being able to negotiate and plan financing for the next product you're publishing.

Usually one good sellign game is enough to help fund 2 or 3 new games that you hope will take off. You're doing well if you can get to 4 or 5 comfortably selling games, but it's often touch and go before that point, and many publishes we know and love here usually still have day jobs before making that leap to attempt full time publishing. AGain, this is anecdotal third hand informal info, but 4-5 games seems to be a good ballpark for where someone felt they could safely attempt full time publishing for a year and fall back onto getting another job if necessary.

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Michael Iachini
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Matt - This is exactly the sort of post I was looking for! Thank you so much.

Any other opinions? Matt's seems reasonable to me, but I'm interested in hearing from other folks, too.

Michael Iachini
Clay Crucible Games
 
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John "Omega" Williams
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I was a small publisher. Hence why I rattled off those factors.

Small side note. For some wacky reason. Boxes for games can end up being one of the more costly components of a game. Depending on factors. No clue why. Mine didnt ship in a box so I never ran into that.

Advertising: I self advertised by leaving flyers at the flyer table or a friendly merchants table at every convention I went to. Later I started getting magazine adds and also doing publisher trades where I'd put an add for a fellow publishers game in my newsletter and they would do the same for mine in theirs. That is a *REALLY* rare thing to see outside specific publishing realms. Advertising in magazines was costly, but garnered interest.
 
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Michael Iachini
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John - I understand, and I appreciate you sharing some items to consider. But I was hoping for some specific opinions on the question, "If you have a $50 SRP game that sells to distributors for $20, how much of that $20 do you need to keep, above and beyond your manufacturing and shipping cost, to feel that you're doing okay?"

That money you keep would go toward advertising, art, overhead, paying yourself a salary, slea rep, etc.

Michael Iachini
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I'm not sure what else to say here other than I get the impression that you believe the profits for publishers are substantially more than they actually are.

Keep in mind that the MMP guys still work second jobs and MMP is a widely recognized publisher. Most FLGS owners I know work a second job as well. There aren't riches to be had in the boardgaming world as far as I know.
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Michael Iachini
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Keith,

Sorry for being unclear. I'm a small publisher. I'm trying to figure out pricing. If I'm producing a game that will sell to distributors for $20, does my business still work if it's costing me $15 to manufacture and ship the game to the distributor? Doess the $20 distributor price only work if it costs me $10 or less to manufacture and send the game to them?

I'm looking for input from other publishers on this question. I'm not complaining about what they charge relative to their costs; I'm looking for guidance on how to do it myself.

Michael Iachini
Clay Crucible Games
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Iain K
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Quote:
Doess the $20 distributor price only work if it costs me $10 or less to manufacture and send the game to them?

Forgive me for saying so Michael, but this sounds like a question you need to ask yourself.

What I mean is, look at your game. Ask what you think people would pay for it retail. Do the math and then decide if the distributor price leaves you with enough money to make the whole exercise worth your while.

What sort of BUDGET does the distributor price leave?

So in your example, would a distributor price of $20 leave you enough to pay your other bills and earn a living? Ask yourself what profit you need to see per unit sold. $1, $2, 5$?

This is the same sort of question that small business owners like myself ask routinely: how much do I have to charge to make ends meet once all costs are paid?

I don't think you're going to find a cut-and-dried answer. I suspect that you'll take a number like the $20 distributor price and then find a MAXIMUM cost that you're willing to bear to design, develop, and manufacture the game. This will leave you with some amount, an amount that is at best an estimate, that you will have to decide to accept or not.

This is math that every publisher has to calculate, for themselves, and I think you'll find them reluctant to share it as it reveals the inner financial workings of their company.

Good luck.
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I totally get where you're coming from on this topic.

My point is that you've been provided a bevy of good advice and have been prompted to do some investigation into your business' bottom line.

The longer the questions continue, reading between the lines, it seems like the inquiry has changed a bit from asking about how pricing strategies work to "why can't I make more money?"

Most metropolitan areas have small business workshops that are, often, free of charge. They help you build a business plan and work on the tricky questions like this.

Industry input will certainly help, but like I originally said, you're not going to get public responses from publishers on a topic like this. It smacks of price-fixing, collusion, and potentially jeopardizes contract stipulations that businesses may be including to get an edge up on their competition. Public comment on these issues simply isn't going to be done by a publisher or likely a manufacturer for that matter.

At this point, I think it's in your best interest to seek out a "mentor publisher" who can give some general offline guidance to you about some of the gotchas and contracting considerations.

If you're saying that you cannot produce a game at least than $15 per unit and the pricepoint you believe your game will sell at only nets you $5 profit for unit and that's not sustainable for you ... then you've answered your own question.
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Michael Iachini
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Thanks all.

To be clear, I actually feel like pocketing $5 in this case would be fine for a small business like mine, with low overhead and such. I'm not unhappy with making that amount of money at all. I just wanted to know if I was nuts for feeling that way.

Also, I think you guys have gotten at the real issue here; this isn't something that small publishers feel comfortable talking about in a public forum like this. I hadn't realized that when I asked the question, as I'm not uncomfortable with the topic.

So, I apologize if I came across as complaining about not making enough money or prying into delicate details of other people's business. That's not what I was going for at all! Sorry about that.

Michael Iachini
Clay Crucible Games
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ChaosAndAlchemy wrote:
Thanks all.

