Making and Marketing Your Game

Part 8: Profits: What You Can Expect

by Steve Peek

Last month, You figured the unit cost of the 2,500 games you printed, assembled, and are ready to ship was $ 7.88. This month,, Steve Peek takes a look at what you can expect to earn as a profit on those games.

With this kind of cost, we have to look at the limited run as a "market test." You're going to sell the units as quickly as possible and hope to break even. There is just no way (you'll see why in a minute) to wholesale this item and make a profit.

If you are wholesaling the item (selling it to stores and distributors who in turn resell it to consumers), structure a price that will allow stores to make a profit. I could have said fair profit, but if you are in the situation we are describing, you won fair about it. This means having a suggested retail price of $16.00 per game, a little high for the average mass-market game, but about right for a specialty item. When wholesaling the game, you will sell it to stores at fifty percent off the retail price, or $8.00, plus freight charges. Almost all firms that buy games get at least fifty percent off and thirty days to pay the hill. They usually get freight paid if they buy enough items; but in this case it's not an option yet.

So let's look at our scenarios so far. You've got twenty-five hundred games to sell at $8.00 each. Being a magnificent salesperson, you manage to do it quickly-say the last ones are shipped out ninety days after being produced. Tack on another thirty days to collect all the money, estimate that ten percent (about normal) of customers are going to be extremely late in paying, if they pay at all, and you have gross sales of $20,000. Not bad for only making twenty-five hundred copies, but now we start deducting. We said about ten percent of the debt wouldn't be collectable on time or at all, so subtract $2,000. Then there are sales expenses. It's a good bet there weren't any television commercials; but some money was spent no matter how good a salesperson vou are. Remember, there were those advertising flyers that had to he printed. They wer~ only in black and white but cost about $80.

And don't forget the art and type, another $50 and, oh-all those long distance phone calls, nearly $1,000, and the postage to mail the flyers and, oh boy, nearly forgot the envelopes to mail them, which reminds me, it cost $200 to buy the mailing list All that comes to around $1,600. There were probably some other expenses, but for now this will make the point. We started out with $20,000 in sales and then we subtracted:

    $2,000 for had debts.
    $1,600 sales expenses
    + 16,400 gross profit.

Now subtract the $16,000 the games cost to begin with and you are, if lucky and if everything else went perfectly, left with $400, a three percent return on the investment.

Notice that there is absolutely no overhead figured into this. There's no money to pay the neighborhood kids to ship the items. There's no money included for rent of warehouse space, utilities of same, or transportation of the games from the printer's facilities to yours. Those are all things that have to be taken care of using imagination, children, and a spouse who is willing to let you get this idea out of your system. There is also an absence of funds for travel, trade shows, and conventions. In short there is an absence of everything except ingenuity, sweat, and a tremendous ability to persuade people to buy this game based solely on its price and your boundless enthusiasm. So why would anybody bother with doing only 2,500 copies?

Well, the low run offers a couple of options. The first is being able to test the waters. You know how difficult is was to sell all 2,500 of them, how long it took. You know if the stores that bought them came back to you with reorders (a very good sign). You've done all this work, sold all these games, and have about the same amount of money with which you started.

So what's the big deal? The big deal is you only had to sell 2,500 games, not five or ten thousand. If it took a long time to sell 2,500, how would you feel knowing there were still 7,500 to go? Having sold the games, tested the market, and recovered the investment, what is the next step? Here's where it gets interesting.

If satisfied with the reception the game received-everybody reordered a week after receiving the game. It sold out in a month, and making money was never so easy-then reprint the game and keep it on the market. After this experience you should know about how many games can be sold in a month and about how many to print to start making a profit from all this work. If this is where you are six months after first printing 2,500 copies, you'll probably want to go gangbusters, print 106,000 copies, and hire salespeople.

Don't! Keep a cool head and think things through. Even if it was easy, it wasn't that easy. Consider ordering between 10 and 25,000 copies this time around. That'll give plenty of room to play with price and profit, but not enough to supply every platoon of the Soviet Army with a copy if the game quits selling, or as they say in retailing circles, "sinks like a Pet Rock."

