ORX, Sales Numbers, and Retail

[Eero Tuovinen]

No, I don't have friends who can spare $10 000 dollars for a lark, either. Seems pretty rare, that.

But then, that's not what we're discussing here at all, is it?

[guildofblades]

i think Ron had it right in that "justification" for the low margin "retailer" based sales is sought after. Or if not "sought" per se, there is an interest is seeing other folks explain why they pursue them.

Ok, the "average" GOB game has a gross margin of about 75% or a markup or about 400%. This is "always" based on the wholesale price of the product, pegging wholesale discounts at 60%. So in other words, if we have a product with an MSRP of $10, our wholesale is thusly $4 and our "average" manufacturing cost $1. Based on that model, we make just a tad bit over 4 times as much money on every unit sold direct to a consumer as opposed to the same unit being sold via wholesale. If another company has a weaker gross margin on an item then the disparity between the profitability of direct sales vs wholesale sales will only be larger.

So as you can see, based on our cost structure it is naturally advantageous to sell direct whenever possible. After analyzing those numbers pretty hard about 4 years ago, we shifted from being a company that first and foremost sold product through the 3 tier system to a company that focused on having a strong and far reaching web presence and selling direct. And that's a model that is perhaps perfectly well suited to many independent companies. If a company is small or perhaps part time, then the people running it have to give an honest appraisal of the time they have to commit to their company. Selling direct, maintaining a strong web presence, doing internet market, packing and shipping items all takes some time and effort. Likewise, managing a distribution system, be it the 3 tier system Key20, IPR, Impressions or direct sales to distributors or retailers, also takes time to manage. And it takes time to effectively communicate with your partners in that distribution system. That's why we cut out the distribution tier back in 2004. We realized the time to manage product flow through that system wasn't justified based on the return it was providing. Every company, big or small, needs to evaluate each potential sales channel it might use to sell its product through and decide if they have the time and resources to commit to making that system work. If you honestly don't have the time, then trying to spread your time over a number of sales channels that is larger than you have time to manage, in all likelihood, will lead to a failure to effectively capitalize on any of them.

So decide if you have time to market to consumers and market to distributors or retailers at the same time. If you realistically don't, then perhaps its not even in your best interest to do both.

Ok, that being said, as I posted earlier, I have a growing set of data that makes a compelling case that direct sales and retailer sales both working together over the same area drives that sales upwards through both venues. Its simply an issue of product awareness and saturation of word of mouth exposure to the target audience. We you have both sales channels delivery product, you increase the chance of hitting a sort of critical mass that drives more total interest in the product that either sales channel could achieve independently. So if a small company has the time to effectively market to both consumers and retailers and can manage both channels well enough to help drive sales through both and through the same geographic areas, then I believe there is a real benefit. If you can manage both channels to that degree then you really need to pick a "primary" channel to focus most or all of your efforts at. For most small companies I believe that should likely be direct sales. Participation or use of any other sales channels for which you don't have the time or resources to manage directly should ONLY be used if they can effectively be used on auto pilot. Time you spend dickering with them is time not spent garnering presence and sales through the primary channel.

Now, regarding money. Yeah, I believe a publisher only making a Buck and some change on a $20 MSRP item when sold through retail or wholesale channels has got to change some things. Its a simple issue of return on your investment. Its just not high enough. I would first try to figure out how to bring down my cost of goods sold (ala, how to make my item cheaper). And no, I don't mean by printing more than is sensible either.

Which leads me to something else to think about. If your cost of goods sold is too high in relation to the income you can potential make, then the product is either priced too low or the product should change formats. In other words, if the production cost is too high, but it is believed that based on the format of the product that a higher MSRP would lead to non sales, then the only options are to figure out how to product the exact same thing cheaper or figure out how to "change the thing" itself so that it has a completely different ratio of cost of production vs retail pricing ceiling. Not all small publishers have to produce products in a format of or in the image of what the big name publishers are publishing. The Guild's first game product was a little 20 pages B&W miniatures game rules, photo copied, and it was produced cheaply and sold cheaply. Given we had a total of $100 to start our company on and POD printing in all its formats hadn't been born yet, it was what we could make work with what we had. My point isn't that THAT format of production should emulated, but rather, if you have limited funds, perhaps your first product should be published in a format that is smaller and more easily and cheaply produced. If you have a big 200 page book maybe you should figure out how to make that into two books instead and start by publishing one and then add the other a bit later. Or you can take a smaller book from 8.5" x 11" format down to a digest format. Back when we were working with finite budgets we had a whole series of "board games" that had B&W "maps" instead of "boards" which were printed onto simple colored card stocks accompanied by rules, charts, etc and packaged into big old zip baggies. They were, frankly, pretty plain jane and certainly didn't shelf well at retail. But they sold. They sold because the "games" had a target audience and the price was right given the production values. If your game or game concept has a target audience, regardless of appearance, it'll make sales. And if it doesn't, no amount of fancy lamination, hard case bindings, board backings or other cosmetic drappings will save it from having poor sales.

