Do You Have To Charge 5× Your Landed Costs On Kickstarter?

I continue this series cash flow, profit, and distribution by looking at how a successful Kickstarter campaign factors in to the 5× multiplier.

In this series, I’m exploring what I’ve learned about cash flow, profit, and distribution in board game publishing as a tiny publisher making board games on the side while I work a full-time day job. In the first post, I looked at this common piece of advice:

If you plan to sell your game through distribution and if you hope to sell out of your first printing and do a second one, your MSRP must be at least 5× your total landed costs.

I still hear from many Kickstarter project creators who question this multiplier, and the first post walked through how the numbers work out if you already have money to print the game and sell it through distribution. (If you haven’t read that post, I’d recommend you read that first: Do You Really Have To Charge 5× Your Manufacturing Cost?) But does the advice still apply if you are running a Kickstarter campaign to raise that money?

Let’s continue looking at the example from the first post but change some of the details:

  1. You have a complete board game designed and tested with all the artwork and graphic design finished and paid for. You are ready to print your game and sell it through distribution.
  2. It will cost you $6 each to manufacture 2,000 copies (that’s $12,000 total) and another $4,000 (that’s $2 each) to freight them (and get them through customs) to you.
  3. You borrow $16,000 from a rich relative (interest free!) to spend on the first printing.
    You will run a crowdfunding campaign to raise the money for the first printing.

A crowdfunding campaign adds a lot of variables and possibilities: fulfillment to multiple regions, stretch goals, deluxe editions, bundles and add-ons, etc. To focus on cash flow, this post will use an extremely simple campaign. (I strongly recommend Jamey Stegmaier’s Kickstarter Lessons blog and crowdfunding book if you are interested exploring all these possibilities in depth.) Let’s add these details to our example:

  1. You will only have backers in the United States, and it will cost $8 to mail one copy of the game from your warehouse to a backer anywhere in the United States.
  2. The minimum size order your manufacturer will do is 1,000 copies. At that quantity, your costs change to $8 per copy (that’s $8,000 total) and another $3,000 (that’s $3 each) to freight them (and get them through customs) to you. That’s a total landed cost of $11/unit at 1,000 units. (That’s +$3/unit higher; remember that your landed cost is $8/unit at 2,000 units.)

The 5× multiplier applies to total landed cost, so it would suggest an MSRP of $55 if you only print 1,000 copies. But for many creators in this position, $55 seems way higher than anyone would pay. (Truthfully, 5× landed costs on a 1,000-game printing usually is too high.) In fact, even 5× the manufacturing costs ($40 in this case) often seems too high. I have talked to many creators who feel they can get away with 4× their manufacturing costs since they are using Kickstarter. Let’s see how this works out.

Example 1: $35 MSRP, Kickstarter Campaign (100% Funded)
Print 1,000 Units – 4.375× Manufacturing Costs, 3.18× Landed Costs

  • MSRP: $35 (that’s 4.375× manufacturing costs, 3.18× landed costs)
  • Pledge: $30 (that’s $5 off MSRP and free shipping)
  • Goal: $17,000 (based on printing 1,000 units)

Let’s say the campaign reaches its goal: you have 580 backers in the United States and have raised $17,400 total. Congratulations! Kickstarter will send you the money about two weeks after the campaign. You’ll typically receive about 90% of the total pledged: Kickstarter takes 5% right off the top as their fee, the credit card companies take around 3%, and some backers will have their credit cards fail. When that comes through, you’ll have roughly $15,660:

A: Your campaign ends. B: Two weeks later, Kickstarter will give you roughly 90% of the total pledged.

MSRP at 4.375× Manufacturing Costs, Kickstarter Campaign
— A: Your campaign ends with $17,400 in pledges.
— B: Two weeks later, Kickstarter will give you roughly $15,660 — 90% of the total pledges.

You’ll start the manufacturing process. You have to manufacture 1,000 copies (that’s the manufacturer’s minimum), and you’ll pay $11,000 total for manufacturing and freight:

C: You pay the manufacturing ($8,000) and freight ($3,000) costs.

MSRP at 4.375× Manufacturing Costs, Kickstarter Campaign
— C: You pay the manufacturing ($8,000) and freight ($3,000) costs for 1,000 units.

Then you wait for the games to arrive. Once they do, you mail the rewards to backers. At 580 games costing $8/game to mail, that’s $4,640 total:

small-ks-30-d

MSRP at 4.375× Manufacturing Costs, Kickstarter Campaign
— D: You spend $4,640 to mail the 580 games to backers.

