The Bottom Line

How to set the profit margins for your game

Here’s how you want to set your margins on your game to make sure it’s profitable. You’ll want to use a spreadsheet to keep track of some of this stuff. Spreadsheet maintenance is a big part about figuring out your business. It’s like a sketchbook for numbers, so learn to have fun with it.

So let’s start with this: your ideal profit margin is 10x. That means you set your price as 10x higher than the cost to make a copy. If your game is $20, then it should cost $2 per unit to produce. We want to set 10x as the ideal and 5x as your bare minimum. 

This is a complex topic, but let’s go over the basics.

What counts as a cost?

This one is harder to answer, but here’s some things you should start with:

1. Manufacturing cost. This is the big one, so add it as a line item on your spreadsheet and keep track of it. You’ll notice the bigger the print run the lower this cost gets, in general you want to order as big a print run as you can while not exceeding demand. Ensuring you get the best price possible without having a bunch of dead stock left over.

2. Royalties. If you’re paying royalties, either to yourself or contributors, this is definitely a cost you need to take into account. This might be 1-2% or somewhere closer to 5% of MSRP depending on what you negotiate and what makes sense for your game. Some books won’t pay out royalties, it’s really dependent on your model.

3. Advertising. I’ll write another piece about this, but for now I usually try and budget 5% of the price towards advertising. If you’re not running ads, great! More profit for you.

4. Freight costs. Basically how much does it cost to get the game to you, if I’m shipping the game from overseas I tend to budget something around $1/game. 

5. Merchant fees. You might have some seller fees from Stripe or other payment processor, etc. that you might want to factor in here as well. You could just ballpark it at the spreadsheet stage to get an idea if your game is profitable or not.

So this is basically the stuff you have to pay no matter what whenever you sell your game. This is called the “Cost of Goods Sold” or COGS. It’s basically the cost to sell your game.

What’s your price point?

So you probably have a few different price points based on who your customer is:

Direct Sales 

This is when you sell a copy of your game yourself at a convention or on your online store. You get the full markup of the game! 100% of the MSRP (Manufacturer’s Suggested Retail Price). 

Wholesale

This is when you sell a copy of your game to a retailer. You get 50% of the MSRP and the retailer gets the other 50%. This is why we set our margins at 5-10x because right off the bat if you want your game in a store, you’re losing 50% margin. The tradeoff is that theoretically your game will get seen by more people, maybe played in a store, etc. 

Distribution

If your game sells really well you can sell through a distributor who will then sell to a bunch of retailers from their catalogue. Maybe you’ll sell to multiple distributors who cover different territories. Usually their discount is 60% of MSRP. This is because the retailer is getting 50% off so the distributor makes their money in that extra 10%. It’s a low margin business but they make up for it in volume. Beyond this you can get into Fulfillment and Sales companies that take an extra 5% but act as a middle man between you and several distributors, or occasionally “big box stores” like Target or Barnes and Noble.

Consignment 

Some companies act as distributors with one caveat: they don’t buy games from you unless they’ve already made the sale. They want to sell your games “on consignment.” The big thing about consignment, imo, is that the distributor isn’t taking any risk, they only pay you if they make money. So in this case it makes more sense to negotiate a lower margin to something like 30%.

For example

Let’s say you want to sell a book for $30. In our example that means you need your costs not to exceed $3/unit. Let’s break down how the MSRP gets spent.

• $15 goes to the retailer.

• $3 goes to the distributor.

• $3 goes to manufacturing, advertising, royalties, etc.

• Leaving you with $9 profit, or a profit margin of 30%.

Let’s say your print run is 2,000 units. You’ve just made $18,000. Pretty good!

Development costs

This works great in a vacuum, but you’ve got to live on this $18,000 and you’ve got to hire editors, artists, graphic designers, writers, etc. to develop your game and make it a reality. Where does that money come from?

Our model is that the first print run should cover the cost of development. That means in our example we could spend $18,000 on developing the game. And we only truly start making a profit once we make it to the second print run. 

I don’t have any data to back this up, it’s just industry wisdom I’ve heard and something we’re using as a benchmark.

Sometimes your game doesn’t sell more than one printing. Sometimes your game does really well and you are able to print a huge first printing and pay back your development costs inside the first print run. Right now we think this is a good baseline to start with. Try and pay back development with the profits of the first printing.

The Long Tail

Games spike in the beginning and then slowly sell fewer and fewer copies over the life of the game. Some few games become “evergreen” titles that sell really well year after year, decade after decade, generation after generation. For a publisher, this is the dream because theoretically every printing after the first has a higher profit margin now that your development costs are paid back, maybe a better print run, maybe more customers. 

What’s the model that works?

This is why I’m so obsessive about supporting your games. The industry wisdom is that in an RPG the system book is the book that sells the best because it’s the barrier to entry, basically everyone has to own the core game to play. I think one model basically says: just release more systems then, those are the ones that sell best. And I think that’s definitely a model that works. 

Another model is to support that system with more adventures, which give your players more choices and options with what they want to play, inspire them, keep the game alive, which means it gets shown to more players who buy core books, and adventures, and on and on. That’s the model that makes the most sense to us right now.

Give me a shout if you want more details and I’ll work on another article about some of these specific items (like advertising) and how we deal with them.