Free Shipping & Margins

We provide a Free Shipping Promotion on the site for orders over \$175.  It seems quite high when you consider that in the United States, it’s often at \$100 or \$125.   Of course, we do live in the 2nd largest country in the world with a tiny population, making our overall cost of shipping much higher.

In fact, it generally it seems takes between \$8-10 to ship across the United States (with a business discount) while in Canada we’re looking at a minimum of \$17 from edge to edge.

Our \$175 Free Shipping Offer

So, let’s discuss the \$175 free shipping level.  On a \$180 order, we make about 37% in gross profit – or \$66.  The rest goes direct into paying for the stock to replace the games purchased.  Now, on this order we have to pay our gateway fees for the credit card charges of approximately \$6.   So, we now have \$60 total in gross profit.

A Free Shipping order is generally quite a large order so our average shipping cost is about \$18 per order.  On top of this, we need the box and packing material, an estimated \$2 per order.  Total cost of shipping is about \$20 for each shipment.

That brings out total gross profit on this Free Shipping order to \$40.   So on a \$180 order; we make \$40 Gross Profit; before you start counting operating expenses like salary, rent, electricity and marketing expenses among others.

The \$100 Free Shipping Offer

So, let’s do the maths again on a \$100 Free Shipping Offer.

\$100 of product = \$36 in Gross Profit.  Take another \$3.00 off for Gateway Expenses, and that’s \$33.

On \$100 of product, due to the smaller box size we’ll call it an average of \$15 to ship plus \$2 box cost and packing material.  That’s \$17 in shipping; so that’s \$16 in gross profit.

How does Chapters do it?

If you’re like me, and you buy from Chapters, you probably have received packages of books that are only 1 or 2 books wide.  At a \$29 free shipping option, it seems impossible for them to do this.

However, Chapters has a few advantages over us:

• Volume – Canada Post provides volume discounts.  We just aren’t anywhere as big as they are so our discounts are only a fraction of their discounts
• Better Margins – again, it’s worth noting that their margins are much better on books than ours on board games
• Smaller Boxes – means smaller shipping expenses.
• Multiple Warehouses – and here’s the other equation – it costs a lot less to ship within a province (or two adjacent provinces, etc) than it does to ship across the country.

In time, as we grow we’ll probably revisit the Free Shipping policy.  The trick is to get our shipping discounts to a point where it makes sense.  I expect it might be viable in 2 – 3 years time, if we grow sufficiently.  Till then, bear with us!

Video Review: Descent: Journeys in the Dark 2nd Edition

This week, we’re reviewing the 2012 reimagining of Fantasy Flight’s classic dungeon-crawler, Descent: Journeys in the Dark. It’s a fast-playing and tight game that packs in a lot of tactics and the potential for an immersive campaign mode, and does away with some of the clunkiness of the earlier edition while staying true to its feel.

I’d also like to say a quick Thank You to everyone who supported our Season 2 fundraiser on IndieGoGo. We finished the campaign with \$3,037 raised from 91 donors, which means we’ll be making 33 videos in total in 2013. Thanks so much for your support!

Video Game Reviews – The Journey

As many of you know, we are raising funds to increase the number of videos we will shoot for Season 2 of our video reviews.  As a business, we can slot the ‘cost’ of making the video reviews into our marketing budget as an expense, but as you can probably tell from the IndieGoGo fundraiser, shooting 52 reviews a year is expensive.  16 reviews = \$7,000; so you can do the math on what 52 reviews cost us this year.  It’s the reason why we cut down to 26 next year from self-funding and are having additional videos directly funded by our supporters.  Truthfully, it still probably isn’t a good ROI on our marketing expenses but there are other considerations beyond pure direct ROI.

The Beginning

I first started looking at producing video reviews over 4 years ago in 2009 when both the technology and our business had grown to a point that I had some funds for marketing.  It was there I first ran into the huge cost involved in shooting video reviews — at least in the format that I wished to shoot the videos.

