Kickstarter Lesson #59: The Myth of MSRP

24 September 2013

I stood in line in the sweltering heat for what felt like hours. It was the middle of August, and the AC was broken at the St. Louis Division of Manufacturer’s Suggested Retail Price. Just my luck.

The paperwork in my hands–filled out in triplicate by typewriter, per the instructions–was sticky with sweat by the time I reached the the front of the line.

“Next!” called out the lady behind the counter. She was wearing those pointy horn-rimmed glass that went out of style in the ’50s, and her hair was in a bun so tight that her lips were pulled into a permanent grimace.

I slid the completed forms under the bulletproof glass and waited while the lady–Ms. Tennyflower, MSRP Administrator, the nameplate read–reviewed them. After a few minutes, she pointed the tip of her pen at page 4, section 3.

“You checked two boxes here. It says to choose one.”

I was prepared for this. “Yes, thank you. You see, it’s a winemaking board game–Viticulture–so I wasn’t sure if I should put it in the “games” category or the “wine” category. It has a little bit of both, so–”

“Is there wine in the game?” she asked, peering over her glasses.

“Well, like, wine tokens. But no alcohol.”

She was already scratching out the incorrect answer and stamping her approval on all three sets of forms. “It’s a game. Take these to Room 942. Your MSRP hearing begins in 2 minutes.”

Two minutes! I grabbed the forms and sprinted down the hall. The elevators were too much of a gamble, so I dashed up the stairs. I was gasping for breath by the time I made it to Room 942. The security guard at the door scanned the top form for Ms. Tennyflower’s stamp before taking the documents and ushering me into the room.

The room–more of an auditorium, really–was empty save a long, curved desk in the front. Two men and one woman sat behind it, each wearing a purple robe and an expression of superiority. Their average age must have been at least 65.

The security guard handed copies of my application to the MSRP judges. Without looking up, the judge in the middle said, “You can take a seat, Mr. Stegmaier.”

Where do you sit in an empty auditorium? I chose the second row and eased into a hard wooden chair.

“All rise!” said the security guard. I stood up. Such formalities.

After stating my name to the court and swearing in upon a copy of Freakonomics, the head judge asked, “Will your accountant be joining us today, Mr. Stegmaier?”

“No sir, I’ll be representing myself.”

The female judge–who I swear hadn’t even looked at the forms–addressed me with a smirk. “And what do you plead?”

I tried to recall the formal language of the court as I had studied online over the last few days. “I hereby plead for the court to consider an MSRP of $70 for Viticulture: The Strategic Game of Winemaking.”

The man on the left chortled before being hushed by the head judge. “How do you justify such an MSRP, Mr. Stegmaier? I will remind you just this once that you are under oath.”

“Yes sir,” I said. “My research showed that games with similar types of custom components and pieces have MSRPs of at least $70.”

“And where, pray tell, were those games registered?” The female judge really did not like me.

“Germany, ma’am.”

All three judges burst into laughter. I think the one on the left actually guffawed. Gasping for breath, he said, “Germany? This is St. Louis, son! We’re talking about Mississippi dollars here, not Berlin pesos! This boy comes in here, thinking he’s getting a $70 MSRP. My lord.”

I’m pretty sure the last few lines were directed at the other judges, not me.

The head judge wiped his brow with a handkerchief. “Mr. Stegmaier, from what I can tell from this components list, you’ve got yourself a $65 game at best. And that’s if it comes with my wife’s homemade pecan pie in each box. Tell me, Mr. Stegmaier–does Viticulture include a pecan pie?”

“No sir it doesn’t.”

“Well that simplifies things, doesn’t it? All in favor of a $60 MSRP, say ‘aye’.” The other judges, expressions of superiority having returned to their faces, replied in unison.

The head judge stamped the price on his forms and handed it to the security guard, who ushered me to the door. As I turned the handle, the judge called out, “Oh, Mr. Stegmaier?”

I turned. “Yes sir?”

“Good luck with your Kickstarter.”

