ORX, Sales Numbers, and Retail

[greyorm]

In response to a friend's post about retail pricing and the indie attitude, I decided to lay out my costs and profits for ORX over the last four quarters, and some exploratory number-crunching and business-musing. Rather than retype it all here, you can find the details in a post on my LiveJournal.

What really jumped out at me was the actual effect of retail sales when I crunched the numbers. Yes, I sold more potential books-to-readers via retail -- no guarantees those books actually sold thereafter to a reader or player -- but I made almost nothing doing it. I am spending money/sacrificing profits to try and use retail exposure as a promotional device and hoping it works.

Retail ends up being a HUGE gamble for the indie publisher: make almost nothing on what are effectively promotional copies and hope they stir up enough interest and sales to make retail profitable from either financial or fan-base stance. Yet how often does that actually happen? Especially given we know doing about 100 sales is going to be the average complete life-cycle of an indie product? (Meaning total profits if you sell retail, and depending on your expenses, MIGHT come out to gas money and-a-bag-of-chips.)

From what I can see, trying to enter the current retail market and leverage the three-tier distro model is actually a losing proposition for most indie publishers, with only highly successful games (like Burning Wheel, Dogs in the Vineyard, and similar) being able to effectively use it to create meaningful/profitable sales and everyone else dumping a lot of extra money out to have copies of their game(s) basically sit on a shelf somewhere.

So here's the question, or a question: what's up with the indie publisher drive to enter the retail market over the last few years?

[Valamir]

I did not study your numbers in detail but here's what immediately jumps out at me.

If you are not making money in retail than you are either underpricing your book or paying too much per unit.

Having bought Orx, $20 seems like a reasonable price point to me so let's examine your per unit cost...whoa...

$6.96 per book!!! that's CRAZY.  You'll never make money selling through retail with a cost structure that out of whack.

When I look closer, I see why your cost structure is so high...you printed 60 copies.  Pricing at 60 copies sucks ass.  If you only want to take the risk of printing <100 copies at a time...forgo retail altogether...or accept that you'll barely recover cost on those sales.

Here's my rule of thumb.

Start with your cost, double it.  That is the amount of money you need to put in your pocket with every book in order to break even on your printing costs with 1/2 your sales (with a hot title you can triple it and cover your cost even quicker).  Then divide by the money you get to keep (as a %) after the discount and paying IPR.  That is the price you'll have to sell your book at to make retail attractive.

At a $7 cost you need to pocket $14 of every sale.  If you figure you pocket 40% of cover (after discount, IPR, and miscellanious stuff like shipping) you'd need to sell your book for $35.  I'm betting you'd expect that Orx would not sell priced at $35.

So lets reverse the calculation.  If you're selling it for $20 then you'll pocket $8 of every sale, meaning you have to get your per unit cost down to $4.

Recommendation.  Immediately go to any of a number of print quote services, put in the details of your book and ask them for pricing for 100, 250, 500, and 750 units.  Going through those quotes, find out how many units you'd have to order to get your unit cost down to $4.  I'd guess that will be somewhere around 250 units give or take 50.

If you're willing to foot the bill for that many books and you figure you can sell 1/2 of them in the amount of time you want to get your money back, then go that route and you'll make money just fine in retail.  If that's too much of an investment or you don't think you can sell that many, then I'd not try retail sales.

[guildofblades]

I agree. The printing price is too high compared to the MSRP the product is being sold at. Either the cost to print needs to come down or the the MSRP needs to be raised.

Who did you print the book through. Looks like we could do that same book for just a tad over $4.00 a unit. Though that doesn't count shipping.

Also, if you are looking for retail exposure, we would be happy to include your book in the GOB Retail Group's Retail Program. That's where we POD print the title as needed to inventory in store and fill orders. On that program you would make 30-35% (depending if you are doing your other printing with us or not) on each sale made. Under our retail program we pay for the products sold under the product so on a $20 product your cut would be either $6 or $70. Heck, even our wholesale program would net you $4.00 a book sold.

