Apr 192016
 

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Apr 012016
 
Harry Overcome FINAL

Totally not his fault. Totally.

The Dresden Files Cooperative Card Game (DFCO) kickstarter is coming in just a few weeks, and I’ve got shipping on my mind, as I always do when another Kickstarter campaign is rolling around. (DFCO’s KS will be the ninth I’ve run.)

One of the shipping models we’ve tried for our prior Kickstarters is to charge no shipping during the Kickstarter campaign, but then bill for it later via BackerKit. (I love BackerKit, particularly because we have a deep enough catalog that we can do pretty well with our add-on sales after the campaign.)

It’s gonna make sense to do that again, here. International shipping is just straight-up gross right now, and bound to get worse over time. (And our game won’t ship until next year in all likelihood… who knows what new horrible rate hikes will occur between now and then?)

We’re looking at a potentially 3-point-something pound package here for the base game, which is functionally identical to an exactly 4-pound package as far as most international shipping rates are concerned. And the US Post Office estimates around $50 to ship a 4-pound package to most places outside of the USA. Fifty! (That’s not an April Fool’s joke. Gods, how I wish it was.) That’s about five times what we want to charge our domestic backers for shipping, and costs more than the game itself ($39.99).

When it comes down to it, time and again, much as I would like to launch our KSes without international options, it’s clear that even with horrifying, face-melting shipping costs, folks outside of the USA still want us to offer the option. It’s never smart to ignore our fans and customers. So that leaves us with the need to figure out how to offer it without sinking our project in the process — effectively hiding failure inside the appearance of success.

(In addition, this far ahead of manufacture, it’s difficult to get a clear read on the product weight. They’d need to make it first, and in order to make it we have to have a funded Kickstarter, so… yeah. What if it turns out to be less than 3 pounds, instead of more than 3? That could be a significant cost break for internationals. Variables, we gots them.)

So, time for some math. Let’s say that to fund a game at about $40,000 (accommodating costs of manufacture, royalties to game designer and licensor, and Kickstarter + payment processing cuts), and the game I’m selling is $40. I’m gonna charge $10 for domestic shipping of that game. (I’m choosing a nice round numbers here to keep the math easy.)

If I could rely on purely domestic backers, I’d add $10,000 to that funding goal. ($10 per shipment x 1000 backers @ $40 each to make that $40k actual needed funds target.)

But if I open things up to international backers, I can’t rely on math so simple and stable. The absolute worst case scenario would be 100% international backing, which is super ludicrously unlikely, but imagine that scenario, imagine that I couldn’t get a rate better than $50 per package, and I charged shipping during the KS. Each International backer would contribute $90, but only $40 of that would actually be covering my intended costs. We’d hit $50k with just 555 backers, but over $27k of that would be shipping costs, and I’d have less than $23k of the $40k I actually need.

More realistically, I’d say that when we do open things up to international backers, we can run as high as 20% in international backers for a campaign. Sometimes it’s a lot smaller, sometimes not. But I’m mostly comfortable using 20% as the ballpark when constructing estimates.

So let’s 80/20 that. If 80% of my backers are domestic, and 20% of them are international, and each is paying $40 for the product plus whatever for the shipping, then I’m looking at 800 domestics, 200 internationals to get the $40k, but I’ll need to set the target at (800 x $10 + 200 x $50 equals) $18k higher to accommodate that scenario. If I’m lucky, by the time we reach a $58k goal, I have only 200 international shipments to worry about. If I’m not, then my 20% estimate was low, and every international backer past that takes money away from the actual project.

(In reality, it’d be more than an $18k boost, because that $18k is also subject to payment processing, Kickstarter fees, etc, so I’d need to pad it out a bit to make sure I’m getting the actual $18k needed for the shipping portion of the bill.)

This all gets a lot cleaner if I can set aside shipping costs for now, and bill them later when my variables are clearer. I’ll also be able to offer my backers the benefit of a few months more of efforts to get those shipping costs lower. (For example, I’ve found a solution for getting DFCO into Canada at just $25 per shipment. Maybe I’ll be able to find some other good methods for getting the games to other locations abroad. That said, please don’t drown me in suggestions here. I’ve heard them before!)

