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Author Topic: the "supplement treadmill"  (Read 22048 times)
xiombarg
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« on: April 28, 2004, 08:28:17 AM »

Malcolm (eyebeams), as a freelancer for White Wolf (he can correct me if that's an incorrect way to refer to him in this context), made and interesting comment on another thread...

Quote
Vampire's sales never really declined past what's expected for the general annual shrinking of the industry, but it became more and more difficult to write revelant Vampire material. This is not just a metaplot problem. It also had to do with the setting. I once sent a proposal for Mage book that had to do with a secondary element of the setting. It was refused because it was too obscure. When I mentioned a similar book for Vampire the developer noted that Vampire was at the stage where it *had* to mine that secondary material. When a game's come to that, it's time to pull the tirgger, or else you end up with bloodline books and similar cruft.

To me, this is a shining example of what's wrong with the "supplement treadmill" that the distribution system imposes on the market. The need to produce monthly supplements is so high that one can "mine out" a popular game and be forced to "pull the trigger" on it. Contrast this to games sold mainly through direct sales, which rarely have this problem, even if they are reasonably popular...
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love * Eris * RPGs  * Anime * Magick * Carroll * techno * hats * cats * Dada
Kirt "Loki" Dankmyer -- Dance, damn you, dance! -- UNSUNG IS OUT
Pramas
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« Reply #1 on: April 28, 2004, 09:44:51 AM »

Quote from: xiombarg
To me, this is a shining example of what's wrong with the "supplement treadmill" that the distribution system imposes on the market. The need to produce monthly supplements is so high that one can "mine out" a popular game and be forced to "pull the trigger" on it. Contrast this to games sold mainly through direct sales, which rarely have this problem, even if they are reasonably popular...


Yeah, I still have bruises from when the distributor enforcers came to my office and imposed their way of thinking into my head!

More seriously, you are talking about two very different models of RPG publishing. Companies that do this as a full time business have very different needs than those that sell POD books off websites. When you have employees who count on you for their paychecks every month, you need to make sure you generate revenue. Having new releases every month is a good way to do that, as the new books both make money and stimulate backlist sales. Do some companies take this too far or implement the strategy poorly? Of course they do but that doesn't mean it can't be done successfully. The small publisher who does this as a hobby is operating under a completely different paradigm. "Reasonably popular" means what, core books sales of 500 or even less? Comparing those games to Vampire is pointless.
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Chris Pramas
Green Ronin Publishing
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Ron Edwards
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« Reply #2 on: April 28, 2004, 10:05:52 AM »

Hello,

I think the issue of "must take care of employees" is a red herring. No one has a responsibility to carry employees; they are fireable.

The real issue,  in my view, is a matter of who is the customer.

If the distributor + retailer network is the customer, then the publisher is in the unpleasant position of "proving" his or her worth to the customer by putting out new product. That's because retailers generally are very poor at assessing what games actually sell to customers in their stores, and must rely on gut, rumor, and the appearance of new product in order to decide what to order next time.

If, on the other hand, the person who is enjoying reading and playing the game is the customer, then the publisher views the distributor + retailer network.

Chris, you wrote,

Quote
Yeah, I still have bruises from when the distributor enforcers came to my office and imposed their way of thinking into my head!


I know you wrote this humorously, but it also demonstrates the self-blinding distraction I see all the time among people in the so-called "industry." Effectively, the distributors have (at certain points) exerted exactly this kind of control over publishers, for example, when they pushed for and received full voting membership status in GAMA. To claim that the subsequent, extreme reduction in the number of new core books over the next five years, and the explosive increase in supplements-per-line is a coincidence, would be very naive, as I see it.

Best,
Ron
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Matt Snyder
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« Reply #3 on: April 28, 2004, 10:09:22 AM »

Chris,

First, disclosure: I AM one of those goons selling PDF and (sorta) Print on Demand products. I have made a very meager profit. I also have a full-time, salaried job, benefits, mortgage, yadda yadda. So, no overhead for my "company," and I view it mainly as a hobby. But, I'm not losing money on said hobby, either.

