Kickstarting the Easy Way: How Best To Not Lose Money
I've previously written blogs about some of the details of budgeting game production for Kickstarter or otherwise and there are several excellent blogs on the subject elsewhere. As such this blog is more about how to avoid losing money, or at least which money to lose and why.
There are three places where Kickstarter boardgame projects lose money, before the project, due to unit price miscalculation, and during fulfillment and I'll try to go through them but first a little bit about the economics of "losing on a Kickstarter".
How To Lose Money On Kickstarter And Why You Might Choose To
Generally its a bad idea to intentionally budget to lose money, mainly because things always cost more than you thought they would, but you might budget your Kickstarter goal to not make back everything that you spent. There seems to be a viewpoint online that gets almost angry at the idea of a Kickstarter that doesn't intend to make a significant profit beyond the spending on the project's creation. This version of budgeting is based on a business model that exists only on Kickstarter and it requires both clever budgeting, excellent publicity lead in and pushes up the Kickstarter's goal, reducing general probability of success. Conversely, by budgeting for a larger print run than the minimum needed you can both give yourself more room for profit and contingencies. Budgeting this way means potentially making profit for the first time long after your Kickstarter is over but rather uses Kickstarter to break even or lose money in the short term, more literally Kickstarting a project. Remember that most standard business models not only don't make profit in their first 12 months they rarely break even. If your Kickstarter budget allows you to produce your game at a profit generating unit price it is possible to budget to potentially lose money in the short term for the launch of your game and still make money in the long term. Ultimately you should consider how much the advertising and legitimacy that a fully published game provides you with and set a price on that, that price is how much of a "loss" in the short term should be acceptable from your Kickstarter.
Pre-Committed Budget
Before you ever get close to launching a Kickstarter project you'll need to spend money on a range of elements including artwork, graphic design and possibly professionally shot videos, which can run into thousands. It can be tempting to set a Kickstarter goal to cover this cost but doing so is a mistake. Your Kickstarter goal should cover only what remains of your costs after getting to the beginning of your Kickstarter, because the money you have already spent is already spent and if you fail to back you won't be seeing that money again anyway. This means that unless you over fund you will have spent more post-fulfillment than you made from your Kickstarter, but this is not the same as losing money. The only way you can avoid losing money on your pre-committed budget is to fund and the best way to fund is to risk losing that money, even if you do fund.
Project Budget And Unit Price
The single most vital element to budget correctly is your final unit price, luckily its easy to figure out. Calculate your final overall project cost from first penny spent to the game arriving in your hands plus an acceptable level of profit for your time and work, then divide that number by the number of units provided by your budgeted print run. So long as you do this you will eventually find a profit from your print run, although it might take a long time. There are two important elements that can ruin a carefully built unit price budget: ongoing charges and stretch goals.
Ongoing charges constitute anything you need to spend to continue selling your product after the end of your Kickstarter. The main two being storage charges (particularly fulfillment company warehousing) and online store maintenance (either by virtue of your own website or via a third party seller such as Amazon). If your budget relies on making ongoing sales you must maintain the means to do so but they may alter your budget the longer those final sales take.
Stretch goals have been much talked about so at the risk of repetition, budget every single element of stretch goals and please do not add an unbudgeted stretch goal during a campaign. There are two effective methods of budgeting for stretch goals. First you can create an original budget including a full set of stretch goals and potentially save money on unit price if you fail to meet stretch goals, this is probably best if your stretch goals will be things like a higher card stock or linen finish. It can put you in the ironic position of either not wanting to make one more stretch goal, or if you do, wanting to make a lot more than one. Budgeting to a minimum profit and not expecting more than that can help. Second, you can create a budget based upon reaching a second run of printing. If your print run is 1,000 copies then when you reach 1,001 backers you should need to engage a second print run which will not have incurred any of the pre-project costs that the first print run did. So for example if your pre-project costs are £3,000 and your manufacture and fulfillment costs are £4,000 with £3,000 for profit and contingencies your total project budget is £10,000 for a 1,000 print run and your unit price is £10. Therefore if you reach backer 1,001 you are committed to another print run which will cost £4,000 and not incur the £3,000 set up costs. So in theory you can spend £3,000 on stretch goals (bearing in mind that any increased printing costs have to be replicated across the original 1,000 units and any potential future thousands) and still be certain that your unit price will generate an eventual £6,000 profit. Actually if you're still happy with £3,000 profit you can even put your additional profit into those further stretch goals. However, you're also now in the position of having a total minimum spend of £11,000 with a potential income of £10,010, additionally Kickstarter totals can include your delivery budget (see below) and spending that on manufacturing can be fatal. Also Kickstarter allows backers to back for any amount without reward and most projects should have a range of pledge levels, meaning that 1,000 backers may not mean 1,000 units or £10,000 in funds and £10,000 in funds probably won't mean 1,000 backers. As such setting a budget for stretch goals that increase the contents of a box rather than their quality can be both difficult and risky. If you're comfortable aiming at a long term profit and are willing to sustain short term loss you can have more leeway on this subject but by far the safest plan is to make your first set of stretch goals component quality increases until you're at least at enough backers to double your print run and then start including additional component stretch goals.
