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Byron Collins
United States
Suffolk
Virginia
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In part 1 of a look at Publisher Roles, admittedly a bit old now (has it been 3 months?), we took a high level look at some evaluation factors for publishers choosing among designs to bring to the market.
In part 2 of a look at Publisher Roles, I'll talk a bit about that gray (and a bit scary) area of setting a game's price. What exactly goes into a Manufacturer's Suggested Retail Price (MSRP)? Is there some magic formula that makes it all work? Does the price depend on how you sell the game (i.e. through distribution or otherwise)? Are there hidden costs you’re not accounting for associated with selling that game? Read on to learn how I made my first major mistake as a publisher and how I now approach this tricky and delicate role of setting a game’s price.
Some factors that affect cost.
There are many factors that affect a game’s cost, referred to here as Cost of Goods Sold (COGS). Some of these factors are tangible and some are intangible- some are obvious- some are hidden. Let’s list out a few and then briefly talk about each.
* Components (the obvious one).
* Artwork and Artist Royalties or licensing fees if applicable
* Designer Royalties if applicable
* Registered Copyright and/or Trademark Fees
* Barcode
* ISBN Number
* Other costs
Components are the meat of the tangible costs associated with a print run. In this day of fierce competition, skimping on component quality is just out of the question in my opinion. Gamers have come to expect nice quality everything when they pay for a game and open it up to dive in. You can certainly choose to include substandard components, but why? The value added by including better components is far worth the few extra dollars. Just beware of price expectations and keep the component quantity in check to keep the price in line with what gamers expect to pay for that type of game. Components include anything physically produced that becomes a part of the final product – Dice, Bits, Boards, Rule books, Pre-painted Miniatures, Pieces, Boxes, Box Inserts, Storage Bags, Rubber Bands, Cards, Tiles, Counters, etc. The sum of the Components Cost is the single biggest factor (usually) affecting COGS.
Artwork. Artists get paid (generally) to do a professional job with a game’s artwork. Commissioning that art is a very rewarding process for the publisher and designer. Fees for artists can be one-time or royalty-based. I prefer one-time fees since they are easier to track and disperse. I also prefer one-time fees when working with artists so that the artist is always taken care of and compensated for his work regardless of the game’s sales performance. These fees are generally spread out across the initial print run of say, 2000 units. So if all of the game’s art totaled $2000 in cost, that cost would actually be $1 per game if you’re printing 2000 copies.
Designer Royalties. Designers also get paid (generally) to complete the game’s design. Fees for designers are usually royalties-based and dependant on game sales. Some publishers would not consider this part of COGS, and treat COGS as strictly manufacturing costs- but I disagree. Anything that contributes to the cost to make a game (in this case, design it), is fair for inclusion into COGS.
Registered Copyright and/or Trademark Fees. A registered copyright is a no-brainer. It costs $35. I generally don’t consider this part of COGS, since the cost is so minor. However, did you spend a lot of time on your game’s brand or logo? Want to protect it? Consider filing for a registered trademark. That process is more expensive and one I usually avoid, preferring to simply use the TM designation next to any logos to designate them as a trademark (unregistered).
Barcode and ISBN number. A block of Barcodes is not cheap through the major organization that provides them. Similarly, a block of ISBN numbers is also somewhat expensive. Consider these costs on a per game basis and use judgment when adding them into COGS. I generally pay for them out of publisher funds to keep the game’s MSRP a bit lower.
Other Costs. I included this because you may incur costs above and beyond what is already mentioned. Re-proofing fees from manufacturers, shipping the games from the manufacturer to you (or to your distributor), a lift gate fee for delivery of games to your garage because you don’t have a loading dock, palletizing and assembly fees, etc.
A rule of thumb for setting MSRP.
Consider all of the costs you want to include in your game’s COGS and adjust as necessary if things seem too high. That value will then be multiplied by some factor you choose (choose wisely) in order to set MSRP. My rule of thumb (which is also used by other publishing mentors of mine) is COGS X 5 = MSRP. There are several reasons for this formula, but don’t consider it magic by any means. It works for me, but it may be different for you.
My first big mistake as a Publisher- Under-pricing my first game.