Second, my response: My "hobby" status aside, I do work for a large media company. The business is advertising driven, primarily, though we do have direct sales and other large revenue generators. But, overall, we can see two themes in my day job: production of content and marketing. Every day -- especially lately -- I hear about "revenue." I'm a content guy, but I'm becoming a marketing guy every day, whether I like it or not. That's because I'm charged with figuring out ways to increase revenue. (I sure as heck would not want to entrust my company's viability on the content creators. We'd go broke overnight, we poor bastards.)

You're right to bring revenue up. It's what makes the company able to pay me, and all my co-workers. I suspect you're also right to say that companies can make the "supplement treadmill" work.

However, I view this as the exception to the rule. This assumes that content creation is, by and large, the way companies should make money. Create stuff 'til the wheels come off. Revenue or bust!

Now, I know who you are, and I know you're a pretty savvy guy. I therefore assume that you do NOT think that simply churning out product is the real way to generate revenue. It is merely one way. And, it's probably a very time-intensive, largely inefficient way.

Another CRUCIAL way to make money is marketing. Understanding your audience. Finding and reaching new audiences. You could do all of this, creating NEW revenue, with a handful of tidy, well-done game books and supplements. It appears as though too few companies make this happen. No one's using marketing to create any substantial portion of their revenue. No one's really doint anything at all except pushing books out the door and reaching the same, aging demographic of geeks.

It may not be the companys' fault. Maybe the market is too finite and small. I just don't that for certain either way.

However, I'm not seeing sophiticated marketing -- on par with serious publishers or media / content companies -- at any level, even WotC (who generally does the best job). What I am seeing is most (certainly not all) companies guided largely by content producers (i.e. writers, designers, geeks, etc.) who do what they know -- make stuff! Great fun for them and other geeks. And yet, they aren't making REVENUE grow by any reasonable business standard. It's a shame, and I argue a huge reason why our hobby/industry remains so tiny and troubled.

P.S. You said comparing hobby publishers to Vampire is pointless. I agree, pretty much. However, comparing Vampire to, oh, say, Random House is not exactly pointless. Too often, our industry is looking around and seeing themselves as big fish ... in a mud puddle. Where's the pond? Where's the ocean?
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Matt Snyder
www.chimera.info

"The future ain't what it used to be."
--Yogi Berra
xiombarg
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« Reply #4 on: April 28, 2004, 11:32:23 AM »

I think your points are particularly salient, Matt.

I had an argument with GMS back on the Gaming Outpost when he talked about how gamers "sucked", because the gaming market tended to favor things with a fantasy element over more "pure" content, i.e. Shadowrun vs. Cyberpunk 2020.

My response to this was: Stop writing for the old market, then. Build yourself a new one. Just because the current demographic doesn't like certain things, that doesn't mean that those people "suck", it means you need to get off your butt and try to appeal to a new market.

So, as you say, the other way to make money outside the treadmill is marketing. White Wolf's marketing department (for example) is well-known in our industry, but, as you imply, it's mainly good at selling product to it's current fan-base, tho it has expanded into other connected fan-bases with stuff like Exalted and the d20 stuff -- but even then, we're largely talking game geeks, not new gamers.

Building for a new market is, of course, hard, when we're used to the creative thing. But as the current niche is increasingly "mined out", the bigger game companies may have no other choice.

The question is: Where to start? This is why it's so hard. I mean, when I was shopping around a "intro to RPGs" text for Unsung, some people complained that I was showing it to gamers and not non-gamers. But I wasn't sure where to go to find receptive non-gamers. I don't want to go spamming other fora...
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love * Eris * RPGs  * Anime * Magick * Carroll * techno * hats * cats * Dada
Kirt "Loki" Dankmyer -- Dance, damn you, dance! -- UNSUNG IS OUT
FFG Greg
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Posts: 7


« Reply #5 on: April 28, 2004, 12:03:14 PM »

Quote from: Ron Edwards
Hello,

I think the issue of "must take care of employees" is a red herring. No one has a responsibility to carry employees; they are fireable.