Of course, we could just buy a camera and shoot the reviews without editing/formatting, but as you can tell from the site I’m leery of doing relatively ‘unprofessional’ work.  There have been notable successes in the ‘amateur’ format, but more often than not it just fails.  With cost ranging from \$400 – 500 for just a pure video shoot without casting costs and script writing, I just couldn’t afford to do it back then.

The First Attempt

In early 2010 I met a young theater student at the VSO.  After some discussion, I made an offer to pay for the shoot for our first attempt at video reviews.  She had done some work with videography before and had some contacts which she intended to use.  So I provided the games and we scheduled time to look at her storyboards.

Things went well at first, if slowly.  A basic storyboard for a couple of the first reviews appeared and then exams came along, and she dropped off the map.  Months of silence followed before we talked again, at which point she opined that she had no time to do the work and returned the games.  By this time, it was late 2010 and I just gave up on the project, having to deal with other problems.

At the same time, we were sponsors of Board to Death from when they first launched in late 2009 till late 2010.  As a new video review site, they had no prior ‘affiliations’ which meant it was possible for us to make an arrangement with them.  In addition, they were a Canadian company which was always nice to see. However, over time I grew dissatisfied with the sponsorship due to my lack of control, both over the branding aspects of the videos and the overall format.

Strange Co-Incidences

By 2011, with the hiring of Kaja to the company I was beginning to get ‘breathing room’ once more to look at this project.  Our first major convention together was Cos & Effect at UBC.  At the convention, a new webseries production was touring the vendor tables promoting their first season.  Dressed in some really cool costumes, they seemed like real geeks and, as importantly, knew what they were talking about.   I struck a conversation with both Rob & Joanna, being the curious type, and blathered on about how hard it was to shoot reviews for our site at a reasonable cost. At that time, Rob offered to provide a quote at a more reasonable cost and we agreed to follow up the discussion after the convention.

The Second Run

Our first set of videos in 2011 were a test run.  As a business, we needed to know if it was a viable addition — both in amount of work, the cost and the new processes we needed to make it an on-going project.  We also needed to iron out potential problems with scripts, the shoot times and our game selection.

It was also Kaja’s first big project, and we decided to set some overall objectives for the videos.  We came up with a few:

• the reviews should be professionally shot and edited to provide a ‘clean’ feel
• we’d use 2 reviewers instead of 1 to reduce the ‘burden’ of the script
• videos should be short.  Each video review should be 5 – 7 minutes in length
• they had to be consistently released and couldn’t be a one-shot project

With those objectives in mind, it was a no-brainer to hire Joanna to co-host.  As a professional actress she could handle the scripts with ease and she had solid geek credentials as well.  Her co-host was decided to be Kaja rather than me as she is significantly more articulate. In addition, I am somewhat uncomfortable with such a public ‘image’.

The first 3 months of videos we shot managed to reach most of those objectives. We had some issues with script length and regularity, but the first test run worked well enough that I was willing to commit to a full year’s worth of video reviews for 2012.

The First Season

The first full year of the reviews was always going to be rough.  Shooting each review (or block of 4 reviews like we do) ended up taking more time than we had expected, both in the need to write and edit the scripts as well as reviewing the final products.  Our earlier reviews had a tendency to get too long and we had to spend some time working out the best way to condense data, often by condensing rule information.

At the same time, in our first year we needed to cover both newly-released games as well as old classics.  So we had to balance shooting newer games with much older ones such that we had a proper library of reviews.

An additional finding for us all was the need to balance the types of games we reviewed in each ‘block’: too many rules-heavy games made up for very long shoot nights, so we needed to make sure each shoot had 2 ‘light’ and 2 ‘heavy’ games.

Lastly, we had to deal with games sent to us for reviews.  At first, we took any games that were given to us and reviewed them.  This actually caused problems in scheduling, with other ‘better’ games sometimes pushed back as we had to review donated games.  Nowadays, we’ve got a better procedure but in the beginning we ended up caught out due to our early willingness to take whatever was offered.

