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How Covid and the Shipping Crisis are Impacting the Board Game Industry (and what we can do about this)

by Joe Slack on 05/18/22 01:24:00 pm

The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.

 

I recently watch this video posted by Quackalope about how Covid and the shipping crisis are impacting the board game industry, in particular publishers and designers, and wanted to talk about this.

The title of the video is “What Publishers Are Not Telling You . . .” and in the ensuing 22 minutes, Jesse speaks a lot of truths about the problems those in the industry are facing.

Now, this isn’t just true for board games. Many other industries have been greatly impacted over the past couple of years, including but certainly not limited to restaurants, travel & tourism, housing, and many others. So many other companies are on the verge of going under or have already closed their doors.

I highly recommend you watch the video. It's filled with a lot of insights into what's happening right now in the board game industry and the world as a whole, but also offers some insights into what we can do to continue to help the board game community thrive.

This video talks about the impacts that increased freight costs have had. These costs are around 5 times pre-pandemic levels, constantly changing, and there is little relief in sight.

Margins are already razor-thin in the board game industry, so this definitely impacts all of us, whether we are designing, publishing, or simply buying games from our friendly local game store (FLGS) or on Kickstarter or Gamefound.

 

How games are priced and why margins are so thin

It’s helpful to start by talking a bit about how publishers price their games and all the steps that go into manufacturing and pricing.

Typically for a game going to retail, a publisher will set the manufacturer's suggested retail price (MSRP) at five times the landed cost. This landed cost refers to the cost of manufacturing plus the cost of freight shipping the game to the distributor. The distributor normally pays 40% of the MSRP and the retail store will buy the game at 50% of the MSRP. Using this 5X model, the landed cost makes up 20% of the MSRP, leaving the publisher with only 20% for themselves.

This may sound like a decent profit, however, there are many factors to take into account that results in this being a very thin margin.

What hasn't been accounted for are all the sunken costs. These sunken costs include art, graphic design, promotion and marketing, and all the costs related to running a Kickstarter campaign if the publisher goes this route. This also doesn't include royalties that need to be paid to the designer, which must be factored in unless the publisher is also the designer of the game.

So, depending on the game and the investment made upfront, there's not a whole lot left. If you take into account that the publisher may want to run a reprint of the game if it is successful, they're going to need 20% of that MSRP in order to pay for that reprint along with freight shipping.

Now, let's imagine you're a publisher. You've got a game that costs $9 to manufacture. Freight shipping this to your distributor adds an extra dollar per copy. So, your landed cost is a nice even $10. You'll probably set your MSRP at around $50 or so (five times the landed cost).

Now imagine freight shipping skyrockets by five times pre-pandemic levels and is now $5 per game. Your landed cost has jumped from $10 to $14. If you continue to sell your game at $50, your profit has dropped from $10 per game to only $6 per game. Remember that this is not the profit you have left after you've been paid, this is the amount you'll have leftover to pay your sunk costs, royalties, and put towards the next print run. If you're lucky or if you decide not to do another print run, there will be a little leftover for you, which you honestly deserve for all the time and effort you’ve put into making the game and getting it out into the world.

The alternative is to adjust your price based on your new landed cost, which would put your game at $70 (5 x $14 landed cost).

The question is, will people pay $20 more for your game?

 

What about selling your game on Kickstarter?

Now, if you're bringing your game directly to Kickstarter, you don't need to mark your game up five times the landed cost. You'll be getting 100% back rather than 40%, so you don't need to make an 80% profit (assuming landed cost is 20% of MSRP here again). Of course, you also have Kickstarter fees which are around 8-10% and your own sunken costs, but you certainly don't need to charge five times the landed cost to be profitable.

In fact, there are a lot of reasons why you’d want to offer your game at a better price than this to your potential backers. Remember that they are also paying for shipping, so this is an extra cost for them. If your game will be available in retail stores afterwards as well, they could just wait and get a better price later, without having to also pay for shipping. So, give your backers a deal and price your game a little lower than MSRP to say thank you for supporting you now. Also, make sure that backers receive this before they see your game on store shelves.

If your game is going direct to retail or your Kickstarter campaign was run more recently, you should already be aware of these changes in the market and be able to adjust for them. But what if you launched your crowdfunding campaign just before this shipping crisis hit? You may have had everything costed out just right but now you're being hit with a very unexpected and pricey surprise.

You may think that you'll be safe with the profit margin you can make on Kickstarter, but if you don't plan well, a lot of that profit will be eaten up. So, make sure to plan well and build in a buffer, both for time and cost, to ensure your project will remain viable.

 

Why not just get your game manufactured locally?