If your goal is to grow your business past the hobby level (i.e., your goal is actually a business, rather than a hobby), you're eventually going to need employees. It is, no doubt, a "red herring" if we're talking about a creator/hobbyist selling PDFs and POD books in his spare time (some of which are amazing, BTW). But xiombarg was talking about White Wolf.

Oh, and distributors don't care if you publish supplements for your RPG. Like publishers, they would rather sell a lot of one thing than a little of lots of things. If you can design and market an RPG that produces consistent, evergreen sales without support products, the distributors will love you.
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Greg Benage
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Fantasy Flight Publishing
Ron Edwards
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« Reply #6 on: April 28, 2004, 12:25:41 PM »

Hello,

That would be the so-called "industry" Red Herring #2.

I consider the size-based distinction you're making to be irrelevant, Greg. My points about this can be found in these threads:
Game design: hobby or career?
Successful RPG line

As I see it, a business is a business if it has any expectation of making money, and continuing to do so - regardless of how many people are involved. A hobby is by definition a hobby when it is a money/time sink (or rather, if the payoff is measured in "fun").

My company, Adept Press, has one owner and member: myself. It is a profitable corporation. I consider it to be a successful business, in that it drains no money from me nor does it require outside funding of any kind. It is not a hobby (unlike my role-playing activities) and it is not my career (primary source of income). That doesn't fit into your framework of reference at all.

Mixing up these categories, and then pointing to bizarre variables like market-share or number of employees as some kind of metric of success, is characteristic for people who like to consider RPG publishing to be an "industry" (this term would provoke gales of laughter from anyone engaged in an actual industry).

Best,
Ron
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FFG Greg
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« Reply #7 on: April 28, 2004, 12:57:01 PM »

Quote from: Ron Edwards
Hello,

That would be the so-called "industry" Red Herring #2.

As I see it, a business is a business if it has any expectation of making money, and continuing to do so - regardless of how many people are involved. A hobby is by definition a hobby when it is a money/time sink (or rather, if the payoff is measured in "fun").

My company, Adept Press, has one owner and member: myself. It is a profitable corporation. I consider it to be a successful business, in that it drains no money from me nor does it require outside funding of any kind. It is not a hobby (unlike my role-playing activities) and it is not my career (primary source of income). That doesn't fit into your framework of reference at all.


Cool. Gotta keep the terminology straight. Your defining things in terms of their relation to the creator/owner (business vs. hobby vs. career). I was defining things in terms of the enterprise itself. I'd call Adept Press, as you've described it, a self-supporting hobby, depending on the extent to which it is profitable and the extent to which it simply breaks even. But it's your sandbox so I'll call it whatever you want.

So, now that that's all straightened out, if you're running a run-of-the-mill dictionary-meaning kind of "business," i.e., a commercial enterprise engaged in as a means of livelihood, then you're probably going to need employees at some point and they won't be a red herring. I consider White Wolf (whose business model was originally being discussed in this thread) to be this sort of "business" (er, career, or whatever). Groovy?

Quote
(this term would provoke gales of laughter from anyone engaged in an actual industry).


On this we can agree, though I might apply it to print publishing in general, which is really a ghetto for the vast majority of producers. Still, it's possible to run an RPG company as a sustainable, profitable small business ($500,000 to $5,000,000 in revenues). Like the pizzeria or laundromat owner, though, you'll probably need the occasional employee.
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Greg Benage
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Ron Edwards
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« Reply #8 on: April 28, 2004, 01:06:12 PM »

Hi Greg,

Looks like we're agreeing. The next step would be to discuss whether (a) White Wolf has succeeded in its business model, and (b) it did so specifically by following the supplement-publishing strategy.

Most folks I know would blindly call out "Yes" to (a). I am skeptical. I'd be very interested to know, for instance, how much start-up funding the company began with, and whether that has ever been matched and paid off. I'd also be very interested to know whether outside investors are currently involved, and what their actual ROI is. Since none of this information is probably going to be made public any time soon, I'll just remain skeptical.