***

Some people–myself included, as of last year–think that MSRP is an officially assigned number. Hence the elaborate fictional account above. That’s how my overly active imagination thought MSRP worked.

But as I’m sure you can tell, that’s not how MSRP works. If you’re making a product, you get to choose the MSRP. You literally just get to make up the number.

I’ll keep this short since this entry is already quite long: Basically all you have to do is look at other published products in your category and base the MSRP off of those products. If that number is close to 5x your manufacturing cost, that’s your MSRP. (See an excellent analysis of the 5x formula by Randy Hoyt of Foxtrot Games here.)

Keep in mind that if you intend for your product to enter traditional distribution post-Kickstarter, your MSRP will determine your cut. For example, in the board game category, distributors purchase games from you for 40% of MSRP. So if it’s a $100 game, you get $40 when a distributor buys a copy. Retailers pay 50% of MSRP.

Why do you need an MSRP for your Kickstarter project? Because it gives backers a reference point so they know how big of a discount they’re getting. And they should get a discount. Keep in mind that they’re pledging to support something sight unseen that they’re hoping to receive someday. They’re taking a big gamble on you, and they deserve a nice discount for doing so. I recommend 10-20% off MSRP, especially considering that online retailers will discount the product post-Kickstarter.

However, you should also keep in mind that the product you’re creating on Kickstarter will most likely be better than the retail version thanks to your Kickstarter-exclusive stretch goals. You won’t be selling that version in stores, so it shouldn’t need an MSRP. But if you allow retailers to buy into your Kickstarter at a discount, you need to factor in all those Kickstarter extras while determining their price.

If you’re trying to determine your product’s MSRP, feel free to post a description of it below and fellow readers can help you decide.

36 Comments on “Kickstarter Lesson #59: The Myth of MSRP

  1. I love the story, and I think the message is spot on. However, I think it’s also useful for self-publishers to think about all of this as they decide whether or not they can profitably produce and sell their game idea.

    If similar games to yours are selling for a $50 MSRP, then you have to do the math and realize that you have to be able to sustain a business if you’re only getting $20 for most of your sales (40% of the $50 MSRP when you sell to distributors). Obviously you’ll get to keep more of that for direct sales (including via Kickstarter), but if it’s going to cost you $18 to manufacture your game and have it shipped to your warehouse and then shipped to distributors, can you sustain your business if you’re only netting $2 on that distributor sale?

    I’m guessing that most first-time publishers will have to be satisfied with a relatively small margin (maybe keeping a profit of $5 on that $20 sale) as they get started, simply because they won’t be doing large enough print runs to get their per-unit costs down to the point where they can really compete with larger publishers on price. It’s either accept a smaller per-unit profit, or try to sell for a higher MSRP (which I think you’ve done a good job of explaining as a not-great plan).

    If you’re having 1,000 copies of your game printed, the per-unit cost is going to be high for you. If you’re printing 2,000 copies, the costs come down nicely. If you’re doing 5,000, then it looks like a good business… but only if you have enough demand to sell those 5,000. Most first-time publishers will struggle there.

    It’s a tough business, kids! But follow Jamey’s advice and you’ll keep yourself from making expensive mistakes.

    1. Michael–Great points. You definitely have to look at your production cost and margins. But as you mention (Nathan, this responds to your point), you don’t know how many units you’re producing when you launch a Kickstarter campaign, nor do you know how many stretch goals you’ll hit, so it’s really tough to tell what the production cost per unit will be. You just have to budget on the safe side while pricing your game in line with similar games.

  2. I feel like you’re doing that the wrong way round.

    You don’t get a cut of the RRP per se – you determine the RRP by figuring out the cost of the game and then adding the markup surely?

    I never have, but that’s how I’d do it… :-/

    1. Brilliant story, Jamey. well crafted. Solid advice too :)

      I think an Indie has to sell direct as much as possible at first (to willing stores as well as gamers). Certainly the opportunity is there to do that these days more than ever before. I could make this reply so very long, covering off all the points running through my head right now, but that’s the crux of it I think.