It’s probably been around 6-9 months since you launched the Kickstarter campaign. It’s worth noting that you have earned very little money during this time ($20), so you haven’t had any money to use to buy food or pay rent or do any marketing. But you do have 420 copies of the game you can now sell. Let’s say you put them all into distribution; distributors pay you $14/copy (that’s 40% of your $35 MSRP), and you spend $1/copy to ship the games to them:

small-ks-30-e

MSRP at 4.375× Manufacturing Costs, Kickstarter Campaign
— E: 1st printing sold out, $5,480 in profit (1,000 total units sold)
— Note: These graphs show a steady rate of sales. However, sales are rarely steady. I’ve heard most games sell the majority of what they’ll ever sell in the first three months.
— Note: These graphs always show you selling all of your inventory. However, many Kickstarter creators are not able to achieve even this. I still have about 100 copies of Relic Expedition remaining from our 1st printing.

In this case, you set your MSRP ($35) less than 5× manufacturing costs — and much less than 5× landed costs. You ran a successful Kickstarter campaign, you put your game into distribution, and you sold all your remaining inventory — but you only have about half the money you need to pay for another printing.

F: You only have half the money you need to afford a second printing of 1,000.

MSRP at 4.375× Manufacturing Costs, Kickstarter Campaign
— F: You only have half the money you need to afford a second printing of 1,000 units.

Even if you could borrow some money (interest free like in the last post) to afford a second printing of 1,000 units, you aren’t getting 5× your landed costs on that printing. You’re usually better off at this point stopping at one printing.

If it looks like you are headed for this situation, I would strongly recommend you do one or more of these things before you launch your campaign:

  • Increase your MSRP
  • Find ways to lower your costs
  • Plan not to sell through distribution
  • Plan not to do a second printing

Looking at those four ways to bring your game inline with where it needs to be for a retail product, here’s an approach that I think might work for many creators. You could set your MSRP based on the costs of a larger printing, realizing that you can only afford to sell the game through distribution and do a reprint if you significantly surpass your goal. Let’s look at how this approach might work.

Example 2: $40 MSRP, Kickstarter Campaign (100%)
1,000 Units – 5× Manufacturing, 3.63× Landed Costs

Let me add two more assumptions to the list and walk through some more numbers:

  1. Your market research leads you to believe that you will be able to sell copies through distribution at an MSRP of $40.
  2. Your market research leads you to believe that an MSRP of $55 is too high.

In this example, you will only be able to get your landed costs down to 1/5 of the MSRP when you print 2,000 copies. At only 1,000 copies, you feel you can’t set your MSRP at 5× the landed costs and sell the game. You could set your MSRP at what you think the market will bear ($40), but you could still structure your campaign around the amount you need to print the minimum quantity. Here’s how the campaign might look:

  • MSRP: $40
  • Pledge Level: $35 (that’s $5 off and free US shipping)
  • Goal: $16,000

Let’s say the campaign reaches its goal, and you have 462 backers in the United States and have raised $16,170 total. Your cash flow until the end of the project will look something like this:

A: Your campaign ends. B: Two weeks later, Kickstarter will give you roughly 90% of the total pledged. C: You pay for manufacturing ($8,000) and freight ($3,000). D: You mail the rewards to backers.

MSRP at 5× Manufacturing Costs, Kickstarter Campaign
— A: Your campaign ends with $16,170 in pledges.
— B: Two weeks later, Kickstarter will give you roughly $14,550 — 90% of the total pledged.
— C: You pay the manufacturing ($8,000) and freight ($3,000) costs for 1,000 units.
— D: You spend $3,696 to mail the 462 games to backers.

You haven’t made any money, but you do have 538 copies you can sell.  Let’s say you put them into distribution using the same numbers from the previous post. Distributors pay you $16/copy, and you spend $1/copy shipping them:

Add caption

MSRP at 5× Manufacturing Costs, Kickstarter Campaign
— E: 1st printing sold out, $8,070 in profit (1,000 total units sold)

In this case, you set your MSRP ($40) much lower than the recommended 5× multiplier. (Coincidentally, you did set it to 5× your manufacturing costs [$8/copy], but the multiplier should take into account your freight costs as well: this price [$40] is only 3.63× your landed cost [$11/copy].) You put your game into distribution and sell out, but you still don’t have enough to pay for another printing.

Add caption

MSRP at 5× Manufacturing Costs, Kickstarter Campaign
— F: Even with an MSRP of 5× manufacturing costs and a (just barely) successful Kickstarter campaign, you still can’t afford a 2nd printing of 1,000 units.