To be clear, I actually feel like pocketing $5 in this case would be fine for a small business like mine, with low overhead and such. I'm not unhappy with making that amount of money at all. I just wanted to know if I was nuts for feeling that way.

Also, I think you guys have gotten at the real issue here; this isn't something that small publishers feel comfortable talking about in a public forum like this. I hadn't realized that when I asked the question, as I'm not uncomfortable with the topic.

So, I apologize if I came across as complaining about not making enough money or prying into delicate details of other people's business. That's not what I was going for at all! Sorry about that.

Michael Iachini
Clay Crucible Games

I, for one, appreciate the question and conversation as it allows me to know what the temperature (so to speak) is for this sort of thing. I haven't quite reached the point that Michael is at (I am still calculating costs and doing further playtesting), but once I've got all my ducks in a row, it'd be nice to know what other folks do when it comes to pricing their games. Like most people here suggested, though, I think I'll end up calculating out all my costs, including paying market wages to all the people involved in designing, creating, and shipping the game, and then I'll see how much I would have to charge folks to get the game made. If it's lower than what I think the game is worth, I may charge a little extra so that I have some capital for the next game/expansion. If it's higher, then I'll have to go back to the drawing board and find another way to make things work.

That said, I think Michael's question is still a very real and helpful one, especially as Kickstarter becomes so prevalent and new game companies keep popping up.
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Michael Iachini
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Justin,

For what it's worth, I'm not quite there at the moment, either. There will be a Kickstarter for my first game, Chaos & Alchemy, launching very soon, but my publisher, Game Salute, is handling all of the business details there. I'm more looking ahead to future games, weighing the pros and cons of going on my own versus working with a publisher.

In any case, good luck!

Michael Iachini
Clay Crucible Games
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John "Omega" Williams
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ChaosAndAlchemy wrote:
But I was hoping for some specific opinions on the question, "If you have a $50 SRP game that sells to distributors for $20, how much of that $20 do you need to keep, above and beyond your manufacturing and shipping cost, to feel that you're doing okay?"

It is not so much a matter of what you feel you should get so much as what you possibly can get back. And after all the costs. It is usually not much.

Generally publishers at least want to pocket enough to publish another game after all other expenses.

If your next game or next print run costs 10% of your 20$ return then that might be your goal.

Everyone has different ideas on what their goals are. Some publishers even sell under their required target if they think they can make up for it in say volume or presence. FFG uses that strategy.

Also what the buyer will percieve as a value or not. I felt TOTALLY ripped off for paying 50$ for Talisman 3rd ed and getting a box of 75% air and barely enough components to warrant a 25$ game. Whereas Warhammer Quest was totally worth 50$.
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Oliver Kiley
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I'm not sure about the "rule of ten" as I think it's too unrealistic from what I've both experienced and seen discussed elsewhere. More commonly, the printing costs of the game are around 1/5 of the retail price (MSRP). So a $75 dollar game targets about $15 for printing costs. A $50 dollar game targets about $10 for printing. As mentioned above, from a consumer standpoint, spending $50 for only $5 worth of components is really not so good - the box alone can account for a good chunk of that $5.

You do want to consider the production costs in light of the target volumes. In some cases, shipping, tooling, etc. costs can be incorporated into the target production cost, although those items are usually added on after the unit price total. So if you are targeting $15/unit, your quote might really need to $12/unit to provide room to accommodate the price of shipping, consolidating, etc.

Selling to distribution seems to be around ~40%.

Also, the production costs above do not include paying for other expenses, art, graphic design, layout, editing, developers (if paid), advertising, overhead and business expenses.

This whole thing underscores why pre-order sales direct from the publisher (i.e. Kickstarter) is so tremendously beneficial for publishers. The profit margins in a traditional distribution situation, where all or most copies produced go to distributors, is really small - and the risk is really high. Publishers stand to loose money on most titles unless the majority of the run sells through into distribution.
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Oliver Kiley
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Read this if you haven't already:

http://www.jamesmathe.com/10000-feet-to-publishing-a-board-g...
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Eoin Corrigan
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Probably also worth noting that manufacturing costs are not the only input in determining pricing. An economist would point out that the demand side is as, or more important, particularly in a crowded market place like that for boardgames.

Pricing will likely be determined by anticipated demand at a given price point, as opposed to the specifics of component and distribution costs.
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Oliver Kiley
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Eoin Corrigan wrote:
Probably also worth noting that manufacturing costs are not the only input in determining pricing. An economist would point out that the demand side is as, or more important, particularly in a crowded market place like that for boardgames.

Pricing will likely be determined by anticipated demand at a given price point, as opposed to the specifics of component and distribution costs.

Yes - of course. You do in a way start from that standpoint - if I have a game about X that has approximately Y much stuff in the box, can I sell 2000 (or however many) copies at $60 dollars? If so, you then work back down to needing to hit a net production price of $12/unit - and can adjust the design and components accordingly to match.

I imagine there are some games that go the otherway, and realize that there game is going to need a $100+ MSRP to break even - and then the red flags go about whether you can even sell that many copies at that price point.

Better to start at the consumer end and work backwards

Really - it is an interative process - you have to go through the whole cost calculation over and over as the game works towards production.
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Mezmorki wrote:
Really - it is an interative process - you have to go through the whole cost calculation over and over as the game works towards production.

True, and probably worth noting that an economist, such as myself, has a somewhat theoretical perspective on pricing. An accountant would likely disagree with an economist's perspective pricing etc.
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