The Price is Wrong

Corporate America costs $40. What could be simpler?

Corporate America costs $40. What could be simpler?

Publishing Corporate America was a big learning experience for me. I had previously designed games, and I’d even released digital games, but I had never handled so much of the responsibility myself. Manufacturing, shipping, distribution, marketing–frequently, I was in over my head, so it’s not surprising that I made mistakes. Today, I want to talk about one specific decision I didn’t quite make right: how much the game should cost.

There are a ton of factors that go into a decision that might seem pretty simple. Today I’ll go over those factors, why I made the decision I ended up making, and why I now think it wasn’t the correct decision.

 Every Which Way

Choosing the price of your game, a single number, doesn’t seem like it should be difficult. But different demands influence the number and, at the end of the day, it’s going to be a gamble.

The conventional wisdom on the internet is to price your game at 4-5x what it cost to produce. That allows you to sell it to retailers for half price and still make a reasonable profit. This forms the lower bound on the game’s price.

Of course, exactly what a game costs to produce is a difficult number to pin down. I’ve discussed the complex web of costs to produce Corporate America before. Should I base my price on the total cost? Just the manufacturing cost? The manufacturing cost plus the shipping cost? Those numbers vary wildly.

Cost can also vary based on how you make the game. Component quality makes a big difference, but perhaps the biggest factor is how many games you print. Economies of scale make large orders significantly cheaper per game. For one early Corporate America quote, each game cost $8.90 when 2,000 were printed, while each game cost $5.76 when 5,000 were printed, more than a 33% difference. Small, first time publishers should print as few copies as possible (so you’re not in complete financial ruins when your game doesn’t sell as much as you think it should). Their 4-5x the cost will be a lot higher than it is for large publishers who can print huge quantities with confidence.

Complicating things, the upper bound on price is based on what you think people are willing to pay for it. What do games with similar components cost? Keep in mind that if you’re a small publisher with little name recognition and next to no marketing budget, many customers won’t be willing to pay as much as they would for a game from an entrenched, well known publisher. Gamers will be taking a gamble if they decide to buy your game, so asking them to risk a little less can go a long way.

When I started seriously considering publishing Corporate America, I wanted to keep the game’s cost down, but it kept creeping up. A board and mini-cards for money were the two main contributing factors. I found myself in the tough spot where actually pricing the game at 4x the cost would result in a retail price that I don’t think many game players would tolerate.

I toyed with prices in the range of $40 to $50, but ended up keeping the price low. Even though it was only hitting the 4x cost rule with some fuzzy math, I decided the retail price for Corporate America would be $40.

Aftermath

I should have set the retail price for Corporate America to $45. The $40 price tag has probably enticed some people to give the game a shot where $45 would be too high, but $45 would have been the more responsible choice.

Honest math. Let’s face it–I was willing to bend the 4-5x cost rule to keep the price of the game down. Obviously, this rule isn’t hard and fast, but it is good advice that I should have taken more seriously.

Middlemen. Some people, like the Cards Against Humanity guys, can get away with breaking all the distribution rules. They sell their game through Amazon and nowhere else. Local retailers don’t get a discount from them. If you want to order the game, you have to order it specially. And the Cards Against Humanity guys are rich.

The Cards Against Humanity guys have thrived outside the traditional distribution system, but you probably won't. Image from Board Game Geek.

The Cards Against Humanity guys have thrived outside the traditional distribution system, but you probably won’t. Image from Board Game Geek.

Most of us aren’t so fortunate. For us, selling a full print run of a game is a huge challenge, and you’ll need all the help storing, managing, and selling your games you can get. Unfortunately, with every bit of extra help you get, you lose a piece of the pie. I’ve learned that it’s difficult to get fewer than three middlemen between you and your players.

The first middleman isn’t surprising: friendly local game shops (FLGSs). These guys will buy your game for about half retail price and sell it directly to eager players for full retail price.

The second is a distributor. Most game shops prefer to deal with as few people as possible, so they generally don’t deal with publishers directly. Instead, they have accounts with one or more of the big distributors (like ACD and Alliance) who sell games from many publishers. These guys will take about 20% of the 50% you get from FLGSs, so you’re down to 40% of retail.

The third middleman is a fulfillment specialist. Because there are only a handful of huge distributors, it can be difficult for a small publisher to get a game into their lineup. A fulfillment specialist (like Game Salute or Impressions) will get your game into the hands of the big distributors. They will also store and manage and maybe even market your game a bit. In return, they’ll take a cut of each sale. Exactly how much will vary, but 25% is probably a safe estimate. That means that if they sell the game to a shop owner through a distributor, you’re getting 75% of 80% of 50%, or 30%, of retail price.