Most folks I know would also cry out "Yes" to (b). And here I'll be very blunt: I consider White Wolf to have survived as a company, long-term, on the strength of one thing - release of new games. Its original plan to publish four games and then back each one up with astounding numbers of supplements was a financial disaster (and a solid parallel with what happened to The Chaosium at the same time).

Best,
Ron
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Valamir
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« Reply #9 on: April 28, 2004, 01:22:27 PM »

Quote
On this we can agree, though I might apply it to print publishing in general, which is really a ghetto for the vast majority of producers. Still, it's possible to run an RPG company as a sustainable, profitable small business ($500,000 to $5,000,000 in revenues). Like the pizzeria or laundromat owner, though, you'll probably need the occasional employee.


As someone who invests money for a living, I'd prefer to talk in terms of Gross Margin, Net Income, and Net Operating Cash Flow than revenue.  Revenue is by and large an incredibly misleading number by itself.  A company can have lots of revenue and still be on the fast track to bankruptcy.  A company can report lots of revenue and still have virtually no cash flow thanks to the wonders of accrual based accounting.

So taking $500,000 to $5,000,000 in revenue as a reasonable range, What does the bottom line look like.  What kind of Profit Margin (i.e. Bottom line / Top line) are we looking at.


It is my decided thesis that a small independent operation with minimal overhead and no extraneous (i.e. "we wanna be a real business so we need to have X") expenses can wind up with comparable bottom lines on FAR less revenue (i.e. sales volume) than traditional business structure.

But its exceedingly hard to prove or disprove this thesis because actual hard industry data is not easy to find.  Its highly unfortuneate that there aren't audited financial statements for Wizards, and WW, and Ronin and Mongoose available for public inspection.

I'd also love to have access to actual salary data, because I suspect that most businesses that do manage to post a profit manage to do so in large part because the employees are decidedly under paid (compared to what they could earn competetively in the "real world") and thus expenses may well be artificially low.

Any arguement based on being a "sustainable profitable small business" is seriously weakened in the absense of such data.
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FFG Greg
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« Reply #10 on: April 28, 2004, 01:47:52 PM »

Hey Ron,

As for (a), of course I don't know what their initial capitalization was or what ROI their investors have enjoyed (or suffered, as the case may be). In addition to the obvious factors (annual revenues, etc.), this depends on how the business was managed: Was the goal to maximize growth or investor dividends? Or something else?

Having said that, I feel pretty confident that WW has been very profitable over the last 15 years. What was done with those profits, I have no idea.

Our sad little secret is that gross margins in this "industry" are actually very good: 60%+ ought to be sustainable by any publisher that has designs on being a "business" by my definition. The secret is sad because most RPG companies can't sell enough books for the nice margins to make a damn bit of difference in the not-so-grand scheme of things. 60% of bupkis is still bupkis. WW does not fall into this category, however.

As for (b), I think it's taken both core books and smaller, monthly supplements to keep WW running mostly smoothly most of the time over the last 15 years.

That said, it's instructive that WW has moved away from the traditional supplement model with its newer games (Exalted, with its multiple core books model, for example). No one who's paying attention *likes* the supplement treadmill: Yippee, we get to publish a series of products whose sales are guaranteed to consistently decline over the life of the product line! Most every well-managed company publishing RPGs (including WotC and WW) is looking for more efficient ways to get the consistent, reliable cash flow that the supplement treadmill generates.

However, unless you can constantly open new markets, this requires some kind of repurchase model: You have to sell more stuff to the same people, over and over again. Computer game publishers do this by constantly developing (or acquiring) and selling new games. Roleplayers have this nasty habit, however, of playing the same damned game for years, so that model hasn't worked as well for RPG companies. IMO, the "business" of RPGs would have been much, much better off if the notion of "campaigns" had been left to the wargamers (some of whom play the same damned game *session* for years!). If we played RPGs like we play computer games, producers would sell a lot more games a lot more profitably.
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Greg Benage
Managing Editor
Fantasy Flight Publishing
FFG Greg
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« Reply #11 on: April 28, 2004, 01:53:01 PM »

Hey Ralph,

See my comments on gross margins in the previous post. The range of revenues I listed was just a way of categorizing "small business" for the practical purposes of the RPG "industry" (damn I'm using a lot of quotes). You're right, but as I note, gross margins on RPG products are actually very good. It's a little bitty market niche, though, so volume is a typically a real problem.
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Greg Benage
Managing Editor
Fantasy Flight Publishing
Pramas
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« Reply #12 on: April 28, 2004, 02:02:22 PM »

Quote from: Ron Edwards
I think the issue of "must take care of employees" is a red herring. No one has a responsibility to carry employees; they are fireable.