The Second Season

So why did we cut our season in half? Not surprisingly, it had to do with money.  As I mentioned, the ROI for the videos was just not there, at least not for another 52 videos.  We just couldn’t justify the cost and the budget for it, not when we had so many other expenses.  Part of the reason was that the number of viewers within Canada was significantly lower than I had expected, especially compared to the total viewership.  On the other hand, we wanted to open the door to extra videos beyond what we could self-fund if there was a demand for it — and thus the IndieGoGo project was born.

For me, Season 2 will be interesting.  While I have a mostly hands-off relationship with the video review project, I do provide some input to Kaja & Joanna.  To me, Season 2 allows us to focus on newer games especially, since we have begun to receive demo copies of games from publishers on a regular basis.  At the same time, I’d like us to film more expansion reviews as this seems to be another gap in the current review climate.

Pricing & Company Strategies

One of the most famous examples of generic strategies is Porter’s Generic Strategy theory.  For those of you who have never seen it; here you go:

One of the reasons why I brought it up today is to discuss pricing.  If you see the above; generally you can see that there are 2 major options – either a cost or a differentiation strategy.  Within cost strategies, you can try be cost leader in the general market (everything to everyone ala Wal-Mart) or you can focus on a smaller market and be the cost leader in that area (e.g. Future Shop in its attempt to corner the electronics market).

The Game Industry

At a glance, you’d think Starlit Citadel was taking a cost leader or cost focus strategy.  Actually, we attempt to focus on differentiation as much as possible.  A lower price than MSRP is to keep us competitive, but the free shipping offers,  rewards program, video reviews and our borad selection are all ways for us to differentiate ourselves.

Not every business can or will want to pick a cost-focused strategy.  As a cost leader, you need to always be driving cost down.  To do that, you need:

• Capital to get better technology
• Highly efficient logistics
• Low cost base

We have like one of the three (efficient logistics).  A low cost base requires would require us to move to a small city, preferably in Alberta or Saskatchewan (lower minimum wage).  Neither of which we are interested in doing.  And as for capital… well, we just aren’t at the size to make most of the capital / tech purchases cost-efficient.

At the end of the day, even those companies that compete on price (e.g. Wal-Mart & Target) end up differentiating themselves in other ways because customers do not just buy on price.  There are always other considerations, whether it’s brand, selection or other benefits.

It’s why Porter’s diagram is just ‘general strategies’; as you dig deeper in and it’s all differentiation strategies.  You have to be different, and price just isn’t enough.

Company Growth as seen in product lines

Over the last few years (5 and a half and counting); we’ve grown as a game tore.  When we first launched, we had 700 products listed on the site and all of them board games.  Now, we have 3,000 products in-stock at any one time spread across most of the game accessories.

It’s an interesting thing to watch and it’s an obvious indicator of success.  Here’s a timeline based on our growth into the different categories:

The Timeline

2007 – Board Games

2008 – Accessories (dice and deck boxes mainly)

2009 –RPGs (Shadowrun, Savage Worlds, etc)

2010 – Wargames

2011 – Miniatures

2012 – Miniature Supplies

Of course, this isn’t an exact timeline.  We grow in spurts, sometimes adding categories together, other times slowly adding to existing categories to flesh them out further.  In 2012, we’ve fleshed out the Miniature and RPG sections quite significantly; and over the years we’ve added more and more board games.  We probably still have 70% of our stock in board games, but in time we’ll continue to expand into other areas of the game trade.

What dictates rates of expansion?

Capital. As we make profits from our main lines, we can then dedicate some of that profit to acquiring new stock.

Customer Interest / Special Orders. Sometimes, we expand into a particular product line because of special orders from our customers.  As we bring in / source specific products, often we end up bringing in an extra copy or two for the store to test interest from other customers.

Turn Rates. At the end of the day, each new category needs to make us money.  Each category has to sell through such that we aren’t adding inventory that will eventually become sale fodder.  While new categories are given a bit of leeway as they build a customer base, eventually all categories have to be profitable.

