Tariffs and Pricing, Oh My!

There has been quite a bit of news about tariffs lately and so I thought I would walk folks through why current business models are unsustainable with a 145% tariff. The Table Top Game Designers Association and the Game Manufacturers Association have put together a very clear and concise document that explains what tariffs are and how they affect the board game industry - that document is here.

I thought it would be helpful to walk through all of the costs of a board game and how that affects pricing and profit. These will be the rough numbers for First Monday in October on a per game basis. The current MSRP is $75 and the print run is 5000 games.

Production Costs $16

This is the cost we pay to our manufacturer. The smaller the print run, the higher the per unit cost. For comparison, the first printing of Votes for Women had a print run of 3600 and the per unit cost was $17.07 in 2022.

Ocean Freight $4

This is the cost to ship games from the factory to the distribution points in Australia, Canada, Europe and the United States. This number can be quite unpredictable. For the second printing of Votes for Women, it was $5.29 for Australia and $3.26 for the United States.

Landed Cost $20

The rule of thumb in the board game industry is that the MSRP should be 5x-6x the landed cost - the landed cost being production + ocean freight costs. So, in theory, with no tariff, Votes for Women or First Monday in October should have an MSRP of $100 to $120. For comparison, a similar style game like GMT’s 1960: The Making of the President has an MSRP of $99. However, 1960 has a P500 price of $63 (plus shipping), similar to our $75 (with free shipping). The truth is that the 5x/6x model is based on the three-tier distribution system, a system that is in the process of breaking down.

The three-tier distribution system is where a publisher sells most of their inventory to a distributor at a 60% discount from MSRP. The distributor then sells the inventory to a retailer at a 50% discount from MSRP. There has been a fourth-tier in recent years, the “consolidator” - who buys the inventory from the publisher at a 65% discount and then sells on to distributors. I would not want to be a distributor right now - or a publisher with a significant dependence on distributors.

Royalties - $7.50

We pay out a flat 10%, with 2% going to a charitable partner and 8% going to the designer or a combination of the designer and developer. For The Shores of Tripoli, I receive 8% as the designer/developer and the Toys for Tots Foundation receives 2%. For Votes for Women, Tory receives 6% as the designer, I receive 2% as the developer and the League of Women Voters receives 2%. For The Halls of Montezuma, I receive a total of 5% - 3% as a co-designer and 2% as the developer, Gilberto receives 3% as a co-designer, and the Toys for Tots Foundation receives 2%. For First Monday in October, Talia receives 6% as the designer, Jason receives 2% as the developer, and the Supreme Court Historical Society receives 2%.

Art, Graphic Design and Prototyping - $2.50

We tend to spend around $12,500 when all of the pre-production costs are calculated. Obviously, the cost per unit is significantly less for a second printing.

Shipping + Transaction Costs - $20

It might seem odd for me to lump these together, but let me explain. When we fulfill a game for a Kickstarter backer, the transaction cost is about 9% ($6.75) + $15 for shipping, for a total of $21.75. When we fulfill a game from our webstore, the transaction cost is about $3 + $15 for shipping for a total of $18. When we fulfill a game for an Amazon FBA customer, the transaction cost is 15% ($11.25) + $8 for shipping for a total of $19.25. For these purposes, a flat $20 makes calculations easy.

US DIRECT-TO-CONSUMER GROSS PROFIT PER GAME: $25 / $21.80 / $1.80

So with no tariff, our cost of goods are $50 and the gross profit per unit is $25. With a 20% tariff, that is an extra $3.20, so a gross profit of $21.80 per unit. With a 145% tariff, that is an extra $23.20, so a gross profit of $1.80 per game. Of course, we don’t only sell direct-to-consumer in the United States.

COMPLIMENTARY GAMES LOSS PER GAME: ($37.50) / ($40.70) / ($60.70)

The free games that we send to reviewers and conventions and non-profits still have a cost. We do not pay royalties or transaction costs, but the production + freight + art + shipping is $16 + $4 + $2.50 + $15.00 so $37.50 without a tariff. With a 20% tariff, it becomes $40.70. With a 145% tariff, it becomes $60.70.

INTERNATIONAL DIRECT-TO-CONSUMER GROSS PROFIT PER GAME: $13

I should also make a caveat for international sales. For our international sales, the US tariff does not matter, although we spend on average an extra $12 to fulfill these games because of VAT and shipping. So regardless of the US tariff, the gross profit per game is $13 for international customers.

DIRECT-TO-RETAILER PROFIT PER GAME: $7 / $3.80 / ($16.20)

We do sell direct to retailers at 50% discount - so $225 for a case of six games which is $37.50 per game. If a retailer is only ordering one or two cases, we usually add on a $25 shipping fee. The production, ocean freight and art costs are all the same - $22.50 per game, but the royalty, shipping and transaction costs are different. The royalty is $3.75 per game, the shipping nets out to about $3 per game and the transaction costs are about $1.25 per game. That means a total cost without tariffs of $30.50 or $7 gross profit per unit. At a 20% tariff, the extra $3.20 cost means $3.80 gross profit per unit. At a 145% tariff, the extra $23.20 means we lose $16.20 per game.

What do the full numbers look like for a full print run at 0% / 20% / 145% tariffs? Here you go:

Even with no tariff, our business model is a little dubious - I’d prefer the average gross profit per unit (AGPPU) be closer to $20 instead of $12 as it is now. For the business to be sustainable long term, we need to get to at least $300,000 in gross profit per year to cover expenses and then a salary or two. In the status quo ante that would mean 25,000 games per year. We should probably give away less games, and either bump our prices up or charge for shipping.

It pains me to admit, but we could live with a 20% tariff. Not that I think we should, but we could. With the status quo model, that puts our AGPPU under $10, so we would definitely have to raise prices and perhaps also push production costs down a few dollars.

If tariffs do stay at 145% - something I significantly doubt - then our business model would need to change significantly. Only direct-to-consumer sales, very limited number of review copies, substantially increased prices. Of course that would translate into smaller production runs and a higher per unit cost (and tariff). It would be a recipe for disaster for us. For publishers that primarily sell through distributors, there is no way to make the numbers work. The board game business in general is not sustainable at a 145% tariff.

REMAINING QUESTIONS

Why can’t you just manufacture in the United States?

In 2022, I desperately sought out a printer or manufacturer to publish in the United States for the first run of Votes for Women. It was simply impossible to find a printer or manufacturer that could come even close to the quality that we receive from our Chinese manufacturer. I know there has been some disagreement about this online, so today I ordered a copy of Angola by Multi-Man Publishing and Jaws of Victory by New England Simulations (both printed in the United States) and will go through each game component by component in comparison to Votes for Women and First Monday in October. Look for that post in about a week.

What about the games in your pipeline?

We have three games that we Kickstarted in production right now - The Halls of Montezuma, Hunt for Blackbeard and First Monday in October. We are moving forward with production and will fulfill all international orders as soon as possible. But we may need to warehouse the rest of the production run in China or in Canada until tariffs come down - and I fully expect tariffs to come down significantly in the near future. But if tariffs remain high for a long period of time, then we will bite the bullet and fulfill those US orders at a loss.

We have a fourth game in production, Shakespeare’s First Folio. As that is a game with quite a bit of international interest, we can shift our focus to international markets for that game. And then we will just have to see about games in the pipeline like Night Witches, Peace 1905, Open Windows and the rest.