Kickstart the Commotion: Ecognomics, Pt 2.

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Last week, I talked about Ecognomics: the assumption that product = profit. Sadly, this is not always the case, unless you plot things out just right. Likewise, a successfully funded kickstarter can mean a product that is paid for, or a heck of lot of unforseen costs.

I’m going to run through a hypothetical kickstarter twice: once with selling electronic pdfs, once with hard books:

Electronic Version – Here’s the neat thing about pdfs… because there is no physical cost per unit, selling one costs as much to the vendor as selling one-million.*

*Assuming you go through a 3rd party to handle downloads and bandwidth cost.

However, this also makes them deceptively tricky, for a few reasons.

1. For the above reason, it can be difficult to convince someone to buy a pdf. If it cost the vendor nothing to give away, why should someone pay $1, $5, $20 for it? This argument is not without some merit- personally, I find it ridiculous that book publishers insist on charging the same amount for an eBook as a physical book; it makes sense to deduct the cost of the paper and shipping and handling, and then pay what is left over.

2. Buyers aren’t the only ones who are unsure about the price tag. Because it costs you nothing to give it away, a generous creator’s instinct might BE to give it away. This is doubly so if they are struggling to find buyers. To quote the Barenaked Ladies lyric, “Can’t even give this stuff away, why would I sell it?”

The reason WHY you have to sell it lies in the old adage: TIME IS MONEY. Now, I advocate humans creating whatever they want, for their own joy and sanity. Creating can bring a state of mental peace or catharsis that cannot be quantified- just because a poet gets published and paid money doesn’t mean that their work was better than the Emily Dickensons of the world who choose to publish little, if at all.

However, if you DO decide to seek money for your creations, make sure you’re not underselling yourself. If you were paid minimum wage for every figure you painted or every campaign you wrote, you’d soon find out how much your work is worth.

A few weeks ago, Morris posted what an rpg writer was paid per word around the industry. http://www.enworld.org/forum/content.php?2301-What-s-a-Freelance-RPG-Writer-Worth#.VNwTtfnF-Sr

Using this as a basis, let’s take a look at the cost of the Skeleton Crew book, which currently around 105,000 words.

Publisher Pay per word Cost of 105,000 words Cost divided over 100 pdfs
Paizo $0.07 $7,350.00 $73.50
Wizards of the Coast $0.06 $6,300.00 $63.00
Evil Hat $0.05 $5,250.00 $52.50
Pelgrane Press $0.04 $4,200.00 $42.00
Goodman Games $0.03 $3,150.00 $31.50
Fat Goblin Games $0.02 $2,100.00 $21.00
Purple Duck Games $0.01 $1,050.00 $10.50

Now, I’m not certain what’s a fair price for a PDF, but I feel pretty certain that asking 73.50 is a bit much. That being said, many modest, first-time kickstarters are lucky to get 100 backers- and at 7 cents a word, that “free” pdf costs quite a lot.

However, as I am a humble guy who wants this kickstarter to succeed more than I desire money, let’s go with the lowest pay rate for myself, aka. .01 a word. That makes the foundation of our kickstarter at $1,050.00.

However, I can’t do the book by myself. We have one of our group members working as editor and publisher, who’s going to work damn hard on the book too. Let’s assume that this person is a saint, who will take a fraction of the cost of a professional. Let’s estimate the total pay: $350.00.

New total: 1400.00.

Next, the art! Our in-house artist charges $40 for a B&W art… let’s assume that we commission her for 15 pieces. We also pay her for a full color cover, bursting forth with tons of different characters (those cost extra), for $100.00. That’s $700.00 for the art.

New total: $2100.00.

Done, right? Wrong! Don’t forget taxes- kickstarters count as income! Our accountant isn’t here, so we’ll set it at a flat 10%. (Now: $2310.00.) Also, if you reach the goal, Kickstarter takes 10%. That means add an extra 10% on, right?

Wrong again, because math is WEIRD; adding an extra 10% (2541.00) and taking 10% again leaves you with 2286.00, about $25 short. To make sure you have enough after Kickstarter takes their cut, here’s the formula:

Kickstarter goal = amount you need / divided by .90.

In this case, the result is $2566.67.

Let’s round that up to $2600.00, just to have a buffer.

So, what does that mean? Well, let’s look back at the pdfs, and see how many we need to sell at what cost to reach that goal.

PDF Sale Cost $ Raised at 100 $ Raised at 200 $ Raised at 500 $ Raised at 1000 # to Sell Reach Goal
$1.00 $100.00 $200.00 $500.00 $1,000.00 2600 sales
$2.50 $250.00 $500.00 $1,250.00 $2,500.00 1040 sales
$5.00 $500.00 $1,000.00 $2,500.00 $5,000.00 520 sales
$7.50 $750.00 $1,500.00 $3,750.00 $7,500.00 347 sales
$10.00 $1,000.00 $2,000.00 $5,000.00 $10,000.00 260 sales
$15.00 $1,500.00 $3,000.00 $7,500.00 $15,000.00 174 sales
$20.00 $2,000.00 $4,000.00 $10,000.00 $20,000.00 130 sales

Of course, the first time you glance at the chart, it might seem that charging more money is the key. However, you’ll notice the catch that, even at $20.00, it takes 130 sales, above your average 100 backers for a newbie kickstarter, just to reach your goal. Even if your product is good, you got to ask yourself: is it harder to convince 100 people to pay $20, or to convince 200 people to pay $10? I don’t really have the answer to that, but I know that the more your kickstarter extends to people who know you and your products less and less, you’ll have a harder time convincing people that the product is worth the money.

