I have the utmost gratitude for my coworker Alex’s attention to detail and precision for pricing products. When he joined Stonemaier Games a few years ago, he created a formula that took into account all sorts of elements I’ll discuss below that helped me realize that we were losing money on certain products when purchased by themselves. We still have very tight margins on many products, and the huge freight shipping costs over the last few years haven’t helped, but the formula has made a significant difference.
The formula for any price–whether it’s a temporary sale price or the standard retail MSRP–requires a tight balance between attracting customers (as it relates to the product’s perceived value) and maintaining sustainability (often as it relates to not losing money and ideally making enough profit to afford a reprint).
Let’s look at components of the formula (per unit):
- Landed cost: This is the manufacturing cost (we base this on the cost at 5000 units, but you could use a lower quantity cost for your formula) plus the freight shipping cost from the factory to the warehouse.
- Royalty: This is the amount you pay to the designer and/or the IP owner (typically based on revenue).
- Sunk costs: This is the total spent on one-time expenses like art, graphic design, diecuts, and miniature molds. If you choose to include this cost in your formula–which we don’t–I’d recommend only doing so in the first print run.
- Parcel shipping cost: This is the actual cost to ship a single copy of the product, including labor, postage, and handling. This doesn’t directly impact the MSRP (which is focused on retail/distribution), but it matters for the direct price you charge (crowdfunding, webstore, etc).
- Customer shipping fee: This is the fee you charge to customers for shipping, and it’s often subsidized to make shipping more palatable to customers.
- Ongoing discounts: This is where you account for discounts for customers, retailers, or distributors. For example, if you have a loyalty or membership program, some customers may consistently pay a lower price (e.g., Stonemaier Champions get a 20% discount on all webstore orders). Distributors get a ~60-65% discount and direct retailers a ~45-50% discount.
Other factors:
- Volatility: Many of these elements are highly variable based on your circumstances. I recommend padding the final numbers a bit to take into account volatile elements like freight shipping costs and exchange rates.
- Deluxification: Some products may not work for retail/distribution at all. For example, if you have a deluxe version of a game on Kickstarter that will only ever be sold directly to consumers, your margins–and thus your pricing calculation–are quite different than when you’re factoring in retail/distributor discounts.
- Market Research: I try to stay aware of how other similar products are priced (MSRP and sale pricing), particularly if the products are successful across multiple reprints.
As for the formula itself, it’s flexible based on the multiplier you choose. At Stonemaier Games, we start with the manufacturing cost x 5, then we adjust from there based on freight shipping and royalty costs to determine the MSRP for retailers/distributors; we factor in the shipping subsidy and Champion discount when considering any temporary sale prices on our webstore.
We have a Google Doc for our products that shows this calculation and displays profitability at different MSRPs and sale prices. It’s an extremely helpful visual that highlights the vast differences between products and types of customers. I often plug in hypothetical prices and costs during the design process (from early estimates) to give myself time to design/develop around a target price.
Here’s an example: The Tuscany expansion costs $6.50 to manufacture, so strictly at a 5x multiplier, that would indicate an MSRP of $32.50. However, the freight shipping costs are $3/unit, bringing the total landed cost up to $9.50. So we bumped the MSRP up to $35. Like any product that we consistently reprint, most are sold to distributors at a 60% discount, meaning they buy Tuscany from us for $14, resulting in a profit per until of $5.50.
By itself, $5.50 is not a sustainable profit margin for a landed cost of $9.50 (it isn’t enough to fund a unit in a reprint); for this reason, publishers may consider a 6x, 7x, or even 8x multiplier on the manufacturing cost (or a 5x multiplier on the landed cost instead of the manufacturing cost). However, this is where having a robust webstore with healthy margins can augment and impact the MSRP. Our webstore profit per unit on copies of Tuscany sold to Champions is $14–that’s considerably higher than the $9.50 landed cost (and that’s why the inclusion of a shipping subsidy and ongoing discounts in the formula is important).
I hope this is helpful even though there isn’t a set, magic formula that you can always use for every product. It’s really more about testing different prices while considering the variables and sales channels. Here are some other articles that may help:
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26 Comments on “A Price Formula for Your Product (Direct and Retail)”
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I’ve been thinking about this a lot since I read it, and at least part of the thought rolling around in my mind is that I’m probably not what you think of as a typical customer. I’m not too price-sensitive when it comes to good board games, and yes, I recognize how incredibly fortunate I am in life to say that.
The things I want most when shopping for this hobby are a variety of great games, with good-quality components (including as #1 a clear rulebook), and availability. That last one seems to be a real stickler these days. It seems like the most common reason I don’t buy a game is that it’s not in stock. I can’t remember a time when I thought, “I’d buy it if only it were five or ten dollars cheaper.”
I guess what I’m trying to say is that I’m okay if good games cost a bit more. That’s true especially at the top end of the market, and Stonemeier games are definitely a premium product. It’s even more the case for YOUR premium items, like the recent Nesting Box. A beautiful big box, with organizers, plus an expansion THAT ALSO plays standalone? When I look up what I paid as a Champion…I paid too little.
If it helps you make more games, or keep more in stock, then please! Charge me more!
Gotta say I’m increasingly impressed by your transparency. Aside from being a fascinating read, I feel that reading this would help people/customers understand why some products are priced the way they are and help make expensive ones more digestible.