      But of course one should still, most definitely take into account the middle men for those sales that go that way or will (hopefully) go that way in the future.

      Michael – Good points, well made. To emphasise the warehouse fees you mention: For us in the UK, to get the games to an overseas distributor, we need to ship them over and a fulfilment house would do this for a cut as well and that’s 5-10% on top of the distributor’s cut. So that takes the 40% down a little bit more. Unless the publisher can drive their games over themselves (we did this with Esdevium – a UK distributor. Not really possible to the US though …)

      Really great articles, Jamey.

      1. Lloyd–Absolutely, direct sales are incredibly important. For Stonemaier, we really don’t make a profit on the Kickstarter versions of our games–any profitability comes from selling retail versions post Kickstarter. That may be different for other companies.

  3. Jamey

    I think your paragraphs,

    “Why do you need an MSRP for your Kickstarter project? Because it gives backers a reference point so they know how big of a discount they’re getting. And they should get a discount. Keep in mind that they’re pledging to support something sight unseen that they’re hoping to receive someday. They’re taking a big gamble on you, and they deserve a nice discount for doing so. I recommend 10-20% off MSRP, especially considering that online retailers will discount the product post-Kickstarter.

    However, you should also keep in mind that the product you’re creating on Kickstarter will most likely be better than the retail version thanks to your Kickstarter-exclusive stretch goals. You won’t be selling that version in stores, so it shouldn’t need an MSRP. But if you allow retailers to buy into your Kickstarter at a discount, you need to factor in all those Kickstarter extras while determining their price.”

    make a good point. But what I find really striking about this is the difference between a self/very small game publisher and a well established publisher that tells backers in the kickstarter “We don’t need to use KS, this game would eventually get published through our regular pipeline, BUT we want to use KS so we can publish MORE games this year” and then ask backers to pay full MSRP and DO NOT offer any KS exclusive items in the project.

    I have been involved in several tense, and some at times even heated, discussions on the difference between the two types of projects.

    1. Faith–I think that’s why you don’t see many established publishers having campaigns that get really big on Kickstarter (and those that do, like TMG and Cool Mini, offer incredible values on Kickstarter).

  4. Jamey –

    Excellent post. One real question is whether you are making the game yourself or having it contract manufactured.

    I know most game makers contract the game production out, but if you make the game yourself you may be able to control costs better. This is why a lot of game publishers in the old days were printers making games during their”idle” cycles.

    I’ve been interested in this problem for a while and I’m planning a blog about game manufacturing.

    1. Can you describe what you mean by “making the game yourself”? Do you mean buying printing equipment, moulds, wood-cutting machines, etc? The setup cost for that would be incredibly expensive. Either that or the quality of the components would be really low compared to a manufacturer (and the cost would probably still be higher).

  5. Screen printing or some thermal transfer techniques can be done at very high quality. Manufacturing with wood or some castings as well.

    4 color art quality screens can be produced at around $80 per color. A table saw can be purchased for a couple of hundred dollars. The advantage of considering these options is to create games that a mass printer could not consider and produce products profitably at lower volumes.

    There are craftsmen making reasonable money making chess sets on Etsy – why not original games?

    Kickstarter has shown there is a market for more expensive games, too.

    1. At very small volumes, it’s possible. But all of you reward levels would have to be limited. You might be able to make 50 premium games and sell them at $200 (that’s a big maybe, but it’s possible), but if you don’t have limited rewards and suddenly you’re making 500 games, that would be extremely difficult.

      I don’t want to discourage your creativity–by all means, give it a try and let me know how it goes! :)

      1. Kickstarter is a great option for game creators, but it shouldn’t be the only one.

        For me, the most interesting part of looking at games this way is the expanded game design possibilities.

        I’m not discouraged at all. Another part of this could be to add additional premium options to Kickstarter games (many of which are already quantity limited).

