Ecognomics – America’s Next Top Business Models

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Last week, we crunched some numbers for different Kickstarter payoff models. To recap it slightly, if you were to pay your creators $2100, you would need the following number of sales:

PDF Model – To pay artists, need to reach goal of $2600, which would take 260 sales of $10 pdfs.

Book Model – To reach goal of $2600, need to sell 65 books at $40 each. However, to pay the artists $2100, you would need to sell 116 books (making your “real” Kickstarter goal about $4640.)

An accurate representation of our financial planning sessions.

An accurate representation of our financial planning sessions.

There are a few other business models to consider, though. One of which I heard of through Evil Hat’s Fred Hicks: the stockpile system.

STOCKPILE SYSTEM

It works like this: the sale price for a paper book is exactly double the cost. Now, in a PERFECT world, the “cost” of the includes the payment for the artists and writers, but considering how high the prices are for on-demand printing, for this demonstration “cost” will solely equal printing and shipping. We’ll assume for the sake of calculations that our staff is patient enough to wait for the payoff later.

Looking back at the printing price break, the books become much cheaper when you order 100 of more. So, let’s assume the goal of the kickstarter is to purchase 100 books from the printers. An individual book costs 15, including S&H to us, but we have to apply the 10% for taxes, and 10% for kickstarter’s take, so let’s divide $15.00 by .8, which comes to $18.87. That means we sell the book on kickstarter for double that, $37.50 (and assume any additional S&H to far off locations is added on by the backer.) We set the goal at 100 times the cost, or $1,887. (Compared to last model’s goal of $2600, that’s pretty modest).

Now, let’s imagine you reach the goal exactly: all it takes is 50 sales. Here’s the breakdown:

Revenue: $ 1887. Cost of 100 books: $1500. Taxes & KS’s take: $337.40. Immediate Profit: $0.

That’s right, the immediate payoff to the kickstarter is 0 profit. However, what the creator DOES receive 50 books that have been completely paid for (and the intangible benefit of having 50 books in the hands of hopefully happy customers, who will potentially buy more of your products and spread word of mouth). This means you can do whatever they want with these 50 books. You can sell that conventions or an online store, and keep every penny. They can drop them at the local game store, which might give the creator 50% of the profit.

So, let’s see what you get if you sell those 50 books:

Sale Cost (each) Total Profit Profit to Goal Ratio: Minus Artist Cost ($2100)
$20 (Consignment) $1,000.00 52.00% -$1,100.00
$35.00 $1,750.00 92.00% -$350.00
$40.00 $2,000.00 105.00% -$100.00

You’ll note, of course, that even at $40.00, you’re still short the estimated $2100.00 to pay the creators. Easy enough to factor in: if the sale of 50 books yields $2000.00, how many books do we need to plan for to make $2100?

50     x _X_

2000  2100

x = 52.5 post kickstarter book sales. We means we have to change our kickstarter goal to pay for 105 books. We could recalculate from scratch based on 105 books, but to save time, let’s cross multiply again. (Confession: Most math I learned in high school has been generally useless in my day-to-day life. However, when my elementary & middle school teaches always repeated, “you’re going to need this,” they were right.)

100   x 105

$1887     X

Which results in a goal $1982.00. Thus, we were able to take a kickstarter for under $2000, and turn it into $2100.00, while still giving Kickstarter Inc. and the IRS their share.

PROS of this Business Model:

  • You have much more control over the product prices.
  • You have a much wider span of time to sell the product, rather than depending on a narrow window.
  • Instead of profits, you could potentially extend any gains towards more books, extending it infinitely- using the profits from the first 100 books to buy the next 100, which buy the next 100, etc.
  • Potentially gives you a low KS goal, with a high percentage pay-off (compared to last week’s models).