30% isn’t much more than 20% or 25%, which is what you paid for the game. As you can see, profit margins are extremely small. If you can sell your game directly to a player, 4x or 5x cost is great, but often times you’ll be making much, much less than that.

I’m not complaining about these middlemen–all of them help sell your game. FLGSs get your game in the hands of customers who would never see the game otherwise. Distributors make it possible for game stores to manage the huge number of games out there. And fulfillment specialists take care of a lot of the logistics and get your game in the door of a massive and complex distribution network. Without their services, you’d have to deal with extra costs and work. Plus, you’d sell far fewer games. (Unless you’re the CAH guys.)

Shipping. If you look carefully at the Corporate America Kickstarter, you’ll notice that Kickstarter supporters paid $45 for their games. While I expected the retail price would be $40, I asked Kickstarter backers for an extra $5 for shipping. Truth be told, I was losing money on shipping by only charging $5, but it was a way to thank the people who helped make the game possible.

Fast forward to now. If you buy Corporate America online, you can get it for $40 without paying for shipping. What happened?

I didn’t realize it at the time, but shipping is often free for online board game sales. Amazon started the trend and other online stores have followed suit to stay competitive.

This means that if you’re selling the game directly to customers online, you’re eating the cost of shipping, further reducing your potential earnings. Even when it seems like you should be getting 100% of retail, you won’t be.

What upsets me about this more than losing out on some money is that it ultimately punishes my Kickstarter supporters. If they had waited, they would have gotten the game for $40. (Of course, the game wouldn’t have been made without their support, but still.) Kickstarter backers are taking a bigger risk, so they should get a discount, not pay extra. I feel really bad about this. Sorry guys!

Finite Product. It may seem like worrying about dollars and cents here and there isn’t worth it. How much difference can it make?

When it comes to physical games, each print run produces a finite amount of product, which means you have a specific upper bound of money you can make.

Even though the number of games will be finite, it will still be large. 1630 copies of Corporate America exist. Making $1 less on each game means I’m getting $1630 less total. That’s a significant number. Low balling yourself even a little will have a major impact on the upper limit on how much money you’ll be able to make.

Too Little, Too Late

So, I should have set the retail price of Corporate America to $45. I’m sure it would have resulted in fewer sales, but it would have been more reasonable from a business perspective. You might be wondering, is it too late to change it?

Honestly, I’m not sure, but I suspect it would be a bad idea. For one thing, the game isn’t exactly flying off the shelves, so the demand isn’t high enough to justify raising the price. (Don’t worry, the game is selling fine, just not spectacularly.)

For another, there’s the anchor effect: whatever initial number is suggested for something will determine whether future numbers look good or bad. If I had said $45 from the beginning, many people would have accepted the game at that price. But knowing that the game used to cost $40 might make $45 seem like a rip-off.

Little Decisions, Big Consequences

And that, my friends, is the story of Corporate America’s price tag. I hope it not only shows how many factors go into a choice that seems simple, but also helps you make decisions that are in your own best interests as game creators. Remember, your job isn’t just to design awesome games–it is to do so sustainably!

Note: Shortly after writing this, I discovered this informative video on the same topic from Impressions owner Aldo Ghiozzi. He has a different perspective and different numbers, not to mention a lot more experience than me, so I highly recommend watching.

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5 Comments

  1. Good post, shared it via Facebook.

    This is one reason I am looking at manufacturing my games myself, it saves at least one price double. As you noted with Cards against Humanity, direct sales give you another big chunk of margin to work with.

    Not that everyone should take this approach, but there is more than one way to skin a cat. 🙂

    Reply
  2. Teale,
    This is a GREAT explanation and I just posted it to my FB page for the Game Boy Geek. EVERY gamer should read this to help understand why games are the prices they are.
    Thanks for sharing.

    Dan

    Reply
  3. Shane H. Hockin

     /  January 5, 2014

    The “Cards Against Humanity” guys are definitely exceptions to the rule. Face it–they made a cheap, piece of crap game with some lousy, flimsy cards. It was a stroke of genius (or more likely luck) that it was such a hit. And it is easier to manufacture a box of cheap cards on your own than a nice game with a board and good components. It is a shame that you took a hit on this game. It’s a fine game and I would take it over “Cards Against Humanity” any day.

    Reply
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