There were an awful lot of comments on Jesse's video asking why publishers don't just get their games manufactured in the US or Canada to avoid all these shipping issues. The problem is that the infrastructure just doesn't exist. So much manufacturing has been moved overseas and North America is not set up to do this, let alone compete with a much cheaper labor market.

I've looked into this myself, and I only found a couple a board game manufacturers in the US. The prices were about twice as high as those in China and from what I understand from other publishers, the quality was much lower. Why would you want to pay twice as much to manufacture an inferior product? Would your customers be willing to pay twice as much for lower quality?

In addition, North American manufacturers may be able to handle cardboard components like cards and boards, but if you want plastic bits, minis, etc., they would be outsourcing the manufacturing of these components to China in most cases.

At one point, I thought I had found a local manufacturer here in the Toronto area. But it turned out that was just their head office. Their manufacturing plant is in China. This is the same case with Panda GM and others.

However, even if people were willing to pay more, the few existing manufacturers wouldn’t be able to handle the demand if a whole bunch of publishers suddenly decided to have their games made in North America.

Europe has more options available than we do here in North America and it may make sense for European publishers to look into this, as the manufacturing cost difference might be negated (or at least partially) by money saved on freight shipping. However, freight shipping to North America would still be needed if the game was sold there.

So, long story short: It’s easy to say “just get the game made locally” but the reality is the infrastructure and skills just aren’t there. I’d love to see this change but it would take some big investments and changes in the way we do things. Right now, this isn’t much of an option.

 

How you as a publisher can handle this

Despite all the issues, there are some things that publishers can do to get through this. If you are seeing prices rising, here are some things you can consider:

  • Raise your prices accordingly
  • Build a bigger buffer into your crowdfunding campaign in case freight shipping rises further
  • Ask your backers for support
  • Plan as best you can, then double and triple check your numbers
  • Produce less games and focus on making them the best they can be

Some creators have had to go back to their backers and ask for more money to help them cover the rising shipping costs. While this isn’t something you ever want to have to do, it may be necessary. If you have been good at communicating with your backers throughout your campaign and have a good reputation, they are more likely to throw in a few dollars to support you and ensure you’re able to stick around for the next game.

Rather than straight up asking for more money though, some publishers have run another campaign or offered backers some promo cards or downloadable content. This is a good way to give something to your backers in return for their support, which will help you deliver your game and keep your company viable.

Good planning can also go a long way. Make sure to get multiple quotes from fulfilment and freight shipping companies and know what your options are. Maybe shipping to some regions by air makes sense. It will be more costly than sending them by ship, but depending on the region and the size and weight of your box, it might actually be more cost-effective when you factor in freight, delivery, and fulfillment. Small boxes can be sent fairly cheaply to many regions if you find the right company.

Never launch a campaign without knowing what the costs will be – both manufacturing and shipping. When I say shipping, I mean all the costs involved to get the game from point A to point B, including freight shipping, delivery, and fulfillment. Build a buffer into this. Shipping prices generally increase over time and may change every 6-12 months (and every week for freight shipping!). Your game will often be sent out well after your campaign, so expect that these rates will increase and plan for this by building in reasonable price increases into your costs and budget.

I feel for the publishers who ran their campaigns prior to or early in the pandemic and were hit by crazy freight shipping hikes that nobody saw coming. They couldn’t have planned for this. But if they did include a buffer for some price increases and budgeted well, they should be able to come out of this OK. The additional costs they now face will certainly cut into that profit, but they shouldn’t take a loss. Still, more support from backers may be necessary to continue operations.

Thousands of games are coming out every year, both through Kickstarter and direct to retail. In the 80’s you might have seen 50-100 games released in a year. Are we releasing too many games? Maybe we should be focusing on making less games and making better games. Rather than putting out 6 games in a year that have varying degrees of success, perhaps it would be better to focus on 2-3 titles that have the best chance of becoming a hit. If they do well, a company can do larger print runs, getting better economies of scale, and have less overall sunk costs. I feel this would be better for gamers, publishers, and the industry as a whole.

 

How can we as an industry can weather the storm

In short, if we want to keep seeing great board games come out and great publishers thrive, we need to support them. If that means paying a few dollars more for a game or chipping in to support a wonderful publisher by backing a campaign to help them raise funds to cover their costs or deal with rising shipping costs, then that’s the price we must pay.

It may mean buying less games for most of us and that’s ok too. It’s better to have a small number of great games that you love to play than dozens of games sitting in shrink wrap that you’re no longer excited about.

I encourage you to watch Jesse’s video and take some time to learn about the situation in the industry right now.

 

What are your thoughts on the current shipping crisis and how we can keep the board game industry going strong?

 

Please leave a comment and share your thoughts.


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