Thanks Giulia! Hopefully it helps a little bit. :)
Good games hold there prices more and SM make high quality games :)
Very interesting. Clearly, there is a huge difference if selling to distributors than directly from your website. May I ask what % of sales are sold through distribution (and what % directly from your store)? Do you think this is a normal ratio for publishers? Or your ratio of webstore sales is larger thanks to the Champion program?
Around 80% of our sales are through distribution, then 10% to localization partners and 10% through our webstore. I think our webstore sales are larger than most publishers, but many other publishers use crowdfunding, which may be a much bigger percentage of their sales.
Thanks. Numbers are close to what I expected. I am amazed that 80% of sales are slightly under reprint profit yet the other 20% seems to be enough to push it above the threshold.
This is great! Thank you for sharing so openly. It is often that the End-users do not undestand the price structure and the cost distibution of the MSRP, most of it actually goes to the retailers. As a small indie publisher, it is often difficult to compete in prices as we cannot produce the same quantity as the larger ones. But in order to be conisdered, I often have to lower the margin down to absolute minimum. It is expensive to be small. :)
I’m curious about the phrasing of the $5.50 profit margin not being sustainable at a landed cost of $9.50. Is there a particular benchmark for the profit to landed cost that you’re aiming for, or is it simply that the lower your profit the more copies you have to sell to be a viable business?
On the landed cost side, as a relatively small % of the product I know it’s quite easy to fall into traps with deluxification. I looked into pricing PVC cards for Micro Bots and the difference between paper and PVC is only 50 cents per copy. That sounds pretty amazing in the abstract, but when a copy with paper cards is $1.40 to manufacture, 50 cents is actually a pretty huge impact on the profitability per copy.
Ben: The benchmark I’m typically aiming for it enough profit to fund a reprint. So if the landed cost for a game is $10, I’m hoping for $10 in profit so each copy sold can fund a reprinted copy.
Thanks Jamey, that’s what I thought, and I guess that holds up nicely under the 5x landed cost model
I always have the problem, that it is difficult for me to imagine the mrsp, they will have an example spreadsheet, where it can be seen more numerically
Jamey, thank you for sharing these amazing information. I have been playing with MSRP thing for awhile and sometime 5x manufacturing cost is just so difficult for us to have a healthy profit margin as a business.
I am wondering have you ever put marketing cost into the game, since most of the profits from publisher are come from selling games, correct me if I’m wrong. Also, when you say to set up the MSRP, SM starts with 5x manufacturing cost, then adjust it with shipping and royalty cost, how does the royalty part works in here? Thx
George: I consider every cost for a game part of marketing it. :) Are you referring to advertising expenses? I guess we could, but they really don’t add up to be all that much (though I could see for a small batch that might be worth accounting for).
We pay royalties on revenue received. That can depend on how we sell the game, so it’s an estimate in the formula.
Great info! Thank you.
The details listed for Sunk Costs appear to be Fixed Costs. Those are normally considered after Variable Costs’ margin calculations as the way to know how many need to be sold to reach profitability (everything after margins * X reaches the Fixed Costs is profit).
Adding Fixed Costs into your margin calculations, while strange, would show if the 1st print run will be profitable, but isn’t normally done because it prevents comparably between future print runs, where the Fixed Costs are much lower.
Too much Shark Tank, sorry!
Fun to think about anyway.
That’s just basic accounting. You also have to remember your overhead costs (rent, utilities, office staff salaries, and so forth) which can hopefully be distributed over several product lines.
Jamey, this was very insightful even from a consumer perspective. What immediately comes to mind is regarding the products that are distributed to other retailers. Do you monitor the retail prices from other webstores to ensure your own storefront is competitively priced? I appreciate all the excellent content and discussion you provide.
Super interesting read, and very generous of you to offer actual numbers to illustrate your point.
Now I gotta ask: why did you decide not to include sunk cost in your formula, if only for the first printing?
Francis: The way I see it, every product we make is something that we hope to reprint at least a few times, so any sunk costs have a lower and lower impact per unit every time we make a reprint. I don’t want to overinflate prices for the first print run due to those sunk costs. I think they’re important to be aware of, but maybe not to consider on a unit-by-unit basis.
Chris: I would say that it’s exceptionally rare that I look at the prices that retailers are charging for our products. I do try to ensure that we’re offering competitive-yet-profitable prices for Champions and non-Champions alike, but only some of our products are on sale some of the time (largely because Champions always get a 20% discount).
Thanks for the insightful article. I remember from the days that I worked in music distribution that exchange rate could be another factor that had a huge impact on our profitability.
That’s a great point about the exchange rate!
“By itself, $5.50 is not a sustainable profit margin for a landed cost of $9.50”
I’d love to know how making ~50% profit on your investment of $9.50 isn’t sustainable….
and I know Stonemaier is committed to the retail channels (for good reason), but every time you detail how much of the profit retailers eat up it makes me think the whole industry needs to be reformed. Stonemaier does an enormous amount of work in marketing/brand-building/interacting with players. The profit split shouldn’t favor the distributors/retailers to such an extent, imo.
Matt: It isn’t sustainable because we haven’t even made enough per unit sold to afford a reprint, much less the other operations costs.
If it’s a one-time printing, you’re right, that amount of profit is acceptable. But we don’t make any product in the hopes that it will only ever get printed once.