Kickstarter Lesson #225: Customer and Subscriber Acquisition Costs

20 April 2017

A few months ago I was watching Shark Tank, reveling in the art of the pitch, when Mark Cuban asked an entrepreneur a question: “What’s your customer acquisition cost?

Without hesitation, the entrepreneur had an answer. They knew exactly how much they spent on marketing (e.g., $1000, and they knew how many customers they had gained from that marketing (e.g., 250). The result was their customer acquisition cost (e.g., $4).

I paused the show, because I realized I had no idea what our customer acquisition cost is for Stonemaier Games. I made a note about it, but I didn’t act on it, as I wasn’t sure what I would do with that information.

***

Flash forward to a few days ago when I heard from James Campbell at Gut Shot Games. James will soon be launching a Kickstarter campaign for his game, H.E.A.D. Hunters. Over the last 9 months, in preparation for the campaign, he’s gone on a quest to build a crowd, and he took the initiative to write a detailed analysis of the results of that quest. You can download and read the entire document here, and I’ll talk about key points below.

James decided to use a very specific strategy: He would demo his game at conventions to build an e-newsletter list. James targeted 5 conventions, and after each one he calculated his subscriber acquisition cost:

  • Gen Con: $44.17/customer
  • PAX West: $4.44/customer
  • PAX South: $19.50/customer
  • Emerald City Comic Con: $9.19/customer
  • PAX East: $12.11/customer

It’s important to note that these costs aren’t necessarily a direct reflection of the cost of demoing at these conventions. They depend on a lot of factors, such as the location of the convention, the type of space held by Gut Shot at the convention, time spent at the convention, etc.

But I think James answered my question about what I would possibly do with the information if I knew Stonemaier’s customer (or subscriber) acquisition cost: I would know which marketing methods are worth continuing, revising, and cutting. Now that James has this information in hand, if he can only attend 1 convention next year, he can make an informed decision.

In total, Gut Shot spent over $13,400 to acquire 890 subscribers who are specifically interested in H.E.A.D. Hunters. That’s a lot of money. Is it worth it? We’ll know for sure when Kickstarter campaign launches on May 23, but for now let’s say that 30% of those customers spend $40 on Kickstarter for the game. That’s $10,680–less than he spent on subscriber acquisition–but many of those people could be Day 1 backers, providing a big boost that will impact the rest of campaign.

James’ article details a lot of lessons learned by demoing at conventions, so if that applies to you, I recommend you read the whole thing.

The other way this information is useful is that it’s another data point to plug into calculations for MSRP and Kickstarter reward prices. If you know that a distributor is going to buy your $60 game for $24 and that your manufacturing cost and freight shipping costs per unit are $14, it makes a big difference if your customer acquisition cost is $2 or if it’s $8. That’s could make a big difference in your ability to afford a new print run.

Two other things I like about James’ article and strategy:

  • James only collected information from people who are specifically interested in his game. This is a focus on quality over quantity–I’d much rather have 1000 people who genuinely want to know more about Stonemaier than 10,000 people who signed up because they wanted to win a free game.
  • James focused on e-newsletter subscribers, not Facebook fans or Twitter followers. There’s merit in all forms of social media, but I think an e-newsletter is by far the most powerful of them. Only a small percentage of Facebook fans will see an unpromoted post, but your e-newsletter will end up in every inbox.

***

So where does that leave Stonemaier? The truth is, it’s pretty nebulous, as we do very little direct marketing. When I’ve run campaigns in the past, I’ve shared the data, so there’s some information here (particularly about conversion rates for BoardGameGeek ads).

Also, I rarely sell directly to individual consumers these days. Rather, my customers are distributors, a few retailers, and international partners. I haven’t gone to any trade shows, so the only marketing expense is my time, which is hard to calculate.

The closest I can come to providing any data is Gen Con 2016, where we sold 1000 copies of Scythe through another company’s booth. We sold 1000 copies of Scythe and spent $10,029, so that’s roughly $10 per customer. For Scythe, at least. In the conference room where we operated, we demoed all of our games and met a ton of people–it was more relationship-driven than sales-driven.