So I always suggest you produce within your budgets. And produce to turn a healthy profit on all of your sales. Start small if you must and only tackle the types of distribution and sales channels you have time to effectively manage. As your sales grow so too will your experience and your budgets.

Ryan S. Johnson
Guild of Blades Retail Group - http://www.guildofblades.com/retailgroup.php
Guild of Blades Publishing Group - http://www.guildofblades.com
1483 Online - http://www.1483online.com

[Ben Lehman]

James: I don't think it's particularly unrealistic at all. But, then again, we aren't talking about 2,000-10,000 here. We're talking, maybe, $400 cost for the entire printrun plus shipping and sundries (for 100 copies, less for fifty). Given that Raven already has $200, that means finding someone who can loan him $200 to match his own $200. That's not unreasonable and, frankly, I've done it before when I didn't have the cash on hand to reprint Polaris.

Raven, if I were in your shoes, and I'm not, I'd be cutting off all my sales into retail immediately and then pricing out 50 copy print runs both at national "POD" places and at local print shops (just look in the yellow pages under "printing.") Remember to deduct the cost of shipping from a local place. You should be able to find someone who can do a 50 copy run inside your price range. If it ends up $50-100 outside of your price range, or there's a really good cut-off at 100, I'd look to borrow money from someone in the community who understands the risks and rewards.

Lulu is a terrible deal except for honest-to-goodness, customer direct, one at a time POD.

yrs--
--Ben

[greyorm]

The answers that concern higher print runs for purposes of lower cost-per-book are, I think, not useful for Raven's needs at all. He is not talking about large print runs. He's talking about short runs: 100 or 200 or so. And this is very reasonable because that's what he's comfortable expecting to sell.

Yes, Ron, and thanks. I realize this was not their intent, but portions of a few of the answers felt very dismissive--and again I realize they were not intended to be, so no harm, no foul--with the essential answer being "print more or get out of publishing" or "come on, everyone has that kind of money". Which made them unhelpful because, yes, I'm talking about print runs of 100 (or less) because I know that's precisely what the market will bear based on sales figures so far. My print runs are based on a realistic, sales/interest-grounded assessment, so I needed advice that speaks to that, not to larger runs or more sales.

At a few places in the thread your posts have a "there's no way, I'm screwed, it's impossible" quality, and the facts are otherwise. And not because I'm saying "print 2000 books, it's cheap!" I realize that this is not what you are looking for. It's because a lot of companies simply offer a better deal. There are a number of threads in this forum about the best tactics to use when finding the costs and choosing a printer.

I tried to avoid coming across that way, and I did note "if we are talking about Lulu" and based those figures and follow-up on that. Clearly, I wouldn't be in anywhere near the same situation if I were printing for $3 or $4 per book, even with IPR's retail discount. And also because those retail sales came as a huge surprise to me.

You and I discussed this, Ron, but for everyone else: the reason I am talking about Lulu is because that's who I went with for my initial runs, as the initial run was a test to gauge the market demand, and especially because I had no clue my retail sales would be anywhere near where they've ended up. I'm boggled, honestly, that I've sold that volume to storefronts, as I banked on only a few retail sales with a majority of direct sales, not the other way 'round as it has developed.

Had it been mostly direct sales, there would be no problem because that's what I priced for.

I have one other question for you. At one point, you refer to some kind of "push toward retail" in the independent publishing community. I have no idea what you are talking about with that. The vast majority of sales and marketing for independent games remains at the direct-sales level, at most through companies like IPR which work on commission. Can you clarify what you mean by that?