I think the heart of the issue is whether you want to make your fulltime living from your company or do it on the side. Both approaches have benefits and drawbacks and both are perfectly valid. If you are doing this as your fulltime job, there is always at least one employee you can't fire: you.

Quote
The real issue,  in my view, is a matter of who is the customer.


It's not an either/or proposition. Some salesmanship is required when dealing with the other tiers, but it's equally important to make products that gamers want and to market the products to them as well.

Quote
I know you wrote this humorously, but it also demonstrates the self-blinding distraction I see all the time among people in the so-called "industry."


And I think this comment typifies the self-congratulatory hubris I see at the Forge all the time. Some of you have found satisfaction selling products in new ways (PDFs, POD books via direct sales, etc.). Good for you. All hail the DIY spirit. I'm totally down with it. However, it's often coupled with a contempt for other approaches, and the seemingly constant need to reinforce the idea that "we rule, they drool."


Quote
Effectively, the distributors have (at certain points) exerted exactly this kind of control over publishers, for example, when they pushed for and received full voting membership status in GAMA.


Do you have another example? Because this one isn't true. If you look at the current GAMA by-laws (at www.gama.org), you will see that there are currently seven classes of membership:

A) Full Voting Member: One which is engaged (1) in the manufacture of gaming product for commercial sale or use, (2) as the exclusive United States sales representative, licensee or agent for the manufacturer of gaming product, (3) is the publisher of a magazine or other periodical relating to gaming  products, or (4) in providing Play By Mail game service, is eligible to be a voting member of this Association.

B) Associate Member: One which is eligible to be a full voting member and has requested that its membership be so limited.

C) Retail Member: One which is engaged in retail sales of gaming products.

D) Wholesale Member: One which is engaged in wholesale distribution of gaming products.

E) Communicating Member: Anyone not eligible for membership in one of the foregoing categories.

F) Vendor Member: Any producer or supplier of goods, finished products,
printing, die cutting, photographic processing, or other piece or item for
resale to a GAMA member.

G) Club or Convention Member: Any convention organization or club which is interested in furthering the purpose of this Association.

There may be a couple of distributors who qualify via A2, but even if so, they are far outnumbered by manufacturers.

There those would who would like to see GAMA become more of an industry organization, but it was clear at the meeting of Full Voting Members at GTS that most manufacturer members want to keep control of the organization.
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Chris Pramas
Green Ronin Publishing
www.greenronin.com
Pramas
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« Reply #13 on: April 28, 2004, 02:15:13 PM »

Quote from: Matt Snyder

First, disclosure: I AM one of those goons selling PDF and (sorta) Print on Demand products.


No need to call yourself a goon. :)

Quote
You're right to bring revenue up. It's what makes the company able to pay me, and all my co-workers. I suspect you're also right to say that companies can make the "supplement treadmill" work.


They can, and there are examples of how to approach it smartly. There are also lots of examples of doing it badly and that's what I think some people get focused on. There are lots of bad businessmen in the game industry and there always have been, but you can't judge everyone by the worst examples.

Quote
Now, I know who you are, and I know you're a pretty savvy guy. I therefore assume that you do NOT think that simply churning out product is the real way to generate revenue. It is merely one way. And, it's probably a very time-intensive, largely inefficient way.


Indeed, and that's why Green Ronin has taken the approach it has. Other companies have taken the opposite approach but we decided early on we didn't want to go down that road.