        There are also good games that may viable at smaller quantities than would work at the standard card game or boardgame run from Ludofact or Panda.

      2. I think the type of market you make (playnoevil’s specialty niche, Jamey’s larger-scale production) really has to be driven by the product. Look at “Boss Monster”, mode (highest number of backers) was at $40, while for Kingdom Death: Monster it was at $155. Arguably the hard-core mini rpg gamers aren’t going to be satisfied with a game as light as Boss Monster, so these are different markets for completely different products and completely different gaming experiences.

        I think Kickstarter does one thing extremely well – aggregates interest. While Amazon showed the value of “The Long Tail” by offering every product imaginable and setting the market in many, and eBay sold information that allowed the market to set its own price, Kickstarter generates a process that precedes both Amazon and eBay by allowing a product to be generated. The best Kickstarters IMHO allow a recursive feedback so that the entrepreneur presents a good idea that the backers make better over time, and in turn fine-tunes the innovation to meet the best demand.

        It is true that companies use Kickstarter as a “pre-sales” approach, and they have a higher visibility than, say, when Queen Games (awesome as they are) does a pre-order on its own sight. The enthusiasm that’s generated is far greater on Kickstarter, and the opportunity to branch out to a wider customer base is there as well (say folks were turned off by Alhambra and never looked at Queen again).

  6. I Really enjoyed your account of The MSRP Inquisition Squad! … yes I agree whole heartedly… that MSRP is extremely important to establish your game’s future as well as it’s present state… It adds value as well as accountability… If your game doesn’t end up living up to it’s MSRP or its “Box Sized Pricing” then bad blood will be boiled… if however your game is Jam-Packed with amazing Gaming Goodness…. You’ll become a golden God of “This game has 48 minis and tons of awesome components! I love these guys! $100 bucks for a board game… Absolutely! No Problemo! “

    1. Thanks Chris! I’m glad you enjoyed it. You’re completely right about the game and its components living up to the sticker price.

  7. Hey Everyone,

    I want to take Jamey up on his offer of running my MSRP thoughts passed you guys. I’m currently working on a board game that will come in a box that is 8.75″ x 11.25″ x 2″ and shouldn’t weigh more than 1kg. The game components are as follows:

    1 11″ x 17″ bi fold game board
    6 4″ x 8″ Player Mats
    6 8″ x 8″ Hacking Mats
    1 Tool Inventory List (regular letter sized paper)
    6 Player Reference Cards (regular letter sized paper)
    6 Sets of Cardboard Tetrominoes (2mm punch board)
    34 Target cards (300 gsm poker size)
    162 Tools cards (300 gsm poker size)
    29 Event Cards (300 gsm poker size)
    18 Insider cards (300 gsm poker size)
    1 D6 die and 5 D20 dice (16mm)
    1 wood coloured token to track turns
    1 first player’s token
    18 wooden cubes – 3 in each of the following colours: black, blue, green, orange, red, yellow (10 mm)
    24 wooden discs – 4 in each of the following colours: black, blue, green, orange, red, yellow (10mm)
    Bit Coins in 50, 100, 250, 500, and 1000 denominations (2 mm punch board)
    5 Sand Timers – one each at 30 secs, 60 secs, 90 secs, 120 secs, and 150 secs
    1 Rules book (letter glossy)
    1 book of Hacker Objectives (letter glossy)
    6 4” x 8” Ziploc bags – 1 for each player to store their player’s mat, hacking mat, and coloured cubes and discs
    4 3.5” x 5” Ziploc bags – 1 for each deck of cards
    1 4” x 5” Ziploc bag – for coins and dice

    Waiting on a quote from Panda, but I’m thinking that my MSRP will be $60. Any thoughts on how reasonable this is? Am I way high or way low?

    Any help you can provide would be appreciated.

