21 May 2020 | 97 Comments
This isn’t a criticism of any specific project on Kickstarter, recent or current. Rather, I have some general observations about a trend of I’ve noticed that may really be hurting Kickstarter creators.
In short, over the last few months I’ve received notifications about a number Kickstarter projects that I was eager to back…until I saw the core reward price. Many of these prices look more like final MSRPs, not discounted prices intended to lure backers to support a game that won’t exist for another 8-15 months.
Granted, creators can charge anything they want, and I’m not here to tell them otherwise. That’s part of the beauty of Kickstarter and pricing economics: You have the freedom to choose the price, and customers have the freedom to buy or not. As our 2019 demographic survey showed, there are many types of customers:
But here’s the problem that I think many of these creators are facing: They’re losing a significant number of backers due to their reward prices.
Now, I’d guess that these creators thought long and hard about their reward prices. However, my theory is that they weighted the retail MSRP (of the game and of similar games) much too heavily in their calculations instead of considering the incredible margins when selling directly to a consumer.
Here’s what I mean: Viticulture, for example, is a game that costs around $12 to manufacturer. I sell most copies of Viticulture to distributors, who get a 60% discount on MSRP. That’s why Viticulture’s MSRP is $60–when I sell it to a distributor, the revenue per unit is $24. Half of that covers the manufacturing cost, and the other half is profit (and is often reinvested in making more Viticulture). This is the “5x multiplier” you may have heard about.
So say that you also have a medium-weight Euro game that plays from 1-6 players, has a bunch of cards, player mats, and custom wooden tokens, and costs around $12 to make. We’ll call it Beericulture. If you put that game on Kickstarter, will you have the greatest chance of successfully funding if you price it at $60?
I don’t think so. In fact, I would go as far as to say that the hypothetical retail MSRP is almost entirely irrelevant to your optimum Kickstarter price.
To illustrate this, look at the game from a different lens: Beericulture costs around $12 to manufacturer. You also have freight shipping and sunk costs like art and graphic design, so let’s say they bring the cost up to around $20 per unit. As many projects do these days (largely due to VAT and KS fees), you’re charging for shipping after the project, so that’s not a part of the equation.
If you’re cost per unit is $20, every penny after that is profit. So if you’re charging $60, your profit per unit is $40. That’s awesome…unless you’re losing thousands of potential backers because the price is too high.
I would propose that a much more successful core reward price for this game would be $39 (with shipping added later). Put yourself in the shoes of a backer: Are you more likely to back Beericulture for $60 or $39? And the creator is still profiting $19 per game.
It gets even crazier when you look at premium rewards. Say that Beericulture has a $60 core reward price, or you can get the deluxe version with metal coins and glass mini mugs for $80. The deluxe version isn’t ever going to enter distribution, so why is it still based on the 5x multiplier calculation for MSRP? That deluxe version probably costs $18 to manufacture (around $25 with freight shipping and sunk costs factored in).
Again, I’m not saying there’s anything wrong with these prices. If 10,000 backers are willing to pay $100 for your game that costs $30 to make–and in the long run, those backers feel like they made the right choice–by all means, go for it.
But if you’re looking at a $70 profit margin, isn’t it at least worth considering the possibility that if you priced the core reward at, say, $69 or $79, that you might be able to reach a significantly larger group of backers? Each individual backer might be happier, and your total profit could also end up much higher. Plus, the more early enthusiasts who are eager to get the game to the table upon the release, the better the chances the game will have a long-term retail success.
On the other end of the spectrum are projects that struggle to achieve anywhere close to their potential because it appears that the creator used MSRP as a major factor for calculating the reward prices instead of simply looking at core costs, backer appeal, and a more moderate profit per unit.
Of course, this is just my opinion. I could be completely wrong (and there are certainly projects that completely debunk this theory). I just thought it might be helpful for some Kickstarter creators to consider looking at their reward prices through a different lens.
What do you think? Have you found yourself “saving” projects instead of backing them immediately because of high prices? Do you think projects could use lower pricing strategies to attract significantly higher backers?
- The Myth of MSRP
- Kickstarter Lesson #201: A Step-by-Step Guide to Pricing Your Core Reward
- Kickstarter Pricing in a World of Different Shipping Fees, Taxes, and Tariffs
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