Our 50th Video Review (Seasons) & Fundraiser Update

We posted our 50th Starlit Citadel Reviews video today! It’s a review of one of this year’s most exciting new releases, Seasons. It has the great components and art you’d expect from the publishers of the Dixit series, and offers a lot of strategy and interaction in a short, easy-to-learn game.

We’re also heading into the final stretch of our IndieGoGo Fundraiser for Season 2, with only 12 days left. We’re currently at about 25% of our main goal, and have raised enough to produce an additional 4 videos, making for at least 30 new episodes in 2013.

Since the launch of the campaign, we’ve been posting bonus videos to promote the project, and you can watch them all on our fundraiser playlist over at the YouTube channel. We’ve also received some interesting press elsewhere in the gaming world, including a guest post on review site 2d6.org; a blog post at Game N Train, a Canadian fitness and gaming site that features a “Boardgame of the Week” from us biweekly on their podcast, GameOn, and who will be interviewing Kaja and Joanna in next Thursday’s episode; and a lovely geeklist put together by one of our regular viewers over on BoardGameGeek.

If you’ve got a bit more time on your hands, Richard Bliss, aka The Game Whisperer, has just put up a 20-minute interview with Kaja and Joanna as part of his “Funding the Dream” series. It covers everything from the current fundraising project, to Kaja’s historical swordplay hobby, Joanna’s experiences as an indie filmmaker (including some background on her webseries, Standard Action), and the growing visibility of women in the gaming industry.

The fundraiser is up until November 24th, 2012, at which point we’ll receive all funds collected and get to work planning the next season of Starlit Citadel Reviews. Thanks very much to everyone who has donated and spread the word so far — we’re really grateful for your support! And if you haven’t donated yet? There’s still time for you to help out.

Kickstarter & Demand

Gary Ray of Black Diamond Games in California has an interesting post on Kickstarter.  To sum it up, he is pulling back from stocking Kickstarted products as he has found he can no longer sell a Kickstarted game.  It’s become such an established distribution system that all his customers who might be interested in a particular item have already purchased it at the Kickstarter level.

As always, he’s probably ahead of the curve in speaking up about a potential problem and it’s quite clear that this has become a problem for brick & mortar stores.

Our Perspective

Truthfully, we don’t have the same level of problem as he does. There are a few reasons for this:

• Game Salute – many of the Kickstarted games out there have gone through GS as their distribution partner.  Whether they end up in the main distribution channel or not, we can’t get those games.  So we’ve been ‘shielded’ to some extent from bad or small runs.
• Wider customer base – our customer base is wider.  We reach right across the country and by nature of the internet draw more customers from the fringes
• Lower Prices – obviously a number of customers are individuals who’d rather buy a game discounted rather than at full price.
• Canada – or specifically, shipping costs to Canada for Kickstarter games can make it more less cost efficient to back a project than for US customers

That being said, we have seen this issue as well.  There are a few publishers that we purchase games from but there a lot fewer Kickstarted games that we’re willing to take a chance on.  Some of it is the quality control issue – there seems to be a higher percentage of games that aren’t that good that get Kickstarted compared to traditionally published.  In addition, we have seen reduced demand for a Kickstarted game – games that we could (probably) have sold 3 to 4 copies before they were Kickstarted have dropped to 0 to 1 copies.  So we aren’t immune, just sheltered.

On the Industry

Kickstarter is a major game changer.  It’s a disruptive technology that has allowed publishers to generate more profits and shift risk by contacting and selling games direct to the public before the game is made, often with perks that are not offered to retailers.  It’s gone from a fringe system among board game publishers to a relatively main stream option.

There’s a lot of parallels that can be drawn from the publishing industry (see Kristine Kathryn Rusch’s blog for a more thorough discussion of the publishing industry and the changes it’s caused there) and how independent writers can actually make more money selling fewer books online direct than selling through the ‘traditional’ sales channel.  This encourages more writers, each selling fewer books but also more books in total.

