ORX, Sales Numbers, and Retail
Eero Tuovinen:
No, I don't have friends who can spare $10 000 dollars for a lark, either. Seems pretty rare, that.
But then, that's not what we're discussing here at all, is it?
guildofblades:
i think Ron had it right in that "justification" for the low margin "retailer" based sales is sought after. Or if not "sought" per se, there is an interest is seeing other folks explain why they pursue them.
Ok, the "average" GOB game has a gross margin of about 75% or a markup or about 400%. This is "always" based on the wholesale price of the product, pegging wholesale discounts at 60%. So in other words, if we have a product with an MSRP of $10, our wholesale is thusly $4 and our "average" manufacturing cost $1. Based on that model, we make just a tad bit over 4 times as much money on every unit sold direct to a consumer as opposed to the same unit being sold via wholesale. If another company has a weaker gross margin on an item then the disparity between the profitability of direct sales vs wholesale sales will only be larger.
So as you can see, based on our cost structure it is naturally advantageous to sell direct whenever possible. After analyzing those numbers pretty hard about 4 years ago, we shifted from being a company that first and foremost sold product through the 3 tier system to a company that focused on having a strong and far reaching web presence and selling direct. And that's a model that is perhaps perfectly well suited to many independent companies. If a company is small or perhaps part time, then the people running it have to give an honest appraisal of the time they have to commit to their company. Selling direct, maintaining a strong web presence, doing internet market, packing and shipping items all takes some time and effort. Likewise, managing a distribution system, be it the 3 tier system Key20, IPR, Impressions or direct sales to distributors or retailers, also takes time to manage. And it takes time to effectively communicate with your partners in that distribution system. That's why we cut out the distribution tier back in 2004. We realized the time to manage product flow through that system wasn't justified based on the return it was providing. Every company, big or small, needs to evaluate each potential sales channel it might use to sell its product through and decide if they have the time and resources to commit to making that system work. If you honestly don't have the time, then trying to spread your time over a number of sales channels that is larger than you have time to manage, in all likelihood, will lead to a failure to effectively capitalize on any of them.
So decide if you have time to market to consumers and market to distributors or retailers at the same time. If you realistically don't, then perhaps its not even in your best interest to do both.
Ok, that being said, as I posted earlier, I have a growing set of data that makes a compelling case that direct sales and retailer sales both working together over the same area drives that sales upwards through both venues. Its simply an issue of product awareness and saturation of word of mouth exposure to the target audience. We you have both sales channels delivery product, you increase the chance of hitting a sort of critical mass that drives more total interest in the product that either sales channel could achieve independently. So if a small company has the time to effectively market to both consumers and retailers and can manage both channels well enough to help drive sales through both and through the same geographic areas, then I believe there is a real benefit. If you can manage both channels to that degree then you really need to pick a "primary" channel to focus most or all of your efforts at. For most small companies I believe that should likely be direct sales. Participation or use of any other sales channels for which you don't have the time or resources to manage directly should ONLY be used if they can effectively be used on auto pilot. Time you spend dickering with them is time not spent garnering presence and sales through the primary channel.
Now, regarding money. Yeah, I believe a publisher only making a Buck and some change on a $20 MSRP item when sold through retail or wholesale channels has got to change some things. Its a simple issue of return on your investment. Its just not high enough. I would first try to figure out how to bring down my cost of goods sold (ala, how to make my item cheaper). And no, I don't mean by printing more than is sensible either.
Which leads me to something else to think about. If your cost of goods sold is too high in relation to the income you can potential make, then the product is either priced too low or the product should change formats. In other words, if the production cost is too high, but it is believed that based on the format of the product that a higher MSRP would lead to non sales, then the only options are to figure out how to product the exact same thing cheaper or figure out how to "change the thing" itself so that it has a completely different ratio of cost of production vs retail pricing ceiling. Not all small publishers have to produce products in a format of or in the image of what the big name publishers are publishing. The Guild's first game product was a little 20 pages B&W miniatures game rules, photo copied, and it was produced cheaply and sold cheaply. Given we had a total of $100 to start our company on and POD printing in all its formats hadn't been born yet, it was what we could make work with what we had. My point isn't that THAT format of production should emulated, but rather, if you have limited funds, perhaps your first product should be published in a format that is smaller and more easily and cheaply produced. If you have a big 200 page book maybe you should figure out how to make that into two books instead and start by publishing one and then add the other a bit later. Or you can take a smaller book from 8.5" x 11" format down to a digest format. Back when we were working with finite budgets we had a whole series of "board games" that had B&W "maps" instead of "boards" which were printed onto simple colored card stocks accompanied by rules, charts, etc and packaged into big old zip baggies. They were, frankly, pretty plain jane and certainly didn't shelf well at retail. But they sold. They sold because the "games" had a target audience and the price was right given the production values. If your game or game concept has a target audience, regardless of appearance, it'll make sales. And if it doesn't, no amount of fancy lamination, hard case bindings, board backings or other cosmetic drappings will save it from having poor sales.
So I always suggest you produce within your budgets. And produce to turn a healthy profit on all of your sales. Start small if you must and only tackle the types of distribution and sales channels you have time to effectively manage. As your sales grow so too will your experience and your budgets.