CONS –

  • If you can’t make the additional post-kickstarter sales, you don’t get any money. It’s a gamble.
  • Payment Timeline – The cost, as this small level, doesn’t pay for the creators at first, which means they must wait for sales to pay them (and if I was an artist, *I* wouldn’t let someone pay me based on sales.) The only alternative is the project head pays the artists out of pocket and (hopefully) gets reimbursed for it later.
  • Reach – A Kickstarter is a great way to spread the word about a product, which will hopefully stay in people’s minds later. However, once the kickstarter’s over, you now have to fight to retain interest and to get people to buy your physical book. This means they have to buy through your website (which may need advertising to get people there), through a convention booth (which costs money), or through a 3rd party store (which will take at least 50% of the cover price.) Even the best game books in the world peak in sales after a few years.
  • Sustainability – In a perfect world, you could have each 100 pay for the next 100, on to infinity. In the real world though, there is a finite number of people who are willing or able to purchase your product. Any business model that is based on endless growth is unsustainable (e.g. Ponzi schemes, the Roman Empire).
  • Bookkeeping – Even if your artist IS willing to work for a share of the sales, this leads to some heavy bookkeeping. Our convention booth, for examples, sells lots of different products, which means you’d have to meticulous of how many of each book you sell and make sure that money doesn’t get mixed into the other company funds.
  • Tax-Timeline – If you earn $1887.00 money in one year (let’s say, 2015) and invest all of that money into the printers in 2015, you’re looking at relatively low taxes- you earned little-to-no profit, as it was offset by costs. However, if you wait until 2016 to pay the printer, your 2015 company income is not offset, so you’re paying a lot more. I don’t know exactly HOW much more, which is another flaw in doing this model- you might need someone who knows current business tax law for your state.

PRINT-IT-YOURSELF MODEL

The last model I’ll discuss has supposedly been around for a while, but to give credit where it’s due, I first saw it used by the Silent Legions Kickstarter. This is how it works:

This kickstarter requires your product to be available on a website that prints its own products. Most of these print stores let the creator sell the product at a higher price (ex. $40 for a book), but allow the creator to purchase it themselves for the cost (i.e. for their own resale.) A popular example of this is DriveThruRPG and it’s sister sites (DriveThruComics, DriveThruCards, etc.)

The “Print-it-Yourself” model works exactly like the PDF model, except that if gives the backer access to the same “at cost” rate as the creator. Here’s the version as Kevin Crawford phrased it:

Pledge $20 or more

GRIMOIRE COLLECTOR: Get immediate access to the beta PDF and get the full PDF when it is released. Get an at-cost code for ordering your choice of the softcover or hardcover POD print edition of the book from DriveThruRPG, which should come to about $11 for the hardcover and $6 for the softcover, plus shipping. In addition, you’ll get your name added to the list of special Kickstarter supporters in the PDF and printed book.

Pros of this system:

  • Buyers have the option of buying physical books (sometimes in hard or soft bound)!
  • There are 0 printing costs to the kickstarter host.
  • You can sell the pdf at one tier, and the “book” at a higher tier. (Mr. Crawford set his “pdf only” level at $10.)
  • You’re effectively selling a $26-$31 book under a $20 price tag, without decreasing your profit. Psychologically, it’s easy to sell (which is why items are labeled as $1.99 instead of $2.00).
  • The book cost isn’t included in kickstarter goal cost, which inflates the 10% you have to pay without increasing the profit.
  • Some companies, like DriveThru, use local printers, allowing them to keep costs to the backers the same in many different continents.

CONS of the PRINT-IT-YOURSELF Model

  • You are dependent on the limitations of the Print Store. For example, I’ve heard DriveThru’s color pages aren’t very high quality at this time. (Note: not from personal experience.)
  • Some people find it inconvenient (and they are not necessarily wrong.)
  • The printing cost of the individual books are potentially higher, due to the fact that you’re not printing in bulk.
  • The at-cost promo code would technically allow a backer to buy any number of your products at cost, rather than one. This means it kind of relies on the honor system, but as long as someone is not reselling them without our permission, I don’t really mind.

FINAL PLAN

Having crunched all of the numbers, I suspect that our first kickstarter, the Fate Accompli is going to fit into the Stockpile system- the art is relatively light, so it’s not like we need to shell out thousands for art and editors. The goal is to print at least 100 sets from a local printer- which means the first 50 sets off-set the costs of buying the next 50 sets. If people end up ordering more than 50, then we’ll likely take what’s left over from the cost as income to us *yay!*

With the next kickstarter, we’ll likely use the Print-it-Yourself model, as the extra art and editing raises the cost to the point that adding it in physical printing is just not viable. This every stretch goal gives 100% of the revenue towards the goal.

Next week – Stretch Goals!

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