Board game price breakdown

 Last month I talked about how the current shipping situation in the world affects the cost (and thus the price) of board games, but I feel that for a lot of people this is a merely theoretical issue, as long as you do not have a clear insight of what is the actual cost of a game. So, today, let's try to rectify this, and break apart the cost of a game, looking really into details. I hope that my colleagues won't kill me for disclosing this information, but I guess that's a risk I am going to take anyway 

To do this breakdown effectively, I need to choose a title, and my weapon of choice is Origins: First Builders, a game that Board&Dice is releasing this year. But I must also acknowledge that countries have various way of taxing products, so I will try to also account for that, but since I don't work in world finances, it may not be 100% accurate.

Manufacturing cost

This is the easiest part... in a way. Origins: First Builders is made in China, and our production cost per unit is $11. I know, it does not seem like a lot, for a game that will end up priced around $70, so please bare with me... This is the cost per copy for a first print run amounting to 22000 copies, spread over 10 languages. This is a lot for most small and medium publishers. But there is a trap along the way.

In future prints (if any), we need to assume that the total amount printed drops sharply, with a realistic number per print of 5000 copies. Even this is a bit optimistic. Why? Let's assume that Origins: First Builders will be a hit in Germany and Poland, but not so popular elsewhere. This means that our German and Polish partners can reorder, while no other partners join. We'd have three choices:
- do this print of let's say 3000 copies with a higher price per copy,
- add 2000 English copies, hoping that they will sell,
- or ask partners to wait until the time when someone else can join for a total of 5000 copies.

For simplicity sake, let's assume that we choose option 2 or 3, so we will end up printing no less than 5000 copies. In this case, while we do not have to pay again the fixed costs (printing plates, molds for plastics, etc), we'd still end up paying a higher price per copy, which is $12.5.

On the other hand, for these additional copies, we will no longer account for development or art costs, and marketing costs will be decreased, so we can assume that in the end the overall impact in our costs remains at the same level: $11.

Shipping cost

Shipping used to be a straightforward business: we'd assume that for a Ticket-to-Ride size box we'd have to pay $1 per copy, and for a smaller box $0.5. The new reality looks like this: $3 per copy, with a high chance that would increase to $4, for various reasons:
- we asked for a shipping quote without guaranteed space on a vessel, which then falls apart, so we must accept a higher price or start paying port storage costs
- vessels are delayed at destination (see this article: A record-breaking 44 container ships are stuck off the coast of California) which means not only delays, but added costs (shipping companies will move that costs to customers one way or another)
- shipping is unavailable to Europe, which means we need to ship by train

So, to be on the safe side, we'll work with a shipping cost of $3.5, which should suffice (unless something really bad happens).

Art & Development cost

For Origins: First Builders we had a rather modest art budget, mostly because we have 3 people in house who are actively involved in this process, but accounting for their hours spent, we're looking at an overall cost of $8000.

But this game required a lot of development work, despite the fact that when we received it from Adam Kwapiński it was in a very advanced state. Still, we put in over 1000 hours of game development, rules writing, testing internally and externally, etc. This amounts to over $13000, and please bear in mind that our main office is in Poland, where salaries are still lower than in Western Europe or the United States.

Drawing the line, the art and development costs amount for a single dollar ($1) per copy, which is pretty amazing.

Marketing cost

This is the only part I must admit I do now know by heart, it is outside my field of expertise, but since I deal with financial planning I know the overall amount, which is again $1 per copy (if our marketing department did not go rogue ).

Royalties

Designers get a percentage of our net sales as royalties, and this is a percentage ranging from 7% to 9%, depending on the game genre, on the designer's experience and state of the game, and on a few other factors. But since we cannot disclose the details of an ongoing contract, we'll just assume that the amount is always 8%. This is what we know at this time, but I will go back to that after we look on the revenue side of things.

Other costs

So... we work using computers, in an office which requires us to pay rent and get certain supplies . This also affects the cost of each of our games, but in a limited way. When we made the financial forecast for the next year, we simply divide our fixed costs among planned products, and without going into the really boring details, we end up with $0.25 per copy. It's not a lot, but it adds up.

