Distribution, Cash Flow, and Multiple Printings

[This is the result of a 30-minute writing study. Some version of this will probably end up being the opening of an article two or three times as long.]

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If you have been around the board game industry for any time at all, you’ve probably heard that a game’s MSRP should be five times (5×) it’s manufacturing cost. Yes, five times! I heard this when I first started, but I couldn’t really understand how that could be necessary. (I wasn’t making board games to get rich or anything!) I still hear from many Kickstarter project creators who question this multiplier. I think I finally have a good grasp on why this number is essential. Here’s how I would state it:

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 5× your landed costs.

The best way for me to communicate this is to walk through an example. Imagine with me the following:

• I have a game that costs me $8 each to manufacture 2,000 copies (that’s $16,000 total) and freight them to my warehouse. This is often called yourlanded cost: it is the total cost to land the games in your warehouse (or your garage, Amazon Fulfillment, or wherever you’ll store them).
• I have $16,000 cash on hand that I’m willing to spend on this. (I’ll talk about direct sales and Kickstarter further down, but let’s keep it really simple to start.)

I set my MSRP at $40, which is 5×$8. I spend my $16,000 and (after several months) receive 2,000 copies of the game into my warehouse. If things go well, distributors will buy the games from me. They will buy the games from me for roughly $16 each (60% off MSRP) and I will have to pay to ship the games to them. (They will be buying a large quantity, so it won’t cost toomuch per copy. Let’s say roughly 50¢ a copy.)

In the first few months, let’s say I sell 1,000 games; that’s half of my inventory. I receive $16,000 from distributors, and I spend $500 shipping the games to them. Overall, I have recouped almost all of my initial $16,000 I spent. Note this carefully: if your MSRP is 5× your landed costs, you have to sell more than half of your print run just to break even.

In the next few months, let’s say I sell the other 1,000 games; that’s the rest of my inventory. I receive another $16,000 from distributors, and I spend another $500 shipping the games to them. I have now recouped my initial $16,000 and made another $15,000, which is great! (If it took less than a year from placing the order to selling through that first print run, I’ll be happy.) But note this carefully: I still haven’t made enough profit to print a second run! Even if your MSRP is 5× your landed cost, all the profits from your first printing will go towards your second printing.

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[This is the result of a 30-minute writing study. Some version of this will probably end up being the opening of an article two or three times as long. What questions or feedback do you have so far?]