Best Practices : Net Profit not Gross (6)

I’m going to introduce another series of accounting terms here to do with your profit & loss statements.  We’re talking about Gross Profit & Net Profit; which we’ll assume you understand the difference.

A lot of people concentrate on Revenue & Gross Profit as indicators of their business health and growth, being happy when Gross Profit or Revenue grows.  Revenue is so easy to keep track of; which is why most people keep an eye on it.  Tracking gross profit is harder – which is why it’s easy to use an ‘average’ margin to estimate your gross profit.

It’s not a bad way for day-to-day work, however, any changes to what you sell with affect your gross profit.  An example for us might be selling more Days of Wonders products because our net margin on those products are lower than our normal margins.

However, while Gross Profit is a good basic estimator, it ignores the vast majority of costs that are incurred.  In fact, the three main cost factors in a business is the Cost of Goods Sold, Rent & Salary.  Both Rent & Salary are in the Net Profit factors of a business, as are other highly variable costs like heat & lighting, merchant fees, transportation fees, marketing & any legal/administrative costs.

It’s easy to forget  to keep an eye on these factors, but controlling your costs is extremely important.  It affects your bottom line to a much higher degree than increasing revenue.  Frankly, I’d rather save $100 in cost than gain $200 in revenue any day.

Marketing & Deal of the Day Sites

I’ve been thinking about Groupon and the deal of the day sites out there.  They are an interesting group; and I’m on 3 to 4 different services myself.  It’s not a bad service as a consumer – so long as you are able to control your spending of course!

On the other hand, you notice that the vast majority of these sites and the companies that use them either provide a service or a perishable product.  A discount on haircuts might make you ‘lose’ money compared to your usual sales; but because it’s a service; the vast majority of the pricing is the time cost of the individual involved.  So a 50% discount will still cover the fixed cost involved (e.g. the rent portion) while still providing a marginal profit hopefully.

More importantly, as a perishable product (e.g. restaurants); you’re basically doing  low-cost, very targeted marketing.  Not bad, not bad at all – especially if you have a great service / product that just needs that boost in awareness.  If it’s a mass product (again, food & haircuts!) you’re going to work quite well.

However, for those of us who don’t deal in perishable products; the game gets quite different.  Since we buy games at 50% (at best) off retail; a 50% discount like Groupon means we’re guaranteed to make a loss.  Of course, all marketing really is a ‘loss’ or a cut off our bottom line.  We do advertising in particular to generate new customers and remind our existing and past customers about us.

Let’s look at the economics of Daily Deal sites a little closer.  Let’s say we do a $10 coupon code for $5.   The deal site takes 15% of the revenue generated ($0.75) so we only see $4.25.  Now, let’s assume the Daily Deal site sells 100 such coupons and 90% of those coupons get redeemed.  Our total revenue generated = $425.  Our product cost (let’s assume about 47% discount since that’s about our average) = $530.  Gross loss = $105Add another $25 from our Gateway Fees and total loss is =$130As an aside – gross profit for the Daily Deal site = $75.

Not a horrible loss for 90 new customers.  Except we don’t have a guarantee they are ‘new’ – in fact, the vast majority probably wouldn’t be.  There’s no real way to do the breakdown of who will buy – how many are current customers? How many new?How many are casual / social and gamer geeks?

Still, for a $130 cost (or there about); it ain’t a bad gamble I think.  I just might have a  go at one of these systems.  I’ll let you know how it worked out later.

Are Games Substitutes for Each Other?

I’ve recently started wondering if board games can be substitutes for one another? Obviously, we’re excluding expansions and base games – you don’t want the expansion of a game if you don’t have the base game (unless they are both compatible).

No, we’re talking about one board game to another. If a customer comes to the site and looks for Settlers of Catan, would he settle for another game if we were out-of-stock of it? Or would they wait till it came back into stock? Or just leave and find it somewhere else? Or (hopefully) pre-order / back-order the game?

My feeling has always been that the customer is most likely to either find a substitute product (20% chance) or leave (say 75%) rather than backorder the game (about 5% of the time). It’s an advantage b&m stores have over online retailers – a simple query of ‘where’s Kingsburg‘ can easily become a conversation to upsell / cross-sell to another game. Or heck, get the customer to wait the week till the restock arrives.

On the other hand, while we do have an 800 number, the effort required is generally too high. While live chat services might work well – I’m normally running around like a headless chicken dealing with work. I might be online 40% of any particular day and able to answer such chat requests, so it seems a waste of time to do it.

We’ve tried to overcome this to a certain extent by our ‘Normally Ships by…’ availability settings; but it doesn’t work for games that run out-of-stock. This is particularly true for our mid-tier best-sellers. We might carry 6 copies of Power Grid at one time; but we’ll only carry 1 copy of Descent. It just doesn’t sell well enough to justify more. However, the moment it sells out; we’re out of stock till our restock in a week.

The problem is of course that we have a limited amount of funds available and it’s just not physically possible to stock 2 or 3 copies of every mid-level game that sells. Especially since these games have a turn rate of 3 or 4 each. Not bad – but often the sales come in batches (i.e. 2 games sold in 2 weeks then nothing for 6 months).

So, here’s my question to you; loyal readers. Do you substitute for a different game or do you just wait?

Vancouver No-Ship Math Trade

Just a quick FYI everyone – there’s a No-Ship Math Trade happening in Vancouver this week.  There’s only a few days left; but if you are looking to get rid of some unplayed / unwanted games, the Math Trades are a great option.

What’s a Math Trade? Well unlike normal trades which work on a 1 to 1 basis, a No Ship Math Trade uses an algorithm based on your wants to find the best series of trades for all those involved.