More details here:
http://www.guildofblades.com/pod.php

Both programs are in their infancy though and still being set up. For instance, we're still populating our e-commerce store and our B&M store won't be open until late Sep. We're still building the IT infrastructure for our wholesale and master distribution programs so we don't expect to actually "launch" those until we open the B&M store either. But we're working on signing up publishers now so everything will be in place by then. Grant, for the retail exposure it'll just be one B&M store initially, so its not exactly a market wide solution. Just trying to play our small part.

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

[greyorm]

All stuff I know, Ralph, but thanks for posting the pricing formula, hopefully that will help others trying to price well. Unfortunately, none of it really answers my question or speaks to the issue I queried about, except as a supporting argument to it.

Indie publishers, at least the folks who aren't at the top of the indie food chain or don't have a whole lot of money set aside to begin with, can't afford to print 500 or 1000 copies to bring the printing costs down and profits up. I can afford a print run of 30. Through Lulu it's about $200. That's what I can afford. I think I'm pretty average as far as indie-interested publishers go. Looking just at Lulu (and yes I'm aware I could find lower costs by shopping around):

To print 100, the cost is $567.54 with shipping. That's a $5.68 per book cost.
To print 250, the cost is $1,241.83 with shipping. That's a $4.97 per book cost.
To print 500, the cost is $2,289.31 with shipping. That's a $4.58 per book cost.
To print 1000, the cost is $4,382.86 with shipping. That's a $4.38 per book cost.

(There are additional discounts for bulk rates, but those require specific quote requests so I'm not factoring them here, especially as it isn't germane to the point I'm making.)

Now, I don't know about you, but I don't have $500, $1200, $2000, or $4000 dollars to spend on printing a game. I just don't. And if you look at the economic realities, most lower and middle-class families (who are the majority of the population and I suspect the majority of indie-interested publishers) don't even have a spare $500 for emergencies, let alone to toss into a publishing venture.

Unless I've slipped into an alternate reality, the point of the indie movement was so that you didn't HAVE to lay out large sums of cash up front, raid your savings, or take out a business loan just to publish your game. Thus the point of my analyzing the cost/payout of retail channels for ORX and then point to it was to show that I can make a decent amount of money even at costs of $7 a book if I'm selling direct (I can pay for the print run and make some profit). But NEVER via retail. It won't happen unless I charge something ridiculous like $35 for my book. I wouldn't pay that for my own book, so obviously I wouldn't ask a customer to.

Clearly the retail channel is not the channel for indie publishers: the majority will lose out. Hence my question, why the push towards retail by indie publishers when it doesn't pay off or pay out for the majority, and simply can't pay off because of the nature of the three-tier system? And why do we push Lulu or point to them regularly for indie publishers when Lulu's pricing is apparently so crazy-horrid?

All of which sparks another question (and I'm not accusing you of this, Ralph): I'm also beginning to wonder if many of the successful indie publishers today are simply out-of-touch with the common indie publisher, so much so that their advice and experiences are wholly non-applicable to us. "Print 500 books! Print 1000 books!" etc. is becoming fairly common, and commonly useless, advice.

It's to the point that listening to some successful indies is like listening to a traditional printer, touting the glorious system and ignoring its flaws or holes that don't affect them or anyone who has to deal with them. I know situational blindness, especially when one throws success into the picture, is a pretty common thing: it's why we tell all sorts of stories about poor people becoming wealthy and successful, ignoring that statistically they're the significant exception, and the almost complete majority who try for the gold ring never make it regardless of how many things they do "right".

(We also like to talk about how "anyone" can make it, especially if they do X, Y, and Z, and then blame anyone who fails to make it for failing to make it, instead of the system, regardless of the statistics or if the individual did X, Y, and Z. We do love our cherished myths about how the world works and how we deserve what we have, and why others don't.)