If I don’t have to worry about shipping costs at all my Kickstarter math starts clean and stays clean: $40k goal, $40 buy-in, we’ll bill you an appropriate shipping amount later, hopefully at a rate lower than what we’re currently getting quoted, and international backers won’t distort our funding simply by dint of participating.

On paper it looks pretty good. Reality, as usual, has other ideas. While this is a pretty solid approach for me overall, it does have its pitfalls.

First off is there’s nothing stopping backers from pre-committing the shipping cash as part of their pledge. The problem is, if they do this, while it has the appearance of pushing the project closer to its various funding goals, what it’s actually doing is “hiding failure in success” — if you pledge $80 because you figure you’ll have a $40 shipping bill later, all $80 of that goes towards the funding goal, and it won’t really emerge that what you actually did was move the needle $80 closer to the goal, while only providing $40 of actual funding to the project itself (as opposed to the shipping operation). To head this off for the DFCO KS, I’m going to be explicitly asking people not to engage in this behavior. (If you think this behavior is unlikely, think again; I saw exactly this behavior in prior KS that used the deferred shipping model.) Hopefully they’ll listen and comply, because it really does undermine the entire point of deferring shipping costs to later.

Secondly, there’s a simple reality that many people don’t read closely enough, and this leads to surprise, outrage, and general sticker shock when the deferred shipping charge comes due. Again, this is based in experience. There’s not much I can do about it except communicate the message in as many places as possible, as often as possible, so people keep it in mind, and so when the shipping bill comes due months later they aren’t suddenly infuriated for things going exactly as I said they would. That’s a hell of a hang-time effect, though, and while it didn’t happen a lot the prior times I did this method, it happened enough that I felt a little sour about having used the model. That sour feeling has faded, though, and the rationale for bill-it-later shipping has remained strong, so this simply goes on the list of hurdles I need to make sure we clear.

Bottom line, bill-it-later shipping continues to make sense for us, and with a potentially big project like DFCO we need to use our best-of-breed strategies to make it all work. And hopefully, if we continue to use this model, the potential for sticker shock and undermining backer behaviors will fade due to it becoming a more familiar feature of our campaigns.

Fingers crossed! And stay tuned for the impending Kickstarter campaign. We have some fun reveals in store for the time leading up to the launch, too. Hope to see you there.

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Mar 312016
 

Whuf. So I woke up to this message (excerpt is part of a larger one) in my email. I think it’s worth talking about in public. Here’s what they said, asking for advice, and what I had to say about it.

“I make games that can not sell. But these games are my identity, my signature. It is all I am. But I chose to make games as a means of survival.”

That’s the crux of a problem right there. Well, problems, but I’ll try to unentangle them here.

I’ll start with the last part: “I chose to make games as a means of survival.” — This is not something anyone should do.

By and large, at most scales, games do not sell well enough to be a component of survival. I’d estimate at least 95% of people working in games cannot make a living from the work they do in games. The market simply doesn’t support that kind of income generation unless you’re able to aggregate a lot of smaller revenue streams into a bigger one and that often doesn’t happen at the creative end of things. (Sad fact, creativity is not in short supply. High supply vs. demand means the prices for creativity stay low.)

When I started Evil Hat in 2005, I definitely was not choosing to make games as a means of survival. I had a solid enough financial base already—and a spouse with health coverage and a salary—that as a household we could afford me making that decision. I was paid nothing or nearly nothing for most of the first five years that followed—I simply sunk sweat equity into the company, and took little compensation for that. From what I’ve learned about entrepreneurship, that’s pretty typical. 3-5 years of making nothing or losing money in order to start up a business in the first place. By 2010 I was firmly doing primarily business-work rather than creative-work, and from there on forward to now I’ve continued to. Luckily I’m wired to enjoy business-work, and I’ve been able to focus on publishing, which fits the “aggregate many small streams into a larger one” model nicely. Now, ten years in, I have a salary. A small one relative to what I’ve made in the past. Miniscule if you spread it out to cover the time I spent making nothing.

So, games to survive, games to pay for living — this doesn’t exist except at larger scales. You can’t milk that stone.