Paper-version – if you’re going with a paper-version, the rules of the above stay the same, except every price now has the price of the product, the shipping and handling added on to it.

Let’s assume your company is printing small batches, and going through a domestic printer. In this, let’s take a great company, Ka-blam, that prints our comic. A massive book of 350 pages, with B&W interior and color cover, costs 11.50 for one book. There’s a price break at 25 copies (10.50), and at 100 (9.50). Add in a round 3.50 for shipping and handling per book, that gives you: $15 at 1, $14 at 25, $13 at 100.

For example, the same above chart, adding the same values above:

Add to Cost: Total Sale Cost 1 Revenue at 25 Profit at 25 (-350)
$5.00 $20.00 $500.00 $150.00
$10.00 $25.00 $625.00 $275.00
$15.00 $30.00 $750.00 $400.00
$20.00 $35.00 $875.00 $525.00
$25.00 $40.00 $1,000.00 $650.00
Add to Cost: Total Sale Cost 1 Revenue at 100 Profit at 100 (-1300.00) Revenue at 200 Profit at 200 (-2600.00)
$5.00 $20.00 $2,000.00 $700.00 $4,000.00 $1,400.00
$10.00 $25.00 $2,500.00 $1,200.00 $5,000.00 $2,400.00
$15.00 $30.00 $3,000.00 $1,700.00 $6,000.00 $3,400.00
$20.00 $35.00 $3,500.00 $2,200.00 $7,000.00 $4,400.00
$25.00 $40.00 $4,000.00 $2,700.00 $8,000.00 $5,400.00
Add to Cost: Total Sale Cost 1 Reach Revenue $2600 Cost at Goal Profit at Goal
$5.00 $20.00 130 sales $1,690.00 $910.00
$10.00 $25.00 104 sales $1,352.00 $1,248.00
$15.00 $30.00 87 sales $1,218.00 $1,382.00
$20.00 $35.00 75 sales $1,050.00 $1,550.00
$25.00 $40.00 65 sales $910.00 $1,690.00

So, let’s imagine a hypothetical situation: you got exactly 200 sales. Let’s see what it comes at various prices:

Cost – Remember, this includes the approximately 20% for kickstarter and tax.

Product Revenue Reach Goal? Reached Goal at Cost Profit
PDF $5.00 $1,000.00 No! N/A None None
PDF $10.00 $2,000.00 No! N/A None None
PDF $15.00 $3,000.00 Yes! 174 sales -20% (-$600) $2,400.00
PDF $20 $4,000.00 YES 130 sales -20% (-$800) $3,200.00
Book $20 $4,000.00 Yes 130 sales -20% (-$800), – $2600 (books) $600.00
Book $30 $6,000.00 Yes 87 sales -20% (-$1200), -$2600 (books) $2,200.00
Book $40 $8,000.00 Yes 65 sales -20% (-$1600), -$2600 (books) $3,800.00

Based on the 200 sales model, we can see that selling 200 $1 pdfs gets equals a failed kickstarter; whoever, a kickstarter that sells 200 pdfs at $15 each makes the same as a kickstarter that reaches $6000 selling books at $30, and makes four times the profit of a campaign that sells 200 books at $20 bucks.

One last chart: let’s see what happens if we calculate that each product level made EXACTLY the number of sales it needs to make to reach goal.

Product Reached Goal at Cost Profit
PDF $5.00 520 sales -20% (-$520) $2,080.00
PDF $10.00 260 sales -20% (-$520) $2,080.00
PDF $15.00 174 sales -20% (-$520) $2,080.00
PDF $20 130 sales -20% (-$520) $2,080.00
Book $20 130 sales -20% (-$520), – $1,690 (books) $390.00
Book $30 87 sales -20% (-$520), –$1,218 (books) $862.00
Book $40 65 sales -20% (-$520), –$ 910 (books) $1,170.00

And thus we see how kickstarter goals are really sneaky, in that they measure only revenue, not cost. Adding higher priced goods at higher costs can make you reach your goal faster (the $30 book needs half the sales of a $15 pdf). And reaching a goal is GOOD- backers are more likely to sign up if the goal is reached, so the profits are more likely to come in. However, at the $30 book level, the artists end up with a mere 1/3rd of their self-estimated cost, and less than a 1/4th of what they raised from the kickstarter.

Luckily, this is not the ONLY model for a kickstarter- we’re going to explore a few of those next week.

In the mean, if you’re in the DC Metro Area, you should visit our booth at Katsucon this weekend, Feb 14-15th, in the Artist
Alley! It’s the first anime con featuring our newest book, the Cleric’s Guide to Smiting! Come on down!

gazebo

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