So I'm standing here pointing to this gaping piece of illogic and inviting everyone to examine it and question the direction and perhaps subconscious of the movement.

ADDENDUM: Heya Ryan. You posted after I penned my reply to Ralph. I have to run out and deal with cell-phone issues and etc. right now, but I'll try to respond to you as soon as I get the chance. Give me until tomorrow, ok? Thanks!

[Thunder_God]

I think there are a couple of reasons to point to Lulu:

1. They deal with extremely small print runs, where some of the other publishing houses who do PoD have a set-up cost, which you need to print more copies to make it worthwhile.

2. They are dirt simple and easy to use.

3. An outgrowth of #1, and some of the sensibilities, you can sell books through Lulu, direct, exclusively. If your book sells for $20, and it costs $7 to print one copy (and only one copy), then you'd still make $10.4 per copy sold via Lulu. Which is very solid.

[Valamir]

I'm not sure I really agree with you on what's affordable.  Oh don't get me wrong...I completely accept that you can't afford more than $200 TODAY.  That's cool.  Open a business savings account, put the $200 there and start by selling your game as a PDF.

As the PDF orders roll in use the proceeds to pay yourself back for your sunk costs (art, layout, whatever).  Anything beyond that add to your business savings account.

Eventually, you'll find, "hey I have another $100 in my budget I can put towards printing costs".  Add it to the savings account.  You might be 6 months into your PDF sales at this point and fast at work on another game.

You may wind up publishing that other game as a PDF even before you print the first game.  Fine, repay your sunk costs as before, put the proceeds into your savings account, along with another $50-$200 you scrounged from your budget over the course of the next 6 months.

At some point you'll have accumulated enough cash in the business savings account to pay for your print run.  Since you'll be able to do 300, 400, 500, 750 copies you'll get a hella better cost.  Balance the reduced unit price for higher quantities against your sales expectations.  Having 1 year of PDF sales, reviews, discussions, and accompanying buzz should give you a pretty good idea on whether your game is saleable in quantity as a book...especially if you've spent the last year doing solid support and on-line marketing.  You may find that its your second game that has the most sales potential and decide to print that one instead.

Either way, put all of your sales proceeds back into that savings account.  Plan to pay your taxes from that account.  Once you've sold half your copies (likely well before 1/2 if you have substantial direct sales as well as retail) you'll have enough in that account to pay yourself back for the money you scrounged out of the budget.  Everything else that hits that account is pure money you would never have had before.  By the time you sell out of your first print run, even if you paid yourself back (instead of keeping it "invested") you'll be able to pay for your next print run of that or another game purely out of the profits of your sales.

Your publishing effort will be free from the limitations of real life budgetary concerns and completely self supporting.

Honestly, limiting yourself to just 30-60 copies at a time because that's all you can afford IMO is just plain bad business.  If you can't afford to "go-in" to a level that has the potential to be profitable...then hold off, delay until you can.  Stick with PDFs, keep designing, keep marketing, and wait until you a) can afford a more sizeable print run and b) have a game you've developed that you think can support one.  

To do otherwise is to pretty much doom yourself to perpetual frustration and unprofitability.  Its basically the death-by-1000-cuts version of the guys who go print 10,000 copies destined for mulching.


To return to your specific question of "what's up with the drive to enter retail"...its beau coup dollars if you do it right.  I can double the number of books I sell by adding retail distribution to the channel.  Doubling the number of sales means I can double my print run size and still break even in the same amount of time.  Doubling my print run size means I can cut $2 per book out of my variable costs.  

Consider:
Print and sell 250 books at $20/book (keeping 85%) with a cost of $4/book means I make $13/book for a total of $3250 revenue on an investment of $1000 or a return of 225% (not including sunk costs)

Print and sell 500 books at $20/book; (250 keeping 85% and 250 keeping only 40%) with a cost of $2/book means I make $15/book on my direct sales and $6/book on my retailer sales for a total of $5250 revenue on an investment of $1000 or a return of 425%

Since the retailer sales are happening simultaneously with and not cannibalizing my direct sales...I make a bunch more money in the same amount of time.