Even if you could borrow some money (interest free like in the last post) to afford a second printing of 1,000 units, you still aren’t getting 5× your landed costs on that printing. You’re usually better off at this point stopping at one printing.

Example 3: $40 MSRP, Kickstarter Campaign (149%)
2,000 Units – 6.67× Manufacturing, 5× Landed Costs

But let’s say your Kickstarter campaign surpassed its goal. Let’s say it reached 700 backers! That would be $23,870 and 149% of your goal! With that money, you could afford to print 2,000 copies instead of just 1,000 copies. Remember: that’s what you needed for your landed cost to drop to 1/5 of the MSRP, which you set based on what you thought the market would bear.

A: Your campaign ends. B: Two weeks later, Kickstarter gives you roughly 90% of the total pledged. C: You the manufacturing ($8,000) and freight costs ($4,000). D: You mail the rewards to backers.

Landed Costs at 1/5 MSRP, Kickstarter Campaign
— A: Your campaign ends with $23,870 in pledges.
— B: Two weeks later, Kickstarter will give you roughly $21,483 — 90% of the total pledges.
— C: You pay the manufacturing ($8,000) and freight costs ($4,000) for 2,000 units.
— D: You pay $5,600 to mail rewards to backers.

You still have made very little money ($27), but you have 1,300 copies you can sell. Let’s say you put them into distribution using the same numbers from earlier:

Add caption

Landed Costs at 1/5 MSRP, Kickstarter Campaign
— E: 1st printing sold out, $19,500 in profit (2,000 units sold)

In this case, you printed more games and got your landed costs down to 1/5 of what you thought the market would pay for the MSRP. You put your game into distribution and you sold out, and you now have enough money to pay for another 2,000-copy printing and then some:

Add caption

Landed Costs at 1/5 MSRP, Kickstarter Campaign
— F: 2nd printing ordered (4,000 units printed total)

Even if you run a Kickstarter campaign, this advice still applies:

If you plan to sell your game through distribution and if you hope to sell out of your first printing and do a second one, your MSRP must be at least 5× your total landed costs.

But look at it carefully:

  • You don’t have to set your pledge level to 5× your landed costs: you can afford to give your backers a discount off that MSRP.
  • Don’t blindly set your MSRP at 5× your landed costs. If that’s more than the market will bear, you might need to try a different approach.
  • If you can’t get your landed costs down to 1/5 of the MSRP the market will bear for the game, you’ll have to plan to sell direct (not through distribution) or to print only that one printing (without enough money for a reprint).

In the next post, I’ll continue this series looking at some other costs like artwork and marketing. These costs aren’t directly tied to each unit, and these are often spent before a Kickstarter campaign by most creators. But if you plan to publish multiple games or run multiple Kickstarter campaigns, these costs for future games are an essential component of your cash flow.

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17 thoughts on “Do You Have To Charge 5× Your Landed Costs On Kickstarter?

  1. Pingback: Do You Really Have To Charge 5× Your Manufacturing Cost? | Foxtrot Games: Behind the Scenes

    • I believe the general principles should all still apply. The example numbers I selected are realistic for the kind of board games I have published, and I suspect they may be way off for games with miniatures.

  2. Pingback: Weekly Update | Grimwolden Games

  3. Thanks again, Randy. Very insightful. I’m looking forward to the analysis of the artwork factor. This is huge, and relevant to me right now. I can easily get manufacturing costs down to 1/5 MSRP, but the additional investment of having to pay my artists is a cost on top of that–and not something one can overlook, since the artwork can essentially make or break the sale.

  4. Excellently insightful yet again, Randy, thank you.

    It’s funny, this whole time I’ve been preparing for the launch of my campaign in my head the Kickstarter seemed to stop at fulfillment; however, with this series you’ve made me realize how much more there is to consider even after all potential backers receive their reward.

    When you are doing your market research, do you mostly base your price on industry games or what other project creators are doing? Sorry if this was in a previous post!

    The whole crowdfunding process is extremely exciting for me and I’m hoping the first run I do well thanks to educational materials like yours and Jamey’s!

    Best,
    Ben

  5. Great post Randy.

    It really highlights how challenging it can be to bring a game to market in a limited print run and the impact of product pricing on any future printings.

    I suspect that many of the funded games are unable to take advantage of the price breaks offered at higher production volumes and only a small percentage will ever make it to a second printing.

    It’s even harder to make sense of the numbers when you consider those up front costs that you mention such as art and marketing. Other than building a brand, these sunk costs are typically a one time use specific to a given project and likely never fully recovered for some of the many funded projects we’ve seen in the past.

