Jun 192012
 

At Evil Hat, with our kickstarter campaigns, we believe in sharing the cost. We’re not coming to our backers asking them to carry 100% of the costs on a project, pure and simple.

With that in mind, the Dinocalypse kickstarter was conceived as someting that’d be in the red at pretty much every stretch goal, with each book needing to generate a few thousand bucks in sales outside of the kickstarter as each got funded. And that’s fine; we want our kickstarted products to take on a life beyond the kickstarter, or it’s not much of a starter after all.

And if we fail to make that additional green to get us into the black — well, that’s on us, and it should be on us. Because we’re a commercial company, dagnabbit.

So that same thing’s been true as we come to our Race to Adventure! kickstarter. We said as much on the project page that even if we hit $40,000, we’re still in the red. How much in the red? Well, about $20,000. Mind you, that’s $20,000 we have and are willing to spend in addition to the funds raised, so no harm no foul there. But I’ve gotten some questions about this on Twitter made with concerned faces and intentions to see Evil Hat prosper, so I figure I owe you some more detail.

Now, first off, let’s check an assumption at the door. If, at $40k, we’re $20k in the red, that means that if we raised $60k, the project would be fully in the black, right?

Nope.

The reality is that as each new pledge comes in, new costs come along for the ride, too — shipping, for example, as well as the costs of producing the game. Same can be said of each stretch goal, since that triggers the need to produce additional materials. So while at $60k we’d be less in the red, we’d still be in the red. With each pledge that comes in, some goes towards “the red”, and some simply goes towards the cost.

Very generalized, based on our past experiences, we’ve structured things such that about 25% of any pledge is going towards shipping costs & other incidentals. We also know that as much as 10% goes to amazon and kickstarter combined. Together, that’s a third. So we could say that for every 3 bucks pledged, we’ll net about 2 bucks to apply to the actual costs of the product and the spiffs.

I’m gonna use multiples of $3,000 here because that makes the 2/3rds math easy. In essence: $36,000 = $24,000 actual; $51,000 = $34,000 actual; $72,000 = $48,000 actual; $99,000 = $66,000 actual. Dig?

The trick to making this all work out is to make sure that with each stretch goal, it’s only adding a little more cost for us; that way, as the funding busts through stretch goals (fingers crossed!) it’s moving faster than the growth of “the red”, allowing us to reduce it.

To use those numbers again: at $24,000 actual, we’re about $20,000 in the red (and again — that’s as planned, designed, etc; all good!); at $34,000 actual, we’d be about $12,000 in the red; at $48,000 actual, we’d be about $4,000 in the red; and at $66,000 actual, we’d be only about $1,000 in the red.

So when someone asks me “You say you’re still in the red at $40,000; at what point are you not in the red?” and I say “$100,000!” — it’d be easy to walk away and think “holy crap, if this project only makes $40,000, Evil Hat will be $60,000 in debt for this project!” But that’s really far from the truth ($40,000 far, in fact).

The math is a moving target. We took the time to chart it. We know its trajectory. And it’ll be a smooth ride all the way.

As a footnote, here: if the project doesn’t fund? We still produce the game — but without spending money on all those extras, without the burden to ship out a bunch of copies, etc. So our “failed to fund” scenario potentially has us less in the red than our “just barely funded” scenario, assuming the game sells (we’d also do a smaller print run in such a case, another way to keep costs down). This failure scenario is also by design.

In all, this is the kind of number crunching, dig-in-the-details financial work that’s best done well in advance when planning a kickstarter. I worked up these figures back in April, two full months before we launched, as one of our first steps in designing the Race to Adventure kickstarter.

When it comes down to it, I’ll say it again: Kickstarter is a business. We’re treating it like one. And most businesses have a period of taking a loss, of living in the red, before they can succeed.

It’s all good, and with even modest success, we’ll be doing just fine. Sure, we’ll definitely need your help — whether as a backer or eventual purchaser — to see that success with Race to Adventure and honestly any other product we make.

But Evil Hat is not in any kind of trouble here, in any of the possible outcomes. By design.

While we are taking on more risk in 2012 than we have in prior years, as with everything Evil Hat’s done, we’re making sure all those risks are calculated ones.

We’re just as interested in making sure Evil Hat sticks around as you are. 🙂

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  One Response to “A Quick Peek Behind the “Red” Curtain With Kickstarter”

  1. Nicely put, good job building in losses that you can plan on absorbing. And yes, I’m a first day (I think) supporter, very much looking forward to getting my copy. And I’m shilling it with friends and on my blog.

  2. […] A Quick Peek Behind the “Red” Curtain With Kickstarter by Fred Hicks at Deadly Fredly: Fred takes us inside the Kickstarter plan for Race to Adventure. He looks at built-in expenses and the long haul to breaking even, all by design. Transparency rocks. […]

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