Quote
Another CRUCIAL way to make money is marketing. Understanding your audience. Finding and reaching new audiences. You could do all of this, creating NEW revenue, with a handful of tidy, well-done game books and supplements. It appears as though too few companies make this happen. No one's using marketing to create any substantial portion of their revenue. No one's really doint anything at all except pushing books out the door and reaching the same, aging demographic of geeks.


The main trouble here is that most RPG companies are content to let D&D be the gateway product for all roleplayers. Well that, and marketing to new markets costs money most companies don't have. That said, you do see games from time to time that try to buck the trend. Our Blue Rose game is trying to bring readers of Romantic Fantasy fiction into roleplaying directly, for instance.

Quote
However, I'm not seeing sophiticated marketing -- on par with serious publishers or media / content companies -- at any level, even WotC (who generally does the best job).


WotC spent a staggering sum of money marketing 3E, and they built on a very recognizable brand name, but even so they didn't break 1 million units of the Player's Handbook. The type of marketing you are talking about is simply beyond the means of most RPG companies.
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Chris Pramas
Green Ronin Publishing
www.greenronin.com
Valamir
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« Reply #14 on: April 28, 2004, 02:33:50 PM »

Quote from: FFG Greg
Hey Ralph,

See my comments on gross margins in the previous post. The range of revenues I listed was just a way of categorizing "small business" for the practical purposes of the RPG "industry" (damn I'm using a lot of quotes). You're right, but as I note, gross margins on RPG products are actually very good. It's a little bitty market niche, though, so volume is a typically a real problem.



Quite right.  

This is actually a big part of my thesis.

In any business you have variable costs and fixed costs.  The more volume you push the more you want to focus on fixed costs, because once you pay for that the rest is gravy.  In a high volume business you want to carry as little variable cost deadweight as possible.

However, in a low volume business, fixed cost will kill you (as you expressed above) because you may never be able to exceed those fixed costs by enough to make any real money.  Its better to have the bulk of your expenses be variable so that you're only incurring them in proportion to your revenue and don't wind up upside down and in the red.


Given that RPG publishing is a pretty low volume business, it seems to me that a high variable / low fixed business model would be much more appropriate.

This is what leads me to question running an RPG concern as a traditional "business".  

Typically, employees are categorized as "variable" (actually semi-variable, or variable but inelastic, but lets keep it simple) because employers can hire and fire/lay off them in rough proportion to sales volume.  

But in a small business, it is generally better to categorize employees as fixed.  This is because small businesses generally don't have a large number of volume sensitive employees to hire and fire (like assembly line laborers or a big sales staff).  Further in an insular industry like gaming employees tend to be friends and contacts rather than faceless cogs easily swapped.


So, if we take a look at the business:

Everytime I see things like "employees", and "office space"; I have to wonder at it.  These things are fixed costs, and in a low volume business should be avoided as much as possible.  Salaries should be driven by production and sales quotas (incentive based or even outright commission based) which would tie the expense to sales and hense convert it into a variable one.  Offices should be minimized and the absolute maximum amount of work possible done electronically.   Freelancers should not be paid by the word (a fixed expense to overcome) but on sales (Either royalty sharing or a stepped payment scheme based on hitting sales figures).

Technology expenses should be maximized because by and large these expenses (such as band width and number of machines needed) generally scale with volume and can thus be characterized for our purposes as variable.  The timing of technology expenditures (being discretionary) is also highly dependent on cash flow which is another characteristic of variable costs.  More reliance on virtual conferencing and on line design space and less emphasis on needing artists and layout folks to be physically present in the same location means less fixed cost (office) and more variable cost (equipment to make it happen).

So my thesis is, that an RPG company geared towards arranging its cost structure to be as variable oriented as possible, should enjoy better profitability over time, until such time as it becomes a high volume concern and should begin shifting towards a fixxed oriented structure.  Particularly complicated businesses might run different divisions with different cost structures.  I could speculate that a high volume businessline like Magic or Clix at their peak would benefit from a more fixed structure relative to RPG publishing.


All of this is just speculatation, however, (well founded but speculation non the less) in the absence of actual numbers.
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