This may just be a skewed perception, but there seems to be a certain, subtle attitude of "needing to sell retail". That is: considering all sales and marketing from a retail perspective regarding business practices and decisions, as retail being THE goal, with the idea of retail having a vague "next-step up" feeling to it, rather than an "additional channel you might consider" optional quality. An idea/attitude existing memetically in the some parts of the community as something that should and must be done, rather than something in a separate realm. Which, to me, especially when advice is given that caters to that idea, seems to create as strong an impression of "what to do" as the old "print 10,000 copies so it's cheaper" meme, to bad effect.

As I said, that may be my own skewed impressions at work. But I will note I am also not the only one to make that observation, as a few individuals inside and outside the indie community have made similar commentary over the past six months, so I can't simply discount it outright.

Whether you agree or not, does that clarify the meaning of my statement?

It's an important point because your whole topic begins with the observation that your book has an apparent opportunity to do well for you in retail if you can keep printing costs down. Looking over the thread as a whole, you seem to be demanding a justification for utilizing the retail channel yet also having already provided such a justification yourself. So it's confusing.

Ahh. I see.

My points about retail are also being refined as we discuss this, because, SURPRISE, I'm in retail for some odd reason and I suddenly have a reason to consider it and its effects on my profit margins. I do have to wonder why I'm in retail, and indeed why any general indie publisher would sell retail, given the costs compared to their profits -- you'll always make more per item selling direct unless your retail volume is going to (or has proven itself to) outstrip your direct sales.

From an analysis purely based on total expected lifetime sales for an average indie product, selling retail over the product lifespan is going to impact profit. That is, if you expect to sell 300 copies of your game/product over the next 3-4 years total, then every retail sale you make costs you the difference between the profit from a direct sale and the profit from a retail sale.

Example: if you expect to sell 300 books total that earn you $10 each, you could expect to make $3000. If you sell 100 of those retail for only $3 profit each, you only gain $2700 profit over the product's expected lifetime, 'losing' $300 in the retail conversion (which would be the equivalent of failing to sell 30 of those 300 books). This is where my x5.7 calculation comes in: unless you can expect to make that many (or more) retail sales over direct sales, why lower the lifetime product profit for volume?

(Note: I'm not saying doing so is wrong, but it's a question that should be asked by a publisher, if volume matters more than profit or vice versa, and by how much.)

However, I note Ryan stated above his experience was that the two markets should be considered separate and their sales do not impact one another in such a manner, so my concerns in this respect may be completely unfounded.

Thus the observation that retail is a good market for my book holds true if the retail sales hold steady, but then I would need to bring the costs down to make such a venture actually profitable. But not having realized there would be a retail demand, I was left re-examining my financial figures and my business strategy, wondering what I'm doing in retail right now, how much a difference in profit existed between my retail sales and my direct sales, and how to handle retail and differences given I don't expect to sell more than 100-200 copies, and especially how many other small volume indie publishers (or publications) are doing the same or have made the same mistake and haven't crunched the numbers on their retail sales because they also didn't expect them.

[Thunder_God]

Nitpicks, it'd be $2,300, minus $700.

It's not the same as not selling 70 books, since this is profit, and failing to sell 70 books you'd also not earn back their costs (beyond the profit not earned).

[Valamir]

portions of a few of the answers felt very dismissive--and again I realize they were not intended to be, so no harm, no foul--with the essential answer being "print more or get out of publishing" or "come on, everyone has that kind of money".

See, that kind of misrepresentation really chaffs my ass.

The essential answer was "print more or get of RETAIL", which I think is pretty irrefutable if you actually are looking to make money.

the other option presented was "Here's a way you can get the kind of money needed to print more if you don't have it now and think your game can support the additional sales".

It rather irks me when I give solid advice that is then dismissed as being dismissive just because its not the advice you wanted to hear.

If you can find a POD printer who will give you fantastic pricing on run sizes of 50 that is cheap enough to make Retail profitable, by all means please post the details, I'm sure there are dozens of publishers who'd love to know about them.  But while I'm certain you can find printers cheaper than Lulu, I'm skeptical you can find one cheap enough to make Retail profitable at that run size.

[Ron Edwards]

Everybody's ass seems to be getting chaffed. There are too many reactions to reactions going on in this thread.

I am giving moderator's notice that what someone feels about what you say is not to be taken as important, and that what you feel about what they say is better kept to yourself. Again, I've looked over the thread carefully and decided that this is in fact a problem, so I am not going to stand for any debate about it. Leave your egos at the door now, please.