Let's assume things went OK, but not great. All 2,500 copies sold but it took a lot longer than you thought. The second option is to reprint five to ten thousand and keep plugging away, hammering at the market place, only this time making a reasonable profit for your labors. Let's say you decide you did all right, but it's just not worth the effort to keep at it. Now there's an option that was not available before you published the game, at least not as available as it is now.

The game sold all right-we know any game that comes on the market and does well is more than likely a good game. But we also know it was more work than you bargained for and it's not worth the time, effort, and investment. So now offer it to big game companies.

That's right, now those same companies that would not even open your mail will possibly look at the game because they are not going to be looking at just a game, but at somebody's published game along with a marketing analysis covering the sales of the first twenty-five hundred units over a sixmonth period. They are not going to be worried about being sued for copyright infringement because the game is published and copyrighted, and they don't have to worry about somebody's filing a harassment suit just because they looked at a game that was similar to one they had in their own production schedule.

Provide them with a crisp, professional letter, followed by a couple of phone calls, and you should be able to persuade them to at least look at your game. If one of the companies wants to buy the rights to your game now, you shouldn't mind. You gave it a shot, broke even, and now, come what may, you'll get royalties from someone else's selling the game.

The options obtained by producing only 2,500 copies appeal to the pessimist in us. What about the other two quantities, five or ten thousand? They offer the same options but with the disadvantage of taking longer to sell out. To compensate for the longer selling period, they offer some advantages that weren't available in a run of 2,500.

Let's take a look at the quantity of 10,000. We've already established a hypothetical cost of $3.00 per game at this level. So we'1l set the retail price at $12.00 instead of $16.00, to speed sales.

At this price we'll be getting $6.00 per unit from our retailers, and we still have resources to pay some freight cost if a buyer wants to order enough items at one time. We can also afford some sales expenses so we can run an ad or two in places where the retailers are likely to see it. Now take a glance at what the bottom line may look like.

Since we've got four times as many units, it's going to take longer to get rid of them but probably not four times as long: the lower retail price should help. But taking longer means more sales expenses.

Ten thousand copies at $3.00 each is $30,000 for cost of goods (COG). Let's say we spend the following:

    magazine ads $ 2,000
    long distance charges $ 2,000
    shipping charges for big orders $ 750
    direct mail piece printing, mailing, and mailing list $ 1,000
    bad debts or slow pay $ 6,000
    TOTAL EXPENSES $11,750

Now add in a COG of $30,000, with the total cost being $41,750. How'd we do? We sold 10,000 copies at $6.00 each for a total gross sales figure of $60,000, giving us a gross profit of $18,250.

Not bad. There's a tidy little sum of money in addition to your normal annual income, and at the same time you've conducted a thorough test. Now there's some real meat to throw into your "analyst stew'. At this point you won't have to spend much time deciding what to do: the answers to most questions will be self-evident. If it seemed more trouble than it was worth, and if it took longer to move the games than you ever imagined, prepare a marketing analysis and ship it off to about a dozen major game companies. If you can't get them interested, you'll probably want to just drop the whole idea.

The other extreme would leave you delighted with the results. The game sold faster than anticipated, reorders are still coming in, and new retailers are calling every day to place opening orders. in this case you'll probably want to make a quick trip to the bank to finance printing a really large quantity to fill the demand the game is creating.

The third possibility covers the middle ground. The game did well, but it's still a struggle to open new accounts. Existing accounts are reordering on a steady, if not staggering basis and, given time, the game may yet develop into something big. If this is the case, and it most likely will be if you did everything right, stay where you are, print another five or ten thousand, and continue to be prudent.

In any case, don't run out and rent a warehouse, hire a bunch of neighbors as salespeople, and start checking into television ads. The game market is fickle, and it's too early to overextend.

Remember, it takes about four years for the average game to reach a market position where a final decision can be made. Four years of spending every waking minute away from a real job trying to sell more games, then trying to ship them out on time, then trying to collect the money owed. It's a constant struggle, one that most people decide is not worth the effort. But if you're serious about doing a game in the first place, be absolutely committed to a four-year program from the start Perhaps you'll be lucky and it won't take so long, but it's best to be prepared for the siege.

You should be able to price your game and start selling it before the first copy ever hits the press. Try to get a running start because it takes quite a while for word of mouth to start working.

More Making and Marketing Your Game

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© Copyright 1985 by Dana Lombardy.
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