Controlling Your Manufacturing Costs

Paul's picture

As discussed in a previous post, a publisher seeking to sell their games in a large number of brick and mortar gaming stores must typically work through distributors, who require 55%-65% off MSRP plus free shipping to their warehouse locations. In order to sell at this discount and also cover shipping, packing, and other costs, a publisher must achieve a manufacturing cost no higher than 20% of MSRP. There are several different ways to achieve this rate.

The first option is to set the MSRP of a game at 5x your initially quoted manufacturing cost. The advantage of this approach is that it is simple and requires no business or design compromises. The down side is that it can make your game so expensive that sales will suffer.

The second option is to research a variety of different manufacturer and component options. In terms of manufacturers, Chinese companies can be more difficult to find, vet, and work with, but can often offer significant price savings over European factories. In terms of components, the quality of, say, black-core stock for card games cannot be beat, but is often unnecessary. Depending on the type of game, a switch to grey core or even high quality paper board may not affect your customer's game experience at all. The advantage of this approach is that you can realize significant cost reductions with a few very simple manufacturing changes. The down side is that researching your options in terms of manufacturers and components can be quite confusing and time consuming, and achieving the necessary cost reductions may necessitate some compromises in your original vision of the game's components.

The third option is to increase the size of your print run. A game that is cost-prohibitive to manufacture at 1000 or 2000 units may very quickly become economical at 5000 to 10000 units. The advantage of this approach is that it is simple and also helps keep your MSRP low. The down side is that it may require significant capital, and is also risky; if the bulk of a large print run does not sell, you will be stuck with capital tied up in inventory and may be unable to continue with other projects.

For projects with a large guaranteed customer base, such as a highly successful Kickstarter campaign with thousands of backers, the third option is likely the way to go. On the other hand, projects with a small but dedicated fan base who are not terribly price sensitive will often do best to simply design optimize the product for that fan base and set the MSRP at 5x the production cost, whatever that may be. However, for the vast majority of products, a combination of careful manufacturing research and producing the largest reasonably affordable print run will be necessary to ensure a salable product with a sufficient margin to cover its associated production, shipping, storage, and marketing costs.

Comments

arenson9's picture

Really interesting to learn about the manufacturing/pricing possibilities.

 

Other things that would be interesting -- How to determine what price people will be willing to pay and/or how many copies of a product are likely to sell. 

Paul's picture

If you could figure that out scientifically, a number of major corporations would pay you an enormous amount of money :)