Then there’s “these games are my identity”. I understand that feeling — it’s common in the creative temperament. But it’s a dangerous feeling to combine with “and I try to sell these games”. Because “I make games that can not sell” is also a common experience, for one. Not to mention, if I took games out of the equation, and said, “Sell me your identity,” that would probably feel pretty… uncomfortable.  Pairing your identity with a profit motive is a recipe for unhappiness. It positions you to feel every failure — and there are PLENTY of those in games — both in your pocketbook and your heart. At the same time. And that’s simply too much to carry.

My advice? Continue to make games. For yourself. If folks happen to like them enough to give you money for them, that’s great.

But address your need to survive by doing something else that actually makes money. MOST people in games do not actually work in games as a job. The work they do for games is something they do as a sideline, a hobby, something they fit into their spare time when they’re not at their day job. Find something you can do that earns your keep, and break that deathgrip you’ve established between your identity and your wallet. Without some kind of financial support to back up your love of making games, there simply won’t be enough of you left for those games in short order.

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Feb 122016
 

Generator-20071117This is a repost of a comment I made on a G+ post I did about some interesting factoids about the recently concluded Fate More Part 1 Kickstarter. Someone asked how print sales compared to PDF sales, and that sent me off to dig into my own perspective on the value of print products vs digital products as revenue generators. It went a bit long, which was practically guaranteed once I said I was gonna try to keep it brief. Go figure.

At any rate, here’s the comment!


 

Okay! This is a big topic, but I’ll try to keep it brief.

First, the general case.

I usually price PDFs at about half of the cover price of a book. The major market for PDFs is DriveThruRPG and they take a 35% cut of nonexclusive sales (which is fat, but given that they probably own 90% of the PDF market, that’s the price of admission to the fertile lands), so on a PDF sale you can assert you most commonly take in 65% of the price of sale on the PDF. If we say the cover price, is C, and the PDF is priced at half of C, then in the most common scenario your PDF revenue for a sale is 0.325C.

The major market for print books is distribution, and they buy books at 40% of cover price (60% off). You’re usually also paying some or all of the shipping bill to get items to distro in the first place, and/or storage or flooring fees for keeping your product at that distributor. So if you start at 0.4C for a book sold in distro, and then there’s some stuff nibbling away at that number before you actually get to receive money for it, the adjusted number probably looks similar to that 0.325C from your PDF sale.

So in general my perspective is that 0.325C is the monetary value of your content regardless of the format you publish & sell it in. For example, a $20 physical book that also sells as a $10 PDF provides about $6.50 in monetary value to the publisher per sale, whether the sale made is a PDF on DriveThru or a book sold to distribution.

(Yes, there’s the cost of manufacturing your books, but I’m setting that aside for now. The physical book revenue stream doesn’t happen at all if you don’t make physical books, so there’s a “gotta spend money to make money” thing going on there. There’s also the shared cost of developing your content and getting it to the point where it could be printed. Those parts are a factor in the big picture but it’s not something I can dig into without making this thing considerably longer; those live over in expenses land, and this comment is more about what’s happening here in revenue land.)

So, this general case starts to get a little weird when you start to get into specific cases that don’t fit the general mold, especially where a kickstarter or your own webstore is concerned. This is the land of direct sales, where you’re able to get way more revenue from an individual sale than you would in the general case’s sales scenarios. Sell a $20 book, you get $20 (minus payment processing fees, but that’s small percent, 5% tops). Sell a $10 PDF, you get $10 (same comment).

How’s that compare to the nearly-equivalent print vs. PDF revenue of the general case? Check it:

If you sell a book with a cover price of C, you get C. If you sell a PDF with a sale price of 0.5C, you get 0.5C.

So, a print sale under this pricing strategy is worth twice a PDF sale.

Both of these are considerably higher than the 0.325C standard revenue value, so it behooves the publisher to try to create and capture direct sales revenue when possible, so long as it doesn’t undermine business relationships in the process. (So don’t heavily discount your goddamn physical games for direct sales if you’re planning on trying to convince retailers to get them on their shelves. 10% off now and again, sure. 20%, pushing it. More than that, you really don’t care about your retailer partners.)