    Thanks,

    Raymond

  8. Hi Jamey! I’m launching my kickstarter campaign for Feudum in 32 days. (gulp). I am offering an offline retailer discount (10+ games) at 50% of KS MSRP. (online at 40% off MS KSRP for only 5 games). However, some folks are asking me about larger (distributer level) volume discounts. (Nice problem to have!) I realize that distributers expect 60% off MSRP, but at what volume (in your opinion) should this distributer discount kick in? 50 games? 100 games? Is there a rule of thumb for this?

    Before you answer, please consider this….. When I apply 5x manufacturing cost to a minimum production of 1500 games, I wind up with an MSRP well over a $100. However, at 5000, it comes down to a more reasonable MSRP ($79ish)…Based on some price research based on other games of similar size and number of components, I felt i had to set the MSRP around $79 and my KS MSRP at $89. But, this lower MSRP price makes discounting games for retailers and distributors a bit nerve racking, knowing that the discounts only make sense if the demand forces a larger print run.

    1. Mark: Thanks for sharing your detailed question here–I appreciate this level of transparency. I would say that a distributor discount should strictly be applied to distributors (60% discount off KS MSRP), just as a retail discount should strictly be applied to retailers (opposed to, say, group orders).

      The reason the big distributor or retail discounts can end up being okay is if they’re buying in bulk. So you can set any minimum quantities that works for you. Retailers generally don’t like minimums, but distributors are going to understand if you require them to buy at least X number of games.

      1. Jamey: Haha… Yeah, details. You are the king of details, so I figured I’d go straight to the top. You bring up another interesting point. Group orders. Are you saying you avoid discounts for large group orders of say 20 to 30 games? Does this undermine retailer and distributor relationships? Or, is there a special place in your heart for group orders from large clubs. (say from other countries).

        1. Mark: Indeed, for all of my recent projects, the largest order I allowed was 3 games. It’s because shipping costs become much more varied (and expensive) beyond that, and, as you noted, it undermines retail backers. Check out the wording on some of my recent projects and you’ll see how I do it.

  9. Jamey this is about the 20th helpful article I’ve read from you, so I’ll say me 2nd thank you. Thank you!! I also have really come to appreciate your policy of posting questions on these forums. It’s beyond useful to read others’ questions and responses. And now I’ll take you up on the MSRP recommendation offer as well.

    My Kickstarter for Abandon Planet is wrapping up right now. The game was already not cheap to produce, because it has 8 custom rocket models each with a different color. On top of that, I’ve added a plastic insert and 88 custom wooden tokens through Kickstarter upgrades.

    In an ideal world, I would really like to sell ‘one game, one box.’ As in you don’t need to buy extra things to have the game that everyone else has. I don’t *want* to have generic wooden cubes be the standard, with custom tokens as a separate purchase. But to do that, the game is simply more expensive to manufacture.

    Still though, we are lucky to have enough backers that I will likely go with a higher manufacturing order, meaning that I at least will not go into the negative by selling to distributors. My big question right now is setting the MSRP, because I need to begin those conversations with distributors very soon (like tomorrow), in order to have the best count for the manufacturing order.

    My game will weigh about 2 pounds, and includes:

    1 large cardboard hexagon
    8 custom plastic rocket models
    12 cardboard chevron tiles
    20 plastic chevron tiles
    25 inch-wide cardboard tokens
    12 5×5 cardstock sheets
    4 4×6 cardstock sheets
    88 14mm custom wooden tokens
    54 mostly standard shaped cards
    1 die

    What do you think a reasonable MSRP for this would be? $40-50 is the range that I’m looking at, though neither of these would meet the 5x standard, which would be closer to $60 at least.

    Also, do you (Jamey or others) have distributor recommendations? Again this is something I would ordinarily send in a private email, but I see the benefit of public questions and answers, so there you go. Thank you for all responses!

    Don Eskridge

    1. Thanks, Don! You’re awesome for posting these great questions publicly–I really appreciate that, and I’m sure other readers do too.