E.g. If there are 4 people involved (A, B, C, D) each with 1 game available for trade; if person A wants person D’s game but person D wants B’s and B wants C and C wants A; the math trade software would realise this and have everyone trade to their wants. Then A gives to D his game while he gets a game from C.  D in turn gives his game to B and receives the game from A, where B gives his game to C.  Everyone walks away happy.

That’s the basis of the math trade, with a lot more people and a lot more games involved.   The more games and people who take part, the higher the chance of a series of trades occurring – with the ability to indicate the level of wants (e.g. A likes game X more than game Y, so the software attempts to get him game X before game Y).

In a No-Ship math trade, instead of shipping the games to each other, those in Vancouver meet-up and just hand the game to each other.  Saves on shipping cost.

January 2011 Newsletter

Monthly Review Contest Winner

This month’s winner is Sean D. with his review of Middle-Earth Quest. In his words “This is one of my favorite games. It is one of the most finely balanced asymmetrical games that I have played. The Heroes play quite differently than Sauron does and it is always a race to the finish.”

Annual Contest Winner

Congratulations to Hogan! He won our random draw for the $250 worth of board games. We’ll be shipping his batch of board games out soon once we confirm his address.

And once again, thank you to everyone who took part and do keep writing reviews.

Site Updates

We just published our Best-Selling Games of 2010 as an article on the site. Take a look to see what was hot last year.

In addition, we are discontinuing the monthly and annual Review Contest but are still providing 50 Reward Points for each approved review.

Reward Points can now be used to discount specific products at a much higher rate (250 Points = $1 discount). Just click on the individual products while logged in to use your points.

Lastly, we will be at GottaCon on February 4 – 6, 2010. Do make sure to drop by to say hi to us. For obvious reasons, we will not be shipping orders out of February 4.

Read more on our blog

Upcoming Hot Games

We will be seeing a quieter time now with XMas over, but there’s a few great games coming up including the reprint of Catacombs, the fantasy game Magestorm and the reprint of Alien Frontiers.

Note that Mansions of Madness has been pushed back to a release in March now due to printing problems.

More Pre-orders

Bestselling Games of 2010

We just posted the best-selling board games of 2010 on our site.  It’s an interesting list of games, with the usual suspects dominating the list – Ticket to Ride, Settlers of Catan& Citadels.  It’s also interesting to note the continuing interest of what I believe will be modern classics – Pandemic, Dominion & Agricola.

Of the three; I feel Pandemic might be most at risk from it’s close (and cheaper) cousin Forbidden Island.   Still, if we look at the number of actual games sold; Agricola might be most at risk – we actually sold less this year than last year (by 2 games); so it might be an indication of a down-trend.  Certainly, every other Top 10 evergreen game sold more for us this year.

You might be wondering; where’s Carcassonne?  The first sighting of the game is No. 23 on our list.  Quite a drop; though it should be noted that the number of games we actually sold went up.   In addition; if you include the Carcassonne Big Box 2 and Carcassonne Big Box 3 in the sales total, the game would definitely be in our Top 10.   In many ways, the release of the Big Box’s seem to have upsold more customers to those Big Boxes.

When you look at our Top 10 releases of 2010; you realise that the last 3 games released (the Big Box 3, Dominant Species & 7 Wonders) all went out of print very fast. In fact, we couldn’t get enough copies of any of them in.  So, the full sales potential of those games is unknown – we’ll certainly see more of them this year I’m sure.

New Bestsellers List for December 2010

We have a new bestsellers list for December 2010 so you can check out what sold well over XMas. Mostly, the usual suspects. It looks like we forgot to do November’s bestsellers list, but here’s October’s as a comparison:

Betrayal at the House on the Hill

1. Betrayal at the House on the Hill

2. Carcassonne

3. Ticket to Ride

4. Bang the Bullet

5. Pandemic

6. Settlers of Catan 4th Edition

7. Castle Ravenloft : Dungeons and Dragons Board Game

8. Dominion : Prosperity

9. Pandemic on the Brink

10. Dominion

Smartphones & Retail

I recently read an article from the Wall Street Journal (yeah, I’m boring) about the increasing use of Smartphones in-store to get the best deals.  By scanning a specific barcode on a product (or reading / typing in the name of the product) customers could run a search on their phone for the best deal right there and then.

Now, with only 5% of all mobile phone users owning a smartphone, this doesn’t seem like a large problem.  And it isn’t – right now.  Heck, those programs don’t even work as far as I know in Canada.  However, it will eventually become a factor and at that point, retailers are going to find themselves squeezed on prices all across the board.

It’s an interesting phenomenon for these big box retailers that b&m game stores have already (and are already) facing.  I think many will attempt to adapt in the same way – by paying more attention to branding and the customer experience in the store.  B&M game stores have added gaming tables and regular events, food & beverages, expanded and trimmed their product lines and modernised because of competition from online stores.

Of course, there will be others who will attempt to stop this from happening entirely – potentially putting in telephone jammers and the like.  After all, those things are quite cheap and concert halls and movie theaters have already started (for entirely different reasons of course).

At the same time, I think with the cut in the retailers margins, these big box retailers are going to attempt to cut costs.   I expect we’ll see a lot more self-checkouts (pushing the costs of those machines lower) and probably a push for lower retail rents.

In the long-term; with the big boys of the retail world (excluding potentially fashion / clothing which produces unique products) being pushed on margins; they’ll push back on landlords and on land prices.  The big box stores won’t take the 3 – 4 times premium they’re currently paying for retail storefronts, which will eventually push the rents for everyone else down.  It’s an interesting phenomenon but one that I expect to play out over a decade or two; not anytime soon.