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Really cool to see the numbers and congrats on making the product! One nit to emphasize the value in basic accounting knowledge for others when going down the
by yajoe 14y ago
Really cool to see the numbers and congrats on making the product!
One nit to emphasize the value in basic accounting knowledge for others when going down the manufacturing route: it's $11.37 _gross_ margin (aka gross profit, see http://en.wikipedia.org/wiki/Gross_margin http://en.wikipedia.org/wiki/Gross_margin ), not _net_ profit (http://en.wikipedia.org/wiki/Profit_Margin http://en.wikipedia.org/wiki/Profit_Margin ). While this may sound silly and academic, net confers a sense of finality -- it includes all costs, marketing, discounts to sell remnant inventory, depreciations... everything. Learning this distinction will also introduce you to inventory management, promotion cycles, and all sorts of other crazy business skills to help you get to the next level in building a game business. There are hundreds of years of wisdom built up about manufacturing that all has to funnel through.... accounting...
For example, having >50% net profit is fantastic for manufacturing! Having >50% gross profit is on par for low-scale, specialty products. Jon's 11.37 is a gross profit and on par. Knowing nothing about this specific market, the standard advice in this case is to focus on growing the market rather than reducing costs at this point. (This is a business-model version of the 'don't scale prematurely' mantra you hear in tech considering his price of $20/game doesn't seem insane).
Back-of-the-envelope calculations show the gross revenue for all 333 sets is $6,660. Assuming he's included all costs, this means:
Revenue: $6,660
Costs: $4,660
==================
Net Profit: $2,000
Which means a net profit of $6/set, a little more than 25% of the sale. Depending on how aggressively he wants the market, he should offer discounts to influential or trend-setting groups of people in the 25% range.
Another way to look at this business is he would get a return of $2,000 for $4,660 in capital (since he has 1 production run), or 50% ROI... also not too shabby (if sold at retail price).
And yet another way to look at this is manufacturing the product over 8 hours yields $2000, or $250/hour... better than most. It's unclear how much time he spent on the admin and design tasks, but since this is a labor of love... let's assume it was leisure time and free :) It also means a second production run may get him an economy scale from re-using the design and website assets for even more $$$/hour.
All-in-all, this looks great across the board, and I wish the Jon the best of luck in bringing Space Dice to the world!
- bigiain 14y agoGood analysis. One comment though - if the intention is to get the game onto the shelf in retail stores, there's not enough margin in it at the current cost/pricing. A store is going to require most (or all) of that margin - in most "dice game" type stores, if you want to put a product on the shelf at $20, you're going to need to sell it to the store for somewhere around $14 or they're not going to be interested. Seems to me that at least an investigation into whether getting a run of 3,000 or 30,000 sets made up (and outsourcing the 80 or 800hrs of packaging work) would be a worthwhile exercise rather than being premature optimisation.
- gregpilling 14y agoMost retail outlets in my experience would want to purchase the $20 retail item for $8, giving them a 60% margin. Source - 20 years of doing this.
- b1daly 14y agoI'm making a product, and selling mostly online. I was shocked (in the newbies do) to find out about the sort of gross margins retailers want. From where we are now, it seems like the only way we could reach that is through economies of scale that we are uncertain would pay off. Chicken meets egg once again? In the market we're in (musical instruments/audio) the retailers with stores are going away, sales have moved online. I'm not sure yet but I think the margins for online retailers could be less?
- johnrgrace 14y agoLook at how much money online retailers make, after their costs their profit margins are mostly single digit meaning they don't have a lot of room to cut costs. Also if retailers can wring profits out of you they will, online or offline.
- samstave 14y agoJust me being cynical, but this fact is what is wrong with the entire world. Everyone wants to make things as cheap as possible, and then sell them as expensive as possible. Every single thing in our lives is driven by this dynamic and it is a cancer. What is the way out of this that keeps people happy and doesn't destroy us?