On the subject of tabletop stretch goals, some manufacturers will reduce the cost of printing each unit when you print 2,000 copies as opposed to 1,000. This is what many non-creators believe to be the source of stretch goal budgets. In practice not every manufacturer offers such a reduction, particularly those offering the lowest cost on an initial printing do not, meaning that a significant reduction in unit manufacturing cost due to volume will be outside the reach of most independent games designers. This effect actually compounds many of the problems above since to benefit from volume creators will often need to change manufacturers during or after a campaign. As such it is best not to rely on or expect a volume based stretch goal option.
Fulfillment and Delivery
The source of many, if not most, projects losing money on Kickstarter is the cost of fulfillment and delivery. This is for a range of reasons but has to do with how delivery is charged on a Kickstarter either during or after the campaign.
Delivery Charges During Campaigns -
When setting up a Kickstarter pledge level a creator can set potential delivery locations and prices of delivery to those locations. This is the simplest and lowest cost method of administrating such charges and is by far the most popular with backers since it allows them to judge their final pledge commitment upfront. However, it is the method that most often causes projects to lose money, primarily due to stretch goals and unforeseen costs. These charges are included in your final total raised by Kickstarter and will vary depending on backer location, meaning that if your project is unusually popular in your highest charging delivery location an unexpectedly high percentage of your raised total can go on delivery rather than manufacture. If your delivery charges are accurate and unit cost well budgeted these losses will only be temporary but unfortunately if a project hugely over backs those temporary losses may be enough that you can't cover them even temporarily. Simple fulfillment companies can assist here but by far the greater percentage of issues is created by stretch goal success. Since this method presets delivery costs, which are based on weights if a stretch goal increases the weight of a unit to higher delivery charge category there can be no way of increasing delivery charges. Stretch goals tend to only kick in when a project has a high number of backers such that a minor increase in charges can generate unfunded costs in the thousands. The best solution to this problem is simple in theory but tricky in practice, generate a prototype of your project with every possible stretch goal included, weigh it and use it to set your delivery charge price. If your stretch goals involve additional cards or repeats of other regular components this can be simple enough but if your project includes additional miniatures then it can present a serious upfront cost. If you absolutely must include stretch goals such as miniatures, metal coins or other weight adjusting but not checkable elements remember to allow generous weight margins on your delivery costs and seriously consider business insurance or other protection against losses beyond that which you can personally sustain. Remember, creators who have fallen foul of this problem have been left paying off delivery charges for months or even years.
Delivery Charges Post-Campaign -
The other method of covering delivery costs is to use a pledge manager and charge them post-campaign. This is seen as safer for creators but is generally unpopular with backers and has its own risks and problems. It should be obvious why asking backers to commit to an unknown charge from an unproven source to receive a product in months or years is unpopular, particularly since backers are aware that the only reason to charge delivery post Kickstarter is that it might increase. From the creator's side the advantages to being able to set costs based on a final print run version of their product is equally obvious, however there are risks aside from loss of initial backers. Firstly, this system requires pledge managers which are neither free nor simple to set up, anecdotally I have backed at least one project that suffered a 3 month delay while setting up their pledge manager. While this is unlikely to matter for your current project it could reduce backer confidence and uptake for future projects. What could be immediately significant is that this system does give backers an additional chance to back out either intentionally or due to payment failure. Kickstarter is fairly transparent when it comes to project's statistics but the wide range of pledge manager companies makes pinning down drop out numbers during those later stages much harder. However, it would stand to reason that the number of backers lost at this stage is not zero, in fact accidental card failure at the Kickstarter stage seems to come in at around the 0.5 - 1% level. Pledge manager drop outs presumably average at this level or higher. Its also often unclear what the options for backers unhappy with charge levels at this point actually are or how refunds (post Kickstarter having taken its percentage) are handled. This can lead to an uncomfortable feeling for backers of being trapped and a potential loss of capital for creators. Whilst this method can avoid the sort of nightmare scenario leaving creators in debt for years it is not a choice without downsides, and should be considered secondary to careful and accurate budgeting.
In conclusion, it is the primary mistake of some creators to consider a Kickstarter campaign that they are out of pocket at the end of to be the same as a Kickstarter campaign that lost money. The purpose of a Kickstarter is arguably best considered to be to allow a creator to put their project into the market place with the ultimate success or profit of that project being decided after the campaign is complete. Profit within a Kickstarter campaign is possible, but it demands specific skills and resources which may not be available and it does not equate directly with success.