That 0.5C direct sale PDF is a nice boost over 0.325C, but not quite double. That 1.0C direct sale book is a huge boost over 0.325C, over triple. Direct sales of physical games areawesome. They’re worth a ton to a publisher.

Kickstarters can have some pretty strange or unusual pricing constructions. Ours tend to get weird and experimental and discounted on the digital component (because you’re not really undermining any retailer relationship with the PDF format), while our physical books tend to remain at cover price (to help support and preserve the value of the physical item and therefore retailers as well).

For Fate More, our $10 digital tier had at least 4 books represented there. One could argue it’s actually 6 books because of the two compilations, but those contain content from PDFs that are all already available pay what you want (including $0) so I’m leaving those out. Similarly one could argue that it’s only 2 books because 2 of them were also digital rewards for people who backed Fate Core in 2013. But that’s not necessarily everyone, so I’m gonna average all those numbers and call it 4 books. That means a single product sold in the $10 digital tier had a sale value of $2.50 ($10 divided by 4).

Our entry level single $20 physical book tier added $10 shipping for the domestic scenario; I’m confident suggesting that that $10 covers the shipping nicely. As you add more books, in the domestic scenario, that $10 ship fee doesn’t increase, even tho the ship cost does scale up. I’m also willing to suggest that the ship cost doesn’t increase anywhere near as rapidly as the aggregate full cover prices of additional books do, so the increased ship cost gets spread around nicely in multi-book situations. So for this calculation I think we can look just at the $20 portion of the pledge, the amount actually being paid for the book.

That $20 single book, then, compares to a $2.50 single pdf. Even if you assert the $10 tier really only covered 2 new PDFs for most $10 backers, that’s a comparison of $20 to $5, then, the most generous scenario.

So for a given title, a physical-shipment backer on the Fate More KS represents between 4x and 8x the title-specific revenue of a PDF-oriented backer. (And look at that, the PDF backers only represented an eighth of the revenue. Granted, a sizable chunk of the 7/8ths that remain also contains shipping fees, but even so the ratio is steep.)

Regardless, all of this revenue in the KS is focused on manufacturing the physical books and shipping them to folks who ordered them. But on the other side of doing that, I’m left with a big pile of additional inventory that I can sell into distribution and other non-KS direct and indirect sale channels as a pure profit source. A result made largely possible, financially speaking, by folks who bought physical books.

But to go back to the general case again — where the majority of the action happens, at least at the scale Evil Hat currently operates — I said above that the revenue generated sale by sale is about on par, right? It’s easy to end up thinking that means that PDFs generate the same revenue as print overall. But that’s not the case, because print’s volume sales, on reasonably successful products, tend to outstrip PDF.

Here are a few examples to go with that assertion.

Atomic Robo RPG
PDF sales to date via DriveThruRPG – 973 – representing about $8.4k in post-cut revenue.
Print sales via distribution – 2615 – representing about $36.5k in post-cut revenue.
Print sales volume is about 2.6x PDF’s; print sales revenue is about 4x PDF’s (but there are some hidden costs as mentioned above that knock that down a fair bit).

Monster of the Week Revised
PDF – 770 – ~$6k
Distro – 1048 – ~$10.5k
Volume ~1.4x PDF, Revenue ~1.75x PDF

Paranet Papers
PDF – 593 – $7.7k
Distro – 2456 – $49k
Volume ~4x PDF, Revenue ~6x PDF

So obviously there’s a range of possibilities; every product has its own specific, multi-factor reasons for performing in its own way; there will always be occasional exceptions, which do what exceptions do, they prove the rule. The trend I see is that PDF remains the minority share in volume, so even if each format provides roughly the same revenue value to the publisher, the volume differential means that physical products remain the majority driver of revenue generation.

End of the day, no matter how excited and committed people are to consuming content in PDF, it’s print sales that provide the vital majority share of revenue generation. It’s usually the sale of physical goods that primarily funds the development of content, as well as paying for the additional expenses of manufacturing those physical goods. PDF sales put a dent in it, to be sure, but just a dent.

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Jan 112016
 

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