Setting the MSRP of your board game and why you shouldn’t use the 5x landed cost rule
You’ve finished designing your tabletop game. You’ve acquired art assets, hired a graphic designer, and you’re now ready to take your game to Kickstarter! One of the most important questions you need to answer is how much should you charge for each pledge? With the assumption that you want to see your game in retail at some point, that answer largely depends on what you want to set your MSRP to.
Let me preface this post with the caveat that every project is different. Every creator is different — everyone has different goals and motivations on why they want to be launching a Kickstarter, and all these factors matter when determining how you run your campaign.
For Metafactory Games, our goal is to get our games to the widest audience possible while maintaining long-term business viability. In other words, we didn’t just run our first campaign for Fantastic Factories just to cash out. We aim to get our games into retail distribution, and we plan on releasing more games through Kickstarter (in fact, we just did last month). I also work a day job to cover living expenses and to support my family. I mention these details not because I believe that is how you should be running a KS campaign, but to provide context in which the following advice may be best suited.
5x Landed Cost as a Rule
You may have heard of the 5x landed cost rule. What it states is that you should set the MSRP of your game to 5 times the landed cost of the game where the landed cost is the per unit cost of the manufacturing plus the cost of freighting that unit from the factory to your warehouse. A lot of people interpret this rule quite literally. They seek out a manufacturing quote and blindly set their MSRP to that amount and then correspondingly set their KS pledge level to that amount.
Why is this incorrect? Manufacturers will quote you per unit prices at different possible order quantities with 1,500 units usually being the minimum order quantity and also the most expensive. Assuming freight is $1 per unit, a game that costs $9/unit at 1,500 quantity would have an MSRP of $50 whereas the same game might be $6/unit at 10,000 quantity, which would have an MSRP of $35 as dictated by the 5x rule. The typical KS campaign won’t have more than 1,500 backers, so the conservative thing to do would be to price it at $50. That sounds fine and dandy, right?
What if I told you that game was just a 108-card deck in a telescoping box? The reality is that nobody would pay $50 for a game that has similar components to Uno.
My point is that MSRP cannot just be based on the cost to produce the game. Consumers don’t care how much it costs to manufacture your game. The most important thing you have to consider is what other comparable games are available and how they are priced. When selling your game on KS or retail, it becomes a product that has to compete with all the other countless titles out there. When all else considered is equal but your game is $20 more expensive, you will have a tough time getting sales.
The most important thing you have to consider is what other comparable games are available and how they are priced.
Yes, you may be an indie publisher and some people may be willing to pay 25–50% more to support indies, but the majority of people won’t. That means you are competing against Asmodee, Hasbro, and other large publishers for the same dollars.
Where did 5x even come from?
To be fair, I know some publishers who use 8x or 10x manufacturing costs instead of 5x landed cost (since calculating freight is a bit harder than getting a quote from a manufacturer). But I believe 5x comes from the fact that if you sell your games through the traditional distributor model you will earn enough profit to recoup your initial cost to manufacture/freight and also fund a second print run. Since distributors pay you 40% of MSRP and your game costs 20% of MSRP, you’re making a profit of 20% of MSRP. With no other sources of revenue, this gives you enough money to pay off the initial print run investment and also to kick off a second print run.
5x Landed Cost as a Guide
In my opinion, looking at games with comparable components is the best place to start when determining your game’s MSRP. However, you can still use the 5x landed cost as a guide to determine if your costs are reasonable. As a first time KS company, you might order 1500, but I would price against 5000 quantity as a guide. If your 5x landed cost @ 5000 units doesn’t line up with your MSRP then there’s something about your quote that is problematic. Maybe your manufacturer is too expensive, your components are too deluxe, etc. How closely your MSRP matches (or exceeds) 5x landed is an indication of long term healthy margins. Without those margins, you won’t have money for a second print run and will be unlikely to turn a sustainable profit.
Setting your pledge levels
Once you set MSRP, you can use it to guide your decisions on how to set your Kickstarter pledge levels, but that’s a whole new topic that deserves a post of its own!