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
Ben Lehman:
James: I don't think it's particularly unrealistic at all. But, then again, we aren't talking about 2,000-10,000 here. We're talking, maybe, $400 cost for the entire printrun plus shipping and sundries (for 100 copies, less for fifty). Given that Raven already has $200, that means finding someone who can loan him $200 to match his own $200. That's not unreasonable and, frankly, I've done it before when I didn't have the cash on hand to reprint Polaris.
Raven, if I were in your shoes, and I'm not, I'd be cutting off all my sales into retail immediately and then pricing out 50 copy print runs both at national "POD" places and at local print shops (just look in the yellow pages under "printing.") Remember to deduct the cost of shipping from a local place. You should be able to find someone who can do a 50 copy run inside your price range. If it ends up $50-100 outside of your price range, or there's a really good cut-off at 100, I'd look to borrow money from someone in the community who understands the risks and rewards.
Lulu is a terrible deal except for honest-to-goodness, customer direct, one at a time POD.
yrs--
--Ben
greyorm:
Quote from: Ron Edwards on July 20, 2008, 04:30:44 PM
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.
Yes, Ron, and thanks. I realize this was not their intent, but portions of a few of the answers felt very dismissive--and again I realize they were not intended to be, so no harm, no foul--with the essential answer being "print more or get out of publishing" or "come on, everyone has that kind of money". Which made them unhelpful because, yes, I'm talking about print runs of 100 (or less) because I know that's precisely what the market will bear based on sales figures so far. My print runs are based on a realistic, sales/interest-grounded assessment, so I needed advice that speaks to that, not to larger runs or more sales.
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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.
I tried to avoid coming across that way, and I did note "if we are talking about Lulu" and based those figures and follow-up on that. Clearly, I wouldn't be in anywhere near the same situation if I were printing for $3 or $4 per book, even with IPR's retail discount. And also because those retail sales came as a huge surprise to me.
You and I discussed this, Ron, but for everyone else: the reason I am talking about Lulu is because that's who I went with for my initial runs, as the initial run was a test to gauge the market demand, and especially because I had no clue my retail sales would be anywhere near where they've ended up. I'm boggled, honestly, that I've sold that volume to storefronts, as I banked on only a few retail sales with a majority of direct sales, not the other way 'round as it has developed.
Had it been mostly direct sales, there would be no problem because that's what I priced for.
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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?
This may just be a skewed perception, but there seems to be a certain, subtle attitude of "needing to sell retail". That is: considering all sales and marketing from a retail perspective regarding business practices and decisions, as retail being THE goal, with the idea of retail having a vague "next-step up" feeling to it, rather than an "additional channel you might consider" optional quality. An idea/attitude existing memetically in the some parts of the community as something that should and must be done, rather than something in a separate realm. Which, to me, especially when advice is given that caters to that idea, seems to create as strong an impression of "what to do" as the old "print 10,000 copies so it's cheaper" meme, to bad effect.
As I said, that may be my own skewed impressions at work. But I will note I am also not the only one to make that observation, as a few individuals inside and outside the indie community have made similar commentary over the past six months, so I can't simply discount it outright.
Whether you agree or not, does that clarify the meaning of my statement?
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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.
Ahh. I see.
My points about retail are also being refined as we discuss this, because, SURPRISE, I'm in retail for some odd reason and I suddenly have a reason to consider it and its effects on my profit margins. I do have to wonder why I'm in retail, and indeed why any general indie publisher would sell retail, given the costs compared to their profits -- you'll always make more per item selling direct unless your retail volume is going to (or has proven itself to) outstrip your direct sales.
From an analysis purely based on total expected lifetime sales for an average indie product, selling retail over the product lifespan is going to impact profit. That is, if you expect to sell 300 copies of your game/product over the next 3-4 years total, then every retail sale you make costs you the difference between the profit from a direct sale and the profit from a retail sale.
Example: if you expect to sell 300 books total that earn you $10 each, you could expect to make $3000. If you sell 100 of those retail for only $3 profit each, you only gain $2700 profit over the product's expected lifetime, 'losing' $300 in the retail conversion (which would be the equivalent of failing to sell 30 of those 300 books). This is where my x5.7 calculation comes in: unless you can expect to make that many (or more) retail sales over direct sales, why lower the lifetime product profit for volume?
(Note: I'm not saying doing so is wrong, but it's a question that should be asked by a publisher, if volume matters more than profit or vice versa, and by how much.)
However, I note Ryan stated above his experience was that the two markets should be considered separate and their sales do not impact one another in such a manner, so my concerns in this respect may be completely unfounded.
Thus the observation that retail is a good market for my book holds true if the retail sales hold steady, but then I would need to bring the costs down to make such a venture actually profitable. But not having realized there would be a retail demand, I was left re-examining my financial figures and my business strategy, wondering what I'm doing in retail right now, how much a difference in profit existed between my retail sales and my direct sales, and how to handle retail and differences given I don't expect to sell more than 100-200 copies, and especially how many other small volume indie publishers (or publications) are doing the same or have made the same mistake and haven't crunched the numbers on their retail sales because they also didn't expect them.
Thunder_God:
Nitpicks, it'd be $2,300, minus $700.
It's not the same as not selling 70 books, since this is profit, and failing to sell 70 books you'd also not earn back their costs (beyond the profit not earned).
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