Tuesday 27 June 2017

Publishing Advice #28: Retail Margins and Kickstarter


Kickstarter is the beginning of the sales chain. After your campaign finishes, you got traditional distribution. A healthy relationship with distributors and retailers is crucial. If you do not look after the post-Kickstarter tail, your product most likely will die, and you will lose a great opportunity to expand.

So why the post-KS tail is more important than Kickstarter campaign itself? Simply because KS is just a small part of your market. The biggest market is waiting for you!

For instance:

17 739 backers on Kickstarter
100 000 games sold all together
Less than 20% customers were from KS and more than 80% from traditional distribution.

942 backers on Kickstarter
45,000 games sold all together
A bit more than 2% customers were from KS and about 98% from traditional distribution.

I'd like to thank Jamey for posting his stats on his blog: 2016 Behind-the-Scenes Stakeholder Report for Stonemaier Games

Just a birth

As you see, Kickstarter can be just beginning of the life of your game, so you want to do everything to establish a healthy relationship with distributors and retailers. To do so, you have to understand and know retail margins, and how the whole traditional publishing chain works. Like you and me, distributors and retailers want to make money, and you have to leave space for everyone.

Dave Salisbury wrote an excellent post on UK Tabletop Kickstarters Facebook group to help us, creators to understand the whole thing!

Here's what he said:


OK, so I'm going to break down retail margins for you all, as I referenced this in another post and I realise that some of you may be coming from a different reference point.

I'm going to sell an imaginary £24 game through my brick and mortar store. Because I am VAT registered, whenever I sell a VATable product, I have to charge the VAT on it. So if the MSRP on that game is £24, the VAT on it was £4. I pay that £4 to HMRC when I do my VAT return.

Esdevium has a regular margin structure that equates to 35% of the MSRP. So on an individual £24 boardgame, I will have bought it in at £13+VAT. £13 is referred to as the Ex VAT price, because when Esdevium sells it to me, as a VAT registered company, they must legally charge me the VAT. But I claim that VAT back when I pay HMRC their VAT on the sale, so that VAT is only charged at 20% on the final sale price. It's a bit confusing if you aren't used to doing it.

Now, if I take case quantity from Esdevium it makes their life easier, and thus I get a 10% additional margin discount plus I get a loyalty rebate that increases my margin to roughly 45% (or £11+VAT).

So, when I am buying through any other source other than Esdevium, I need extra margin breaks to make dealing direct appetising.

If you are not VAT registered, then you can ignore the VAT. But I cannot. And neither can Esdevium when you find yourself supplying them (at the much greater margin). The VAT means that I'm frequently looking at hitting a price point of 50% of whatever you are MSRP'ing your product as.

Now, the success of your tail - getting your products into retail or distribution - will often be the thing that establishes your MSRP. Think of it this way: if your game is *only* ever sold via KS or almost exclusively sold via KS, then the KS isn't giving backers a 20% reduction on MSRP. It's basically selling it without the VAT. If you expect a 20% MSRP bounce AND a VAT add, you are potentially pricing yourself out of the post-KS product tail.

The thing that frustrates me is that I do not want to back a product that will reach retail via distribution unless I have to. But like your regular backers, if a distribution is going to sell me that £24 game for £11, I don't want you selling it a year ahead of release to me for £15 and thinking you are giving me a deal. If you sell it to me and retailers like me at the price we'd be paying for a comparable product through distribution, then you are securing that long tail for your product if that tail exists.

Not every fledgeling will fly. But together we can give them the best possible chance.



Dave Salisbury is an owner of a great play store Fan Boy Three in Manchester. Thank you very much for this useful information!

If you got any questions, feel free to leave a comment!

Also, read:
Publishing Advice #12: Deceptive Funding Goal Levels in Kickstarter Campaigns
Publishing Advice #22: Kickstarter Retail Pledge Levels