Lot's of people complain about the cut retailers take...but man, those extra sales even at low profitability can really slash your variable costs a tremendous amount.  But to capture that you have to be able to operate at the level of 500-1000 copy print runs.  My first print run with uni was 100 copies, my second was 500 copies, my third 750.  The cost of the third run was paid entirely with profits from the second.  6 years in I'm almost out of stock selling 200-300 copies per year.

Yes, I realize that I'm in a pretty good place financially where I can write a check for a $1000 print run without needing to even plan for it in the budget.  And I realize that many game publishers aren't.

So what.  Wait till you are.  There's no law that says you have to go to print with whatever you can scrape together today.  Start with a PDF, save the profits, add where you can from the budget and print when you CAN afford a $1000 print run.  

I guess my advice is 1) do it in a manner that is sensibly profitable, 2) if you can't afford that now, wait till you can and build and promote in the meantime, 3) if you don't want to wait...accept that you're essentially then operating as a vanity press barely able to cover costs, or 4) just forgo money altogether and publish for free.

Its not illogical and its not useless advice.  Its really really simple.  And its not at all out of touch with the common indie publisher.  Anyone can afford to print 1000 units (if you think you have a game that will sell that many)...eventually.  Its only the impatient who think that its beyond their budget.  So yes...STAY OUT OF RETAIL...until you've accumulated enough capital to get your cost structure down where going into retail is profitable.  

If you can sell 100-200 copies per year, you can make good money in the retail channel.  If you can't sell that many copies per year...then its really not worth the bother.

I don't mean to come across as unsympathetic, but there is a difference between operating as a business and operating as a vanity press.  Operating as a business requires seed money.  Not the $250,000 in seed money I've heard a certain optimistic independent publisher raised through venture capital for their hard cover heartbreaker...but geeze...having $1000 to start a small business is not exactly asking for Donald Trump levels of investment.  

If you don't have that much today, then arrange your business model to build you to that point, and when you get there THEN go do the print run and retail thing.  Or...choose instead to operate as a vanity press and just look to break even.  Or...just publish for free.


Oh, and Lulu prices are great for selling 1-2 copies at a time.  They're ass for any higher quantities.  "lower costs by shopping around" doesn't even cover it.  Shop around and be flexible with your deadlines and you can cut those prices at the 500+ tiers in HALF.  Lulu is a good option IMO for 2 and only 2 types of game publishers.  1) Those who are really PDF publishers but want to make an option available for those folks who really really really want to own a hardcopy.  2) people who only expect to sell 50 books ever and half of those will be to friends and family.

[Ben Lehman]

Jesus Christ, Ralph, that's fantastic.

[Moreno R.]

Hi Ralph!

Great analysis, but you make an assumption that I am not sure it's true: "Since the retailer sales are happening simultaneously with and not cannibalizing my direct sales...".  Do you have some data that support this assumption?

I am not talking as a game publisher (I never published anything) but as someone who brought Universalis in a retail outlet. Why? For the discount. I orderered it from a comic shop (the time it was solicited in the game section of the previews catalog) where I had a 15% discount on cover price and no postal expenses. Ordering it direct from IPR would have cost me much more.

Living in Europe, my situation about prices is probably different from the one people living in the USA have: postal expenses is a very big part of the price for a indie rpg here (compounded by import taxes), so the very best deal (and the one I opt to usually) it's the pdf edition. If you offer a cheap pdf solution this should counter the lure of a "no-postal-expenses retail copy at a discount", but if there isn't a pdf,  and I still want to buy a game, ordering it retail is usually the cheapest solution.

By the other hand, if I can't buy it retail, it could be that ordering directly from IPR would cost so much to make me rethink about buying the game, and wait for a pdf in the future, so in that sense maybe yes, it would not cannibalize a direct sale that would not exist...