Raven, regarding "the drive to retail," I suggest leaving it be. This thread's about making important decisions and not about some zeitgeist or vibe or anything similar. To repeat my point about it, you have hard numbers that suggest some attention to the retail channel would be good for you, and that is all anyone needs to concern themselves with in this thread.

Best, Ron

[greyorm]

Fair enough, I can see how a discussion of that issue might just become empty wanking or social theorizing, so consider it dropped.

But I've been talking with you, Fred, and others about this over the past few days and realizing that the retail situation is hitting me from my blind-side and leaving me reeling in shock, trying to figure out how those numbers relate to my sales strategy. So let me try to clearly retarget the thread:
-I, surprisingly and unexpectedly, have decent retail sales.
-I have a very limited budget to fund my publishing.

The sales are good, but making no profit with them is bad. For what I think are obvious reasons, I need to be able to continue to tap those retail sales in order to grow volume and market* (or at least maintain the current momentum) rather than abandon them. But I need to do so within my budget and at a profit given the expected lifetime sales of the product**.

That, then, is what the thread is about: what options are available to me that accomplish those goals with those restrictions? Should the retail sales be abandoned despite their volume (and the possible benefits of retail) for direct sales only at greater profit but possibly a much longer payout period? Though understanding that's a decision for me to make and not a question for anyone else to answer, rather: what have the experiences of other publishers been regarding the above possible benefits of retail versus profit on low-volume products and the rate of direct sales and profit on the same?

Make sense? Do I need to clarify any of those goals or questions?

* ** I don't have enough data right now and need to gather more, so after discussing this with Fred, I'm going to sell at least two more quarters to see how the retail sales play out: if they pick up, drop off, hold steady, or drive more direct sales. Then I'll look at changing my overall sales strategy.

[guildofblades]

Hi Raven,

My opinion would be, you should not drop the retail sales channel presently. However, that opinion is based on a couple assumptions.

1) You are able to find a short run or POD printer that can bring your total cost down, thus enabling you to get a bit more profit from those sales. Even just going from a buck to three bucks or so on the profit on those sales could become a substantial operational difference in your cash flow.

2) Your current retail distribution method (IPR?) isn't costing you time or additional marketing capital to garner the sales you are currently achieving. Meaning you aren't dumping your limited marketing resources to fuel these sales through this channel and you are able to POD print your inventory in fairly lean printing, striving to keep a leaner inventory on hand for those sales and turning around more micro print runs. Thus not tying up any more of your limited capital than is necessary to keep product flowing through that channel.

3) You have a very limited budget, so if your retail sales can nearly be run on auto-pilot with regards to your ongoing time commitment and the capital you keep tied up there in the form of inventory isn't overly restricting your cash flow and hence your ability to push forward with the other things you wish to accomplish with your company, then the retail sales you are getting is serving, partially, as your marketing channel. Its getting your game out there. And since its "getting it out there", but hardly on a broad basis, it means your retail coverage will be spotty at best or your product will remain a darn hard thing to find in most stores. This means any interest the retail sales drive on the consumer level now have the opportunity to spread to increased interest in other gamers later and if the product is then unavailable to those new fans of your game local at the time they take an interest in it, then this can help drive your direct sales stronger. Very likely driving direct sales that wouldn't be attained through your other direct marketing efforts.

Since your capital is limited, the solution of "printing in more volume" to drive the price down just isn't going to be an option. That means you need trim the fat in order to increase profitability on those sales. Find either a cheaper place or a cheaper format in which to print the product. And look for ways to streamline your time involvement in the day to day ongoings of your retail sales channel. Its providing you some value, but not a great deal of profitability. So you don't want to focus your time there. Let is run itself. If you are selling through IPR, Key20 or whomever else, that's why you are letting them have a cut of the action. So you can focus on other ways to generate sales and make money. Most likely your direct sales.

Ryan S. Johnson
Guild of Blades Retail Group - http://www.guildofblades.com/retailgroup.php
Guild of Blades Publishing Group - http://www.guildofblades.com
1483 Online - http://www.1483online.com

[Ron Edwards]

Hi Raven,

I'm still a little confused, because several people have all provided the same advice to your question, since the beginning of the thread.

1. Find a POD printer who does short runs (say 100 books) at a reasonable price. How those books are stored, handled, and shipped to distributors is another question, but it seems as if you already have done that to some extent, in which case, do what you've been doing with these new books.

