Why Retail is a Trap
Who doesn’t want to walk into a game store and see their game prominently featured on the shelf, ready for purchase by an eager public? The appeal of being in retail is a huge driving factor for many of us – certainly it was for me. But unfortunately, for most of us, it’s just a pleasant fantasy, and one that can be a costly trap for new board game crowdfunders.
To prioritize a retail presence, you must make significant concessions in terms of your own time and value to backers.
Retail itself isn’t a bad thing – I’m not against selling products in retail. But to prioritize a retail presence, you must make significant concessions – either to your product (and thus your backers) or your time. And these concessions rarely are worth the effort or cost, especially for the cozy crowdfunder.
The Cost to Backers
Retail operates on small margins; distribution (the means by which most product gets to retail), even smaller margins; and consolidation (the means by which most small publishers get to retail) – well, you get the picture. Generally, to accommodate the small margin for retail, you need your MSRP (or expected retail price) to be, at a minimum, 5 to 6x your landed cost. If you have a lower mark up than this, it’s unlikely you’ll be able to make any money from retail sales.
Landed Cost is the total manufacturing and transport cost of getting your product to a fulfillment center or warehouse
But you aren’t a big studio placing orders for thousands of units. You are going to be placing an order for an MOQ (minimum order quantity) which for most reputable, quality manufacturers, is between 1,000-1,500 units. As such, your landed cost for each unit is going to be much higher. This means if you use too high of a multiplier, while it can create a margin attractive to retailers, it can actually price your backer out of the market making the base pledge too high to tolerate. Even if you manage to keep your multiplier within a reasonable range (or discount your game for backers), backers still must pay for their individual shipping and expect something other than the same product they could buy at retail for that additional cost burden.
Raising your price to support retail margin may push your game above the price tolerance of potential backers - especially since they also pay shipping.
Backers also tend to be collectors after all – the exclusive (non retail) perks are one of the main things that drives backers to crowdfunding to start with. So it’s important you give them an extra incentive to back – an incentive that must also be manufactured at a MOQ and funded. If you think it’s hard to sell 1,500 retail games, imagine having to also sell 1,500 deluxe upgrade components too.
The Cost of Your Time
It takes time and effort to create a product that both works for retail and one that satisfies backers. It’s a very fine line to walk. But if you’ve walked it, you need to then spend time finding retailers who want your product and this means creating a good sell sheet – a skill you likely don’t have.
Retailers and distributors rarely come to you, so you must spend the time and energy to convince them your product is worth adding to their product lines.
Once you have a sell sheet, you can begin pitching your game to a variety of retail outlets. One of the ways is to directly solicit retail stores. Another is to put in the time and expense to develop the connections needed to get into distribution. This usually means attending expensive out of town trade shows and going to other functions where distributors will be so you can pitch your product to them. By far the easiest way to go is to sell via consignment through a consolidator. This easiest option still requires additional logistics on your side and very tight cost control as this is where your margins are the slimmest.
But Aren’t the Costs Worth It?
If you manage to find a lucrative distribution contract or "knock enough doors" to end up with significant direct to retail sales then perhaps. But those are outside the bounds and expectations of most crowdfunders. So let’s look at the most common route to retail – consolidators.
Consolidators work on consignment. When a consolidator gets a sale from one of their retail partners, they place an order for you to ship them some of your product – if you aren’t already paying them to store it. They pay you what a distributor would pay you (40% of MSRP) minus a commission, minus shipping to the retailer, and minus processing fees. For example, if you have a $20 game, the amount in sales per consolidator sale will be about $4.25. But how many can they sell and how quickly?
Using a consolidator is the easiest path to retail, but the margins are so tight as to require very strict cost controls or risk losing money.
QML Direct, a popular consolidator, estimates that for most new publishers they expect to sell between 100 – 300 units in the first year based upon the popularity of the game. You’d also need to pay storage fees of about $20 a month for that year too. For the sake of simplicity, let’s say you were one of those who sold about 300 units in the first year. That means you'd earn about $1,035 after storage fees. Remember though that if you had a x5 multiplier, that same product cost you $1,200 to make resulting in a net loss of -$165. Consolidation is a great way to liquidate product you’ve already paid to produce, but not a viable business strategy without economies of scale.
So What Do We Do Instead?
When you no longer need to make cost and time concessions to accommodate retail, it really removes constraints and gives you a ton more flexibility for your project. Since you no longer need a strict x5 or higher multiplier, you can use your extra margin to enhance the product, reduce the price, and generally make your game more appealing for backers. And you can use the time you would be pursuing retail channels to promote product preorders and sell via your website, or at local conventions and shows building your community for your next project.
Spending that same time / cost to obtain more backers instead would resulted in a much bigger payoff.
Final Notes
It’s worth noting that some of your backers may be retailers. This is a fine way to sell to retail as it takes away a lot of the time investment, and retail backers are backers after all and can be sold your deluxe version and exclusive elements of the game without compromising the promise to your other backers. There are some excellent retail backers out there who will come to you and do so without significant concessions. It's a win / win!
It’s also worth noting that not prioritizing retail during your campaign doesn’t preclude going to retail later. If your crowdfunding campaign does gangbusters, you may be able to afford an exclusive retail line of your product or team up with another, more established publisher, to take your game to a wider market. The point is you can make those choices later with whatever works best for you without hamstringing your campaign up front.
I'm thrilled to see a few more people pointing out the perils of retail for new/small companies. Take your margin and put it into your website/marketing instead of giving it away to distributors. I just wish more retailers would take/have the time to order direct from publishers. They would be helping the industry by increasing competition rather than supporting the established players that keep pushing publishers to do it the way it's always been done.
This is a real shift in thinking that I'll have to sit with. There is definitely an emotional joy to connecting with retailers, or doing stuff in those areas, but you're right - it is costly and direct sales could be more lucrative even for someone trying to earn some money.