Costs summary

Production: $11
Shipping: $3.5
Art + development: $1
Marketing: $1
Others: $0.25
Royalties: 8% of net sales (we'll come back to that)
Taxes (how could I forget about them?): 20% of profit

The supply chain

You, as the gamer and final customer, pay a price for a board game which is usually the MSRP (Manufacturer's Suggested Retail Price), and you buy it from a retailer. That MSRP includes the VAT (if you're in Europe), GST or sales tax (North America), which is a tax that your government collects from all sales. The average VAT is 20% in the EU and the average sales tax is 10%. The retailer has its own costs as well, and they buy from distributors with an average discount of 50% of MSRP. The, distributors buy (or take under consignment) games from publishers with an average discount of 60% (in which case the publisher pays for shipping) or 65% (shipping is split). This would be the end of it, unless the publisher selling to the distributor is a localizing partner, in which case they would but from the original publisher (that would be us, Board&Dice) with a discount ranging from 70% to 75%. We will assume an average discount of 72.5% and co-publishers paying half of the cost of transport.

Yep, you're probably a little lost, unless you work in the industry, so let's switch to an image, assuming an MSRP of $70.

The first refers to the localization model: we - the original publisher - work with localization partners who translate and, later, sell the games. They get a high discount, but take all the risk, as they pay on delivery for all their games.

The second model is the classic distribution model: we - the original publisher - sell English copies to distributors. We get paid for half of the copies sent, while the other half remains under consignment, which means that we get paid if they get sold.

I know, a lot of people retain small pieces of the pie. There are a lot of conclusions to be drawn from these charts, for example that retailers retain more profit than it is shown because they can offer sometimes deep discounts. That is rarely the situation, and in most cases retails offer deeply discounted products that don't sell anymore to minimize loss (I know that there are exceptions). What we know for a fact is that in 2021 the shipping industry has made record profits, supported by price increasing 6 to 15 fold. Not knowing the exact details of every business down the "food chain" besides our own, it is hard to make more than educated guesses, so I will limit myself to talk about our own piece of the pie.

So, what's our profit in the end?

For Origins we made 7000 English copies and 15000 localized copied. With a weighted average, our profitability per copy would be $4.8. This is, of course, if:
- all English language copies are sold (remember, this is partially a consignment model)
- no copies are damaged in transport (we do not get paid for those)
- there are no significant defects, which would make us send an unusual amount of replacements
- the exchange rates between US dollars, Euro, and Polish zloty remain fairly constant.

But $70 was not the plan

We had originally planned Origins to be a $60 game. Going through the same model, our average profitability for a localized copy would be $0.4 and for an English copy $2, with a weighted average of $0.9, again under the same assumptions as before (the most relevant one being that all consignment copies get sold).

So, what changed?

Two important things changes: the shipping cost increased from under $1 to more than $3 per copy, and for this there are no smart(er) shipping strategies... because there is simply no cheaper shipping option. So, this cost had to be accounted for. The second one is a consequence of the first: raw materials became more expensive, because in a globalized economy nothing get sourced only from local suppliers (most of the time because there are not enough local suppliers). So, our manufacturing partners increased the costs only slightly, but enough to make a difference. Well, perhaps I should list a third: the pandemic increased the cost of risk, by a lot. What does that mean? Every time we publish a game (or, in general, an enterprise decides to invest in a new product) we are taking a risk: we invest in development, in people, in processes, etc. But the market and the supply chain come with bigger threats, which means that the outcome of failing is more costly. The cost of risk must be factored in, otherwise we'd have to either stop making new products, or accept that the first time we fail it will also be the last, as our business would no longer be viable.

Within the last 12 months, I noticed that a lot of successful games have an increased price point, among them I can count Terraforming Mars, Terra Mystica, or Maracaibo to name a few of my favorite titles. In Poland at least, Terraforming Mars
is about 1.5x more expensive than it was a few years back when I got my copy. In my opinion, neither of these publishers, distributors or retailers increased the prices because they wanted a bigger margin, but rather out of necessity and desire to remain in business.

Why not manufacture locally?

If we had a penny for every instance I've heard this, we would... have been able to keep the MSRP lower 

This is an entirely new, long discussion, and I promise I will comment on this soon. In anticipation, what I can say now is that we tried. For the kind of games we make, there are no viable options to produce in US or Europe... yet!