[Valamir]

Well, sure, I expect there are examples of that.  But, aside from the expected spikes (initial release, Cons, etc) my direct sales have in no way declined relative to my retailer sales.  In fact, as IPR ramped up their retailer presence this year, my retailer sales spiked so much that I'm running out of stock about 6 months earlier than expected.

[Graham W]

Lulu was good when I started selling Play Unsafe, because I had no idea whether I'd sell 3 copies or 300. Putting it on Lulu let me test the market without too much investment.

Next time, though, I'll do a print run.

Graham

[guildofblades]

>>Well, sure, I expect there are examples of that.  But, aside from the expected spikes (initial release, Cons, etc) my direct sales have in no way declined relative to my retailer sales.  In fact, as IPR ramped up their retailer presence this year, my retailer sales spiked so much that I'm running out of stock about 6 months earlier than expected.<<

I have fairly interesting evidence that suggests that mail order sales and retailer sales not only don't canibalize each other much at all, they feed upon each other to help drive sales upwards.

Since we cut out distributors we've been able to track exactly where our products were going. Both to mail order customers and to retailers. We've tracked the zip codes of orders and order volume and found where one is strong the other usual is as well. And that makes sense. If I sell some copies of a game by mail order to people in a specific area then there are people in that area possibly playing our games. Those people have to play with someone so they are playing with "other" gamers in the area, some of which decide they would like to have those games for themselves or other games that we sell. Some of those consumers simply prefer to buy from their local retailer. Inversely, the folks buying from us at the retail stores also have to play with people and some of those folks will go on to buy from us via mail order. So retailer sales seem to increase our mail order volume and mail order volumes seem to increase our retailer sales. That, of course, can only work where the product is equally available through both venues.

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

[Valamir]

Good point Graham...use 3) safe test bed alternative to pdfs.

[Ron Edwards]

Hello,

I've looked over this thread carefully from its starting post, and I think that Raven's main question has not been met. I'll try to fill in the gap. This is not to say other posts haven't been worthwhile, and the whole topic certainly can stand a good airing.

The issue, as I see it, is how to get books into retail on a modest budget, without entering into enormous print runs.

That's an important question, because although it's true that by printing many books at once, per- book print cost drops, it's also true that books you cannot move are a pure loss, no matter how cheap they were to make. This is the failure-hole that many, many companies fell into about fifteen years ago. Lured by the blandishments of printers or other publishers to print 10,000 copies "for cheap!", they did so, and were stuck with 9,500 books after their first push into the stores. That's not savings. That's not cleverness. That's not strategy. It's failure.

Today, given the internet and a variety of other things like POD, that outcome is less likely. But the basic concept is still there: one should not print more copies of a game than one can reasonably expect to sell in a given time-cycle (for most people, that cycle is one tax year, but circumstances differ). For retail sales, one needs to think especially clearly in those terms, because if you cannot move those books out of the warehouse or your basement, they are unsold inventory, which is considered an asset for tax purposes, also known as Oh Shit I Pay More Taxes.

Sorcerer and Universalis operate at this level: hundreds of books sold per year, with single print runs running into the thousands or at least thousand-plus. Not all games do. If I am reading Raven's posts right, he is not asking "Gee, how do I get to be such a big boy too?" He is asking quite rightly, given that his game is not selling at that level, but that it does seem to have a nice draw for orders in retail, how to get some books printed that will make him some money.

One valid answer that's shown up on this thread is "Lulu serves you well for internet single-customer sales, but is not cost-effective for print runs, short or not." The people who've posted this in various forms may think they have answered Raven well, but in my judgment as moderator, it needs to be stated here again outside of other advisory context. I agree with that answer but it's not the entire one; it only concerns what not to do.

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.

The complete answer as I see it is about choosing the right POD company. As I've written about extensively previously, the term POD is not necessarily literal. These days it merely refers to fully digital technology for printing, and includes print runs of physical books as well as literal "print on demand" (i.e. print only when a customer orders). This is how I print all of my books except for the Sorcerer ones.

