Let’s talk about money!

I am sure that since you’re reading this article you are in the same situation as my younger self, wondering how much board game production actually costs and what’s the fair price of board games. I admit, it is a rather peculiar question, but with more and more board games hitting or closing onto the $100 mark, this is a relevant question. So, fasten your seat belts and let’s dig in!

First of all, there is an unwritten rule in the hobby industry which says that the ratio between MSRP (manufacturer recommended retail price) and production price should be between 5:1 and 6:1, with some publishers going as high as 10:1. When we started publishing, we were advised to follow the 6:1 rule strictly to avoid facing early bankruptcy. Even though we avoided both setting a ridiculously high MSRP and bankruptcy by not following the advice ad litteram, it proved to be a sound opinion and a general guideline to be followed.

To dig deeper into the pricing of board games, let’s use a 40 EUR (approx 45 USD) game as an example of how pricing is built. 40 EUR puts the game into the mid-range category, usually accessible to families as well as gamers, and, assuming the game is good, it can reach high volumes. But before you know a game is a hit, as a publisher you will start with a conservative first print run, and this first print run is the one which determines the final price of the game.

Retailer discount

Retailers usually get discounts from distributors ranging from 40% to 55% of the MSRP, with an average of 45%. For our sample game, a retailer would pay an average 22 EUR to their distributor, thus having a theoretical profit of 18 EUR! That sounds like a lot, and yet most brick & mortar retailers struggle all over the world. The main reason is that they have a range of expenses which eat a large part of the theoretical 18 EUR they can make.

First and largest is the value added tax, the part which the government is getting from the final price. The average VAT rate in Europe is 22%, but we can work even with 20% for the sake of simplicity. From the 18 EUR left for the retailer, 8 EUR will be lost in taxes (VAT) and this did not account for the cost of sale. Having spoken to several retailers who own or rent a physical location, another 10% of the final price is spent on rent or mortgage payments, as well as utilities and other maintenance costs. So, that’s another 4 EUR to be accounted for. Wages account for another 5%. But the real hidden cost is long term stock which is unlikely to sell. The value of this stock is all over the place (based on the same discussions with retailers), some claiming that it is as high as 25%, while others who use deeper discounts would only place it at 2%. Using the info at hand, I would put overstock cost at 5%. With this in mind, wages and stock account for a total of another 4 EUR.

So, let’s recap: retailers retail 18 EUR from a 40 EUR game, paying 8 EUR in VAT, 4 EUR in rent and utilities and another 4 in wages and overstocks. That leaves them with 2 EUR per game. This might be a pessimistic estimation, but having seen actual books of a couple of retailers, it comes very close to reality. Online stores seem to be in a rather privileged situation, not having to pay rent and utilities, but they also face fierce competition from established industry giants (e.g. Amazon) and deep discounters, thus their final price would usually be slightly lower and the margin slightly higher, but not by much.

Distributor discount

Distributors usually carry a wide range of products and they work on very low margins. This is why when they receive a 60% discount – which is an industry standard – they can afford to offer retailers discounts of around 50%.

Coming back to our example, for a 40 EUR game, a distributor will pay 16 EUR and getting shipping covered by the publisher. In this case, they retain 4 EUR per game (assuming again that retailers buy that game for 22 EUR). The costs they deal with is warehousing, wages, rental, utilities and marketing. I do not have hard data (books) from any large distributor, but based on industry knowledge, their costs range from 4% to 7% of the MSRP of the game, so 1.5 – 2.8 EUR are spent this way. That leaves distributors with less than 2 EUR per copy in average, sometime much less, but their business model is based on large volume and low margin.

Co-publishers

Many games get localized these days and there are games with up to 35 language editions. Even average games see 4-5 different language editions, so it is fair to assume that our suspect – the 40 EUR gateway game – is made in your country by a co-publisher who translated the game from its original publisher.

The co-publisher is expected to get a discount of 65% to 75%, so they will get the game at an average 70% off MSRP, in our case paying 12 EUR plus shipping.

Shipping (2000 game boxes overseas / 500 game boxes in Europe or North America) adds a cost of 1 EUR per copy. Marketing, wages and company running expenses will account for about 5% of MSRP, so another 2 EUR per copy in average. Assuming that co-publishers are able to sell their entire stock to distributors for 16 EUR per copy, they would be left with as little as 1 EUR per copy. Since sometimes the middle man (distributors in our case) are taken out of the supply chain, a co-publisher will gain an additional 1-2 EUR per copy, by selling directly to retailers and final customers, especially at gaming fairs.

Publishers

Publishers sell their games to distributors and to their co-publishers. Let’s assume that 50% of the total number of games are sold directly through distribution and another 50% through co-publishers who localize the game. In this case, the average selling price for the original publisher (for our 40 EUR game) is 14 EUR.

Now, we are getting really close to what the manufacturing price of the game has to be. Before we dig deeper into that, let’s look into what other costs (besides production) are paid by publishers.

First on the list is royalties payment, usually 5% to 8% of the price the publisher is getting, in our case 0.9 EUR per copy. This is what the designer of the game makes before taxes. Then comes the art. Assuming a print run of 10000 copies, which is already quite optimistic, gorgeous art from an established artist, who is still not top tier (has not worked with giants of the industry) will account for another 0.5 EUR per game.

Marketing costs – the money spent to get the push the game into your circle of interest – are usually exceeding 10% of the forecast revenue. In our case, a minimum of 15% would be closer to reality, so we can safely assume that without a significant marketing budget a game will rather go unnoticed. Thus, we can assume that at least 2 EUR per copy is spent to make that title visible and interesting.

Moving along to manufacturing… if our original assumption that manufacturing costs are one sixth of MSRP, we should end up paying 6.66 EUR for our 40 EUR game. Shipping from factory to publisher warehouse is a cost which can sometimes be avoided, but it can also account for another 0.5 to 1 EUR.

Drawing the line, publishers stand to make 14 EUR per copy, spending 0.9 EUR on royalties, 0.5 EUR or art, 2 EUR for marketing, 6.66 EUR for manufacturing and another 0.5 EUR for shipping. The leftover is 3.44 EUR per game box, which has to support wages and company running costs. If crowd-funding plays a role in the game’s life cycle, some of these costs are offset by selling to the final customer – you – for a discounted price, but shipping costs rise to a completely different level. Still, crowd-funding could increase the value retained by publishers from 3.44 EUR per copy to 4 or maybe even 5 EUR per copy. after accounting for all expenses but before taxes.

Conclusion?

None of the parties along the supply chain make a fortune by selling board games, but wise business decisions can keep everyone alive and growing at a decent pace. Big titles offer more opportunities for cost optimization, thus increasing the margin of all parties mentioned above by a few points, thus allowing the whole industry to show strong numbers in terms of growth.

Looking from this perspective, the final prices of board games seem fair. I must admit that even though I am involved in the industry full time for more than 6 years, I still wonder how can a 65 EUR game be discounted in shops down to 40 EUR and still be profitable for anyone along the long road it has to travel.

On a totally different note, other industries work with larger discounts and the final product arrives at our door at massively inflated prices. For example, a litre of milk in Romania costs 4 RON in the supermarket, while the farmers are selling it off for as little as 0.35 RON per litter. Even if you do not know how much 1 RON is, the percentage retained by the supply chain is much larger than for board games. Another way to look at this: milk is overpriced in Romania and someone along the supply chain makes a lot of money.

Which is not the case with board games.

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