***

To summarize, there are two key ways to use customer or subscriber acquisition costs:

  1. To provide a threshold to compare against other strategies (or to repeat/tweak existing strategies).
  2. Make informed decisions about pricing strategies and budgetary practices.

Do you calculate customer and subscribers acquisition costs? What have you learned from doing so?

Also read: This article about Facebook Ads.

15 Comments on “Kickstarter Lesson #225: Customer and Subscriber Acquisition Costs

  1. The best use of acquisition cost is to compare with average Customer Lifetime Value. If your CLV is higher than your acquisition cost, you’re doing well.

  2. I think you can’t remove the “# of Email Sign Ups” information from James’ examples.
    Because when just saying:
    – Gen Con: $44.17/customer
    – PAX West: $4.44/customer
    You want to conclude that you only need to go to PAX West next time, but if you say you made 100 subscription at Gen Con for $44.17/subscription and 10 PAX West for $4.44/subscription, the conclusion is less obvious.

  3. Thank you so much for all your awesome articles Jamey! I don’t always have time to read every one anymore but the ones I catch are continuing to tackle great issues!

    One thought: quality over quantity is good – but quantity doesn’t hurt either (why not both?). Segmented lists make it pretty easy to manage both very interested subscribers and general subscribers who arrived via contest or other means. The latter can be valuable for infrequent messages as a certain percentage will convert to the “quality” list. Also when offering a future product / game you already have a broad avenue for an initial announcement from which to segment off quality interest in that new product.

    1. Roger: I agree, for e-newsletter lists, quantity rarely hurts (other than a higher Mailchimp monthly fee). For Facebook, though, I think it can do a lot of damage, as it heavily dilutes your fans, meaning that fewer people who are genuinely interested in your updates will see them appear on their feed.

  4. The tricky thing is there are other benefits that can’t be measured purely from a CAC calculation. With each customer you acquire there’s presumably some word of mouth and brand awareness that you gain. That means even if you break even, there may be some other less measurable benefits that make it worthwhile. You alluded to that with the day 1 boost that Gutshot would gain which is a difficult thing to measure from a numbers perspective.

    Another thing you’ll have to consider is the COGS (cost of goods sold). Let’s say you spent $10k marketing/conventions and got back $10k in sales/revenue. If you read the numbers plainly, you actually didn’t break even but lost money because 20% of that $10k sales you made was used to manufacture and freight the games.

    I was lucky enough to get a free booth at PAX South through the Indie Showcase. I ran a rough set of calculations — the same kind that Gutshot did. I don’t have a game to sell yet but was simply collecting emails. I ended up getting about 300 emails, which is about 1 email every 5 minutes for the 3 days I was there. I can’t imagine getting emails at a much faster rate without having a larger booth. So on that respect, it’s a best-case scenario (we had a lot of exposure for being part of the Indie Showcase).

    Flight + hotel was roughly $2.5k. Booth was free but it it wasn’t it would probably be $1k. There was also about $500 or so in costs for marketing materials like buttons, signage, etc (some of which is one-time up front costs). So for us, the cost per email was around $10 but without the free booth it would be $13 and without the Indie Showcase exposure and prime booth spot, the number of signups would be lower as well (we were PACKED all weekend).

    And then when you consider that email != sale and apply a generous 30% conversion rate as you did in your post, the CAC becomes around $30.

    In the end, my conclusion was that conventions for first-time indie game publishers is hard to justify from a purely financial and time analysis unless you can eliminate the flight and/or hotel cost (i.e. local convention). You’ll likely break even plus or minus $1k. You’ll also have dedicated your entire weekend to the affair. However, I wouldn’t give up my time at PAX South for any dollar amount because it was a priceless experience, and I was also able to connect with a bunch of people in the industry who have been valuable connections to have.

    1. Joseph: This is an excellent analysis! I’d also add that conventions are a powerful way to create the foundation for a lifetime fan. So you may have spent $30 per customer up front, but if even a small percentage of them are lifetime customers, that’s a great return on investment.