When I priced out my first game, Frontline General: Italian Campaign Introduction, the cost was extraordinarily high due to a low production run, a massive quantity of components, and honestly, not having the right sources to begin with. I didn’t know what to set it at so I set the MSRP based on what I thought I’d pay for the game. Not a bad guess, but it was a guess- and not very scientific. The end result- I priced that game right out of distribution. I didn’t have distributors at the time, so when I priced the game at $84.99 and it cost $55 to produce, I thought it was a good margin. However, without knowing what distributors require (their cut) in advance and planning for that, the MSRP was set too low to support distribution terms (see below). So to this day, I’m forced to sell the few remaining copies of my first game direct only- which is challenging. The golden lining is- producing a game, showing that I’d take a risk- landed me my first distribution deal.
Who takes a cut?
First and foremost, the printer must be paid for the production run. You now have a physical game. The printer gets paid for the unit cost they quoted times the quantity produced.
If you sell through distribution, distributors usually require 60% off MSRP and free shipping to their warehouse(s).
They then sell your game to retailers who place an order through the distributor (not you). The retailer gets the game at roughly 40% off MSRP or even more off depending on what the distributor works out with the retailer.
The retailer has a store to pay for (unless online-based) and other expenses- so they may sell the game at the MSRP you set and end up making 40% of the MSRP. That is not to be confused with the retailer’s margins. Believe me, they are slim. Lease a building, pay utilities, pay clerks, and that cut dwindles down quickly per game. With that cut, they do have some wiggle room to discount the game a bit if it is not selling.
You as the publisher get a cut as well- using the rule of thumb- it may be up to 20% of the game’s MSRP.
An Example.
Let’s say you publish a game called Bits of Bits. That game’s total COGS for a 2000 unit run was $8. Let’s say you printed 2000 copies feeling ambitious about your ability to sell the game through distributors and at some upcoming conventions. Remember the rule of thumb? Multiply COGS X 5 and you get $40. That’s your MSRP.
Now the cuts. The printer is paid the cost to produce the boxed game (the bulk of COGS is this value). They get 20% or 1/5 of the game’s MSRP.
The distributor buys Bits of Bits in case quantities at a price of $16 per game (60% off MSRP per their terms with you). Their cut would seem like 3/5, but it’s not.
The retailer buys Bits of Bits from the distributor at a price of $24 per game (40% off MSRP).
The gamer buys Bits of Bits from the retailer at MSRP or slightly below- let’s say the retailer has in on sale for 20% off. The retailer is still making 20% in this example, or 1/5.
That leaves you with 20%, or 1/5 of the game’s MSRP.
Final Cuts:
Printer/Manufacturer: 1/5 (20%)
Distributor: 1/5 (20%)
Retailer: 2/5 (40%) - may be discounted to 1/5 or so
Publisher: 1/5 (20%)
A word on Profit
In general, the price you sell a game for minus COGS is your profit on a per game basis. Please don’t think of "profit" as a bad word. Publishers need a small profit in order to keep producing and supporting games and pay for all of the costs associated with marketing, support, convention attendance, etc.
Profit will be the highest if you sell direct only (something that’s incredibly challenging and time-consuming, and honestly counterproductive to getting your game out there in stores). Profit will be the lowest if you sell only through distribution- but it may be enough for you- and you can focus on making more games instead of constant fulfillment. For me, a mix of direct and indirect sales works best. I can make direct sales at conventions and shows where I demonstrate games and connect with gamers, and I can make indirect sales through distributors to broaden my reach into other areas and other countries I normally would not reach.
Size the Production Run accordingly.
Should you produce 200 units, 2000, or 10,000? Know that sources will estimate based on quantity and this is the largest factor affecting unit price. Request quotes in multiple quantities just to see how the size of the print run affects the cost per game of the major driver- the components. Produce enough to keep the game actively selling and available for at least two years if possible (as a rule of thumb)- longer if you can. But don’t make the mistake of over-producing your game. You’ll end up selling 100 and storing 1900 in your garage for about 10 years, stuck with excessive inventory tying up your storage space and your funds. Remember, you can always re-print a game if you need to.
I hope this post was informative. I know my blog quantity is not high, but hopefully the quality is what you are looking for as an aspiring publisher, designer, retailer, or just anyone generally interested in the industry.
Best--
BJC
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