27 May 2019 | 28 Comments
The City of Kings creator Frank West recently reached out to me with a great question: “Should Kickstarter be a ‘1 price for everyone’ platform?”
The root of his question is that every country has different laws about import taxes, and those taxes are often calculated from some combination of the price paid by the consumer for the product and/or shipping. So how do creators offer backers from a multitude of countries the best, most transparent price without redundant or overinflated taxes?
I think Greater Than Games did a good job of explaining this quandary in their Spirit Island: Jagged Earth Kickstarter shipping section:
The VAT charges are based on the sale price + shipping. If we include VAT as part of the “shipping” charge, EU customs is likely to consider that whole charge to be “shipping” and charge VAT based on the full amount, including what we already charged for VAT!
That’s for the EU, but other countries have different rules and regulations. With existing and proposed tariffs, the US is even joining the mix of various taxes for creators to consider and pay.
So it would seem that after years of Kickstarter reward prices including a shipping subsidy (often resulting in “free” shipping for US backers), it might be time for creators to shift towards a model that has historically been somewhat unpopular among backers: The reward price is strictly for the product only, with shipping and import taxes added separately later via a pledge manager. This would be clearly and transparently communicated both in the reward description and in detail on the project page.
Perhaps the one bright side to this is that it provides creators an opportunity to take a good, hard look at the product price on Kickstarter. Because the lower the reward price, the lower the import taxes.
For example, say that I have a game that costs $10 to manufacture. The MSRP for that game will typically end up around $50 (5x manufacturing cost; this multiplier varies based on the publisher). The reason for that is when I sell that game to a distributor, they get a 60% discount–they pay me $20. So, other shipping fees and sunk costs aside, my profit per unit is around $10.
However, on Kickstarter, if I charge $50 for that game (and separately charge shipping and taxes), my profit is $40! That’s significantly higher than the $10 profit I’m fine with earning from distribution…in fact, it’s so much higher that it doesn’t quite seem fair to the backers, especially backers who are paying a 24% VAT on that price plus their shipping fee.
So why not charge $39 for that game on Kickstarter? Or even $30-$35? The margins are still excellent, and you’ll decrease the tax burden on backers. Of course, please budget carefully to ensure that your margins are still healthy after freight shipping, Kickstarter fees, and sunk costs like art and graphic design.
Given the variety of taxes, rules, regulations, and shipping fees, how do you feel about creators who use this method to ensure that no backers are overcharged?
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