    2. A key learning I hope others find useful, is the potential value and reach of the various opportunities for Indie Publishers at primarily video game events. Being selected for these events is a great opportunity as they tend to have great presence on the show floor, increased media attention and come at a fraction of the cost of buying your own space outright. The only downside is the space can be limited – as an example, at Indie MEGABooth you get a single 30″ round table which would be very hard to play a game like Scythe on :)

      Here is an example of some of those opportunities:

      Indie MEGABooth selects up to 10 tabletop games to showcase at PAX East & PAX West.
      http://indiemegabooth.com/

      IndieCade also selects tabletop games at their dedicated events as well as a showcase at E3
      http://www.indiecade.com/e3_2016/games

      At PAX South, Penny Arcade has a tabletop showcase and the event overall has a much higher tabletop focus compared to other PAX Events
      http://south.paxsite.com/psis

      A great resource for keeping track of these and other opportunities is the Promoter website (https://www.promoterapp.com/). Video game publishers typically use the service to track promo codes and media mentions but I personally love it for it’s calendar feature (accessing the calendar is free but not all of the other features are). The calendar gives a view of upcoming events that Indie’s can submit their game to, submission deadlines, location, platforms considered (including tabletop) and any fees.

  5. Great post Jamey. Thank you sharing Gut Shot’s document and story with us. A year ago, we started with a similar approach of attending several large conventions to acquire customers/subscribers for Kingdoms Lawn Game. However, after attending GENCON 2016, we realized being a “tadpole in an ocean” might not be the best approach.

    I have a good friend who started a craft brewery in Bemidji Minnesota called “Bemidji Brewing”. He really stressed to me the philosophy of building a brand/company from the center outward – focus on the people close to you and your community to gather support and then move out from there to a regional level and so on. With that philosophy in mind, we have been attending local festivals, breweries, schools, etc. to gain awareness for Kingdoms Lawn Game. We have also attended a few smaller regional conventions such as PREZCON and UNPUB 7 in Baltimore. After only 4 months, we’ve gathered almost 250 email addresses for about 250.00 dollars in expenses.

    1. I really like that center-outward approach, and I’m glad it’s working out for you! When I launched Viticulture, I spent my first 48 hours writing individual e-mails to everyone I knew who I thought might enjoy some aspect of the campaign (even if it was just to laugh at the silly video). That’s a similar idea, just a different execution.

  6. That’s a great idea Jamey. I really really try to reach out to everyone I meet at events or online through a personal email, but I find it quite difficult to keep up when I’m meeting so many people right now. Any tips?

    I also recommend the center-outward approach for those with a limited budget. I’m a teacher, and unfortunately, don’t have the budget to afford the cost of travel/lodging/and vendor fees of the big conventions. This past weekend, I attended the Tom Tom Festival (here in Charlottesville) for free as an exhibitor. I was able to showcase and play Kingdoms Lawn Game with hundreds of people for free because I’m local and adding entertainment value to my community.

    1. Zeke: Well, I focused on friends and family as my center. You’re miles ahead of where I was when I launched–I think one big e-mail to all of your followers at the time of launch would be effective and appropriate.

  7. Wow, Gut Shot Games spent shit loads of money per subscriber – thank you, James, for sharing this! It’s an excellent lesson for all of us. In my opinion, James spent too much – I mean it is the very high rate per customer. But there is another side of the medal – conventions help to build the buzz. Especially a lot of bloggers are visiting conventions to seek new interesting stuff for their blogs, podcasts. And a lot of people will recognise the company and the game when it launches on KS. Good luck James.

    1. In hindsight, I would agree. I was most surprised by the extremely high cost of Gen Con compared to over events (especially hotel costs). This was also compounded by it being our first convention and the associated unknowns or over estimations. For example we knew Gen Con attendance was 65k. We thought our reach would be at least 20% of that amount so we ordered 15k hand outs. We needed a third of that amount.

      In terms of knowledge to share, in my experience Gen Con is not a good investment for Kickstarters that are 3mos+ out unless you are an established publisher. Instead save those dollars for a targeted ad spend or for lower cost events in your own region.

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