2. Stay with Lulu for one-customer direct on-line sales.

If these haven't been clear to you until this point, then let's forget all about why it wasn't clear or who could have said what in a different way.

Do you have any concerns that make this advice not useful? Is there any "how to" that remains?

Best, Ron

[Seth M. Drebitko]

  Ok here is an idea I have had for when I start publishing (eventually). Get together with two or more publishers of games similar though different enough that they don't step on one another’s toes, and organize them into a special edition book. Organize a decent size print run to say gen con where you will all be and then break the books down start signing each copy then divide them up based on who put what percentage of money in. Now if you do this right each of you is in retail but with completely different stores who now get a taste of other indie publishers. This will let you put what you can afford to into the game getting back a better amount and having the added value of other publishers.
  With this money you can then start getting your own print runs going, or even keep pulling off an annual joint publishing venture, say maybe 1,000 a year every gen con make sure to get your pre-orders before their gone! Any way that’s just an idea for what its worth I think it could work out well for you.

Regards, Seth

[greyorm]

I'm still a little confused, because several people have all provided the same advice to your question, since the beginning of the thread...Do you have any concerns that make this advice not useful? Is there any "how to" that remains?

It's just a clear thread re-direction: I realize some of the questions I just asked have been answered already, and I am inviting additional comments/suggestions on the situation/plan of action/etc if anyone has them, and I do plan on following up on the advice that has been posted. If no one else has comments on those things, let's focus on the last question instead: what have the experiences of other publishers been regarding the above possible benefits of retail versus profit on low-volume products and the rate of direct sales and profit on the same?

That is, you have a low-volume product and you've sold retail. What were the profits like in comparison to direct sales? Was it worthwhile in terms of profit or volume, or eventual profit (ie: what was the turn-around like for recouping print costs)? What retailers were the best promoters of your product?

Or, you have a low-volume product and you didn't sell retail. Why not? What kept you out? Did you try it and decide it wasn't worth it? How long did you try it for before the data was enough to convince you it was not worthwhile? What made it not worthwhile?

I know Ryan has provided some thoughts and GOB's experiences regarding that (thanks!) and I'm looking for other viewpoints/experiences with the situation as well. Basically, I'm trying to get a handle on what I'm finding myself in based on the experiences of other publishers in similar situations, rather than leaping in completely blind wearing only a decent guess when I don't have to.

Nitpicks, it'd be $2,300, minus $700.

And THAT is why I should not attempt to perform mathematical manipulations at 2am. Thanks, Guy.

Get together with two or more publishers of games similar though different enough that they don't step on one another's toes, and organize them into a special edition book. Organize a decent size print run to say gen con where you will all be and then break the books down start signing each copy then divide them up based on who put what percentage of money in.

Seth, thanks for the suggestion, but I'm a bit leery of the "games digest" idea. I've seen it proposed and tried a number of times, but I don't recall off the top of my head any successful examples. I do recall a couple of non-successful examples, especially when monetary issues and costs/payback percentages/book-keeping started coming into the picture (which I've seen kill such projects dead all by themselves). But I fully admit I'm not all-knowing and I'd like to hear from any group who has successfully utilized such a model for selling their games?

[Seth M. Drebitko]

  Well I would say for protecting your reputation you would want to carefully pick an already established though moderately successful line. You could then determine formatting issues, and create say 20-30 additional pages of special extras between you both. You then determine a price break in book cost that you want to reach and how much money you both have to put forward. Say for an example (actual numbers aside) each book costs $1 your getting a 1,000 book print run and you can front $250 for the entire deal. When the books all get sent to the single location you have both decided to meet at you divide the books up 250 for you and the difference to your partner(s). You can then go about signing each copy with one another to make it extra special for the customer, or have say 100 books signed and numbered by both of you in gold ink and auctioned.
  This would eliminate your worry as far as splitting up profits per book sold and such as your each just walking away with a pile of books. This will allow you to get some seed money (as the books can be sold at a mark up) which you will walk away with more of (from the lower margins) on top of the fact that your getting 750 books worth of marketing on your partners end. Who knows in the end it may become a very popular thing with both your clients and an annual thing might be made of it say that simple 1,000 print run each year to keep the anticipation and desire to quickly buy up.

  Overall if your don’t want to use a method that would slowly build momentum, some sort of joint venture may be best.

Regards, Seth