    I’m looking forward to your next post.

  6. Great post! The graphs are all very helpful in communicating your message!

    I think that this paragraph gets to the crux of the matter:

    Increase your MSRP
    Find ways to lower your costs
    Plan not to sell through distribution
    Plan not to do a second printing

    With In A Bind, I went with a relatively expensive printer but I planned to sell to shops directly, giving me slightly more profit. Even so, I don’t think I should have done a 2nd printing as self-distribution is such a headache and it takes so much time away from working on the next thing.

    With future games, I’m tempted to only do one printing of each. If they’re popular enough, either a publisher will pick them up or I can do a new edition a few years down the line.

    Of course, there are sunk costs as James Mathe mentioned (art etc.) but also costs involved in continual marketing (demos, displays) and the % of faulty units that probably need to be continually addressed.

    • I also feel that a large part of KS is being able to print, despite not having the capital to tie up and put at stake. A 2nd printing takes away that security and puts me at risk. If I were more established that may be OK but it’s not viable for me as a cash-poor individual.

  7. Just curious, why not just do a Kickstarter for a second print run as well? Why should it be limited to first print runs? If the market wants it, they’ll decide. Sure, you only get 90% of your money from Kickstarter but a flat 10% off the top is better than 5% interest from a bank over the life of the loan.

    • Good question! That’s certainly a possibility, and I have seen a few people do that successfully. Here are three things that make it tricky:

      1. There’s a good chance you’ve reached most of the people you can through Kickstarter. You bring your own audience and fan base to Kickstarter, and a campaign can help amplify that. But you’ll be hard-pressed to sell the same game on Kickstarter again. Getting into distribution is about reaching a wider audience.

      2. Campaigns lose a lot of their Kickstarter luster when they are not “help this thing exist” campaigns but “help me make more of this thing” campaigns. You lose a lot of the “help us shape the product” excitement if the product is already finalized.

      3. If you sold the first printing through distribution, many stores will still have the game in stock. You’ll want to be careful before you compete with stores and run another Kickstarter campaign. (You’ll want to be especially careful before you improve the product into a new edition while stores still have the old edition in stock.)

      None of these make it impossible to run a campaign for a second printing, but they are factors that should be considered.

  8. Hey Randy,

    Very cool post. Have you heard of the website Kickfurther.com before? They’re a new crowdfunding platform for inventory orders. I know that Spicy Doodles utilized them to fund their second printing of Emoji Cards (first coming from Kickstarter). They’re based out of Boulder, CO (where I reside) so I actually was able to go to lunch with their CEO and they’re very interested in breaking into the board game market, as like your post explores, it is tough to obtain the capital to finance subsequent inventory runs.

    Anyways, thanks for posting this and let me know if you are interested in more information on Kickfurther.

    Travis@BearPeakGames

  9. There seems to be one problem with all this “math”: it pre-supposes that your KS will barely make a dent on the market. Sure you’re making the minimum to pay for manufacturing and shipping and all – but it seems to assume that you’re not doing particularly well in terms of the sheer volume of backers. Yes nowadays it’s getting harder and harder to fund… Seems like everyone has their “hand” in the miniatures bucket … and even they are competing with companies such as Mantic who are well know players in the market and have been around as businesses for years.

    My guess is if you can successfully KS 75% of 1,000 units, you should have enough money left over to fund a 2nd production run (of probably another 1,000 units). What you do with those units (in traditional distribution) is up to you… That might be an even HARDER sell than those 750 KS Backers…

    I personally feel that there are already so many people that have put out successful games using KS, it would be wise to reach out to them to see if they might be willing to partner up on a shared venture (Shared KS). As it is rather difficult to KS a new “designer” with a new game – that people have never heard before.

    But assuming you get 75%, you should have enough funds to spur the making of another 1,000 units. It’s more when you make it – barely and have too much left over.

    Just wanted to make that clarification. Cheers.

    • Example #3 shows something very much like what you are describing: the campaign gets 700 backers, and there’s enough money to print 2000 units. (In the example, I printed 1 x 2000 units instead of 2 x 1000 units; it’s usually better to do one print run of 2000 units than two print runs of 1000 units if you can afford it.)

      But even if you have 10,000 backers, I’d still recommend your MSRP be at least 5× your total landed costs. I would just use a different argument to make that case than cash flow and a second print run.

  10. Pingback: QTYONE Business Plan for the Dysfunctional Families Kickstarter Relaunch - Part 1 - Igpay Games

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