      I think the $50-$60 range would be great, based on those components. Though you might want to run an analysis to see if the first print run will pay for the second print run if you go as low as $50. You wouldn’t want to be stuck in a situation where the first run sells great, but the MSRP you select doesn’t allow you to fund the next run (and ideally it would leave you with some kind of profit too).

      As for distributors, we sell to a lot of different distributors worldwide. I would actually recommend that you instead seek a distribution broker like Impressions–they’re equipped well to handle distribution transactions and logistics for smaller publishers (basically, you’ll store your stock of games at Impressions and they’ll sell the games to distributors for you).

  10. Thanks for the response, Jamey! I’ll look into Impressions today. If you have a specific contact there that you recommend, I’m all ears!

    For the MSRP, I’m glad the 50-60 range seems reasonable. Question, though: is the MSRP essentially only relevant to the amount that distributors will pay you for your game? Meaning – would it be fine to tell distributors $50 MSRP, and still sell it on my own site for $39.50, assuming that they will also be discounting the game through their channels?

    I feel like I’m missing the one other thing that MSRP is connected to, which would keep me from simply saying $60 MSRP or another amount to distributors.

    1. Don: I think you can just use their website. You’ll probably hear from Aldo, but he might have other people working for him now. :) http://www.impressionsadv.net/

      That’s a great question. I tried doing that for a while, but I found that distributors and retailers really don’t like it if you sell at less than MSRP on your website when the product is in stock. Pre-orders are fine, as are special sales, but it’s kind of an unspoken agreement that you’ll sell the game at full MSRP.

      Other than that, MSRP really only comes into play when you sell to distributors, most of whom get a 60% discount.

  11. Hello! I contacted Aldo of Impressions, as recommended. He seems great. However I’m looking at the price and, at the percent discounted from each game going from 60% to near 68%, I would hardly be making a profit at all on each sale (a point I’ll keep in mind for future games). Maybe this is simply necessary. It’s possible that the business strategy should be to simply have as big a Kickstarter as possible, then release games into distribution simply to keep the name out there. Have you found this to be true at all?

    However, the thought of directly contacting retailers has crossed my mind. Could that be worth it? I think you mentioned that you have a list of stores in the US that Stonemaier is in contact with. Did you start this list just by looking up stores on the internet/BGG? (I know that records of all the stores are there, but not in any useful list form that I’ve seen.) If you have recommendations on finding lists of stores, I’m all ears.

    Do retailers only want to speak to brokers and distributors? Is there a common format for game publishers, before they’ve made distribution deals, to reach out to many game stores?

    This is a lot of questions. My apologies! Any advice would be appreciated.

    Thanks,

    Don

    1. Don: Thanks for sharing your findings there. 8% is significant. For a point of reference for others, if you have a $60 game (which typically costs between $10 and $13 to make, plus another $1-$2 to freight ship), normally you’d sell it to distributors for $24. At a 68% discount (instead of 60%), you’re selling to distributors for $19.20. That’s nearly a $6 cut into profits. It shouldn’t result in a loss per unit, but it is a big cut. Hopefully it includes both the brokerage fee and warehousing.

      “It’s possible that the business strategy should be to simply have as big a Kickstarter as possible, then release games into distribution simply to keep the name out there.”

      I think the first part is true, and releasing into distribution is great. But as for the last part–keeping the name out there–it really depends on your business goals. I’m guessing that you, like me, want to bring joy and fun to tabletops around the world. If your game achieves that goal, then a bigger motivation might be for you to find a way to give the many millions of people who don’t back the Kickstarter some way to access the game post-Kickstarter for years into the future.

      As for working just with retailers, check out my recent post about quitting Kickstarter (part 2). In it I share an analogy about why distributors are super helpful for getting games to retailers. I think that’ll help answer your last question (short answer: most retailers just want to deal with a few distributors, not hundreds of different publishers).

      My list of retailers was created slowly over the last 4 years. Whenever a retailer has contacted me (either during a Kickstarter campaign or separately), I’ve asked them if they’d like to opt into our mailing list. So we started with 0, and now we have over 400 retailers on our list.

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