Costs for such printing are not bad at all; a print run of 100 books the size of Orx may run as low as $3 per book at a company like Publishers Graphics, considering any number of up-and-down details of a given time of year. Raven, I think some of your points need to be assessed in terms of real costs with real companies, with Lulu out of the picture entirely. 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.

Raven, let me know - have I aimed this post toward your needs?

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?

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.

Best, Ron

[Eero Tuovinen]

A practical thought, by the way: if one is short of cash and therefore limited in publishing options, one might partner up with somebody with excess capital and balance the operation that way. If one is worried of losing control of the property or getting trapped by debt, perhaps the loan might be arranged from a friend or interested hobbyist (cultural micro-patronage, kinda) with very few strings attached apart from paying back when and if the project collects profits. Alternatively, collect pre-orders, ransom, patronage or something of the sort, which all amount to the same thing.

The above is probably obvious, but I do think that it's somewhat disgenuine to represent lack of capital as a total, absolute and all-encompassing phenomenon that controls your every decision. Not wanting to take monetary risks is fine, but that's a choice that reflects on available options, and it's your choice. Complaining that a culture as whole (indie rpg culture, in this case) is swinging away from that choice... well, perhaps we should discuss the ethics of financial risk and debt, if that's getting your goat. Or if lack of capital is your only problem here, where's your investor sheet? Regardless, I don't really feel that ability to invest $200 in printed stock really distances me from the average indie publisher - rather likely it's the opposite, not being able to put that money into a project you've already spent hundreds of hours designing seems to me to necessarily be the minority position. At least we usually don't have folks asking about raising capital on the Publishing forum here, which we might if capital was a common bottleneck.

(In case there's somebody out there for whom capital is a bottleneck, let's discuss that at some point. After Gencon, preferably.)

[jag]

I'm wary of my response contributing to thread-drift, so if this is tangential to Raven's point, i apologize.

A practical thought, by the way: if one is short of cash and therefore limited in publishing options, one might partner up with somebody with excess capital and balance the operation that way. If one is worried of losing control of the property or getting trapped by debt, perhaps the loan might be arranged from a friend or interested hobbyist (cultural micro-patronage, kinda) with very few strings attached apart from paying back when and if the project collects profits. Alternatively, collect pre-orders, ransom, patronage or something of the sort, which all amount to the same thing.

I would be extremely surprised if the above model was generally applicable.  As an independent publisher, you can either borrow money as an individual, or borrow money as a business, or get start-up investment.  Each of these has serious problems with the stated setup.

First, borrowing money as an individual doesn't avoid any of the problems -- you are committing more money than you have.  If you are absolutely sure you will sell all your books, that's fine.  But you can't be, so it leaves you in the precarious position of being in significant debt.  Which doesn't seem to be what Raven wants.

Second, you could borrow money as a business.  This insulates you from the financial risk (assuming you have the right class of business), but puts your company at financial risk.  And you need to find a bank or friend who will give a loan to a small, untested business in a sector with a high rate of failure and a vanishing small chance of massive financial success.  This is scary for the lender, and honestly scary for the business owner as well.

Third, you could find start-up investment, selling part of your company for some seed capital.  But honestly, most people that do that invest in companies that, although their success rate is about 10%, have a decent chance of a massive financial upside -- on the order of a return-on-investment of 1000% or more.  Indie RPGs just don't have that possibility.  You won't in general find any stranger that will do this.  Plus, the paperwork, due-diligence, etc required for this means that most people won't consider it for less than $50k to $100k, which is too much for an Indie RPG.

So all of these options fall back on the idea that you have a friend who:
1. can spare $2k-$10k
2. doesn't mind investing in a high-risk, low-reward opportunity
3. is comfortable with a complete loss of investment, and
4. is cool enough that failure won't sour the friendship.

I think this is an unusual set of circumstances, and likely not applicable to Raven.

James