We aren’t there yet and there’s obvious differences such as the added complexity of board game production, the higher cost of production and the more complex distribution model but it’s an interesting parallel. There will obviously be designers who will want to publish through traditional game publishing channels and others who Kickstart their games and take on the added responsibilities.  The question is, what will the percentages be between the two and more importantly, where the next ‘big’ hit is coming from?

Worst, what if all or most traditional publishers start selling direct to the public through Kickstarter?  If publishers are taking all the ‘easy’ sales, then retailers have to work even harder for smaller profits.  This could kill the retailer / distribution model if a large enough percentage of publishers go this route.

Possible Solutions?

Well, the obvious answer for publishers is ‘don’t do it’.  At least for traditional publishers, they should stick to their current model.  Of course, this isn’t likely to happen – businesses are in business to generate the most profits possible, and direct sales for publishers are the most profitable solution (at least in the short-term; potentially long-term).

Some publishers have seen this problem and the harm it’s done (or doing) to stores and have attempted to include them.  Here’s what I’ve seen tried:

• Retailer support levels.  They don’t work.
• Local (free) pickups at a retail store. Varies but doesn’t seem to do much in terms of generating new profits
• Non-versioned games (i.e. no perks for customers so same game as the retail model).  Most such campaigns don’t get funded thus far.

Here’s a few ideas that might help:

• Retailer-only versions of games.  Take some of those additional profits, put them into new production f a version of the game that is sold only with retailers.  The trick is to make this version good.
• Consignment sales.  Instead of selling us games, send them to us as a consignment.  We’ll pay you what we sell and return what we don’t.  That takes out the capital risk and allows us the option (and time) to potentially push the game. Of course, you then hit the problem of limited shelf space.
• Better discounts. The old 50% split was based on the distribution model where the publisher generated his revenue  from about 35-40% of MSRP.  With Kickstarter games, he generates 93% of the revenue (after Kickstarter fees I believe this is correct) in the beginning.  As such, when selling ‘remainder’ copies to the retailer, he

At the end of the day, the idea behind each of the above options is to provide a greater incentive to retailers to stock a Kickstarter game.  The first creates demand or at least splits the demand, the other two can increae the ‘length’ of time a game can stay / is pushed on a retailer’s shelves.

Side Note:  There’s a tacit admission in Gary’s blog about demand creation.  Retailers like us can create new gamers (increase overall demand), but we have only limited influence on which games are actually purchased especially when dealing with ‘alpha’ gamers.  With new gamers, we can influence their decisions but alpha or long-term gamers often have their own opinions and needs and are only marginally influenced by the retailer themselves.

Elavon & CollectivePOS – Avoid

Payment Gateways are one of those arcane pieces of business that any organisation that wants to take credit cards or Interac have to deal with.   There are numerous gateway services out there, and frankly, most of them aren’t very good. In Canada in particular, there’s a lack of transparency and a lack of good competition which means our rates are generally higher than those in the US.

I’ll go into detail about payment processing and the various methods that are used to charge / invoice businesses; but suffice to say that 99% of the companies in Canada do their best to obfuscate how much you are paying.  At the end of the day, their goal is to get you signed as most merchants won’t go through the hassle of moving their business.

I mention all this so that you can understand that even with the very low expectations I have for these providers, Elavon & CollectivePOS are in my experience, the very bottom of the barrel.

Now, to be clear – CollectivePOS is a not a payment processor themselves, they are basically an agent of Elavon.  Elavon has multiple agents out there; so it’s best for you to always check who the final payment processor you are working with.

Here’s a bullet point list of the things we had to deal with:

• Lousy to no support unless threats were made
• An arcane processing system that even their tech department doesn’t understand
• Setting up our merchant account wrong – and then continuing to bill us even though we couldn’t actually use the account
• Highly dangerous, privacy endangering practices (they wanted us to save credit cards on our server!)
• Continual billing 5 months after we had closed the accounts

I could go on, but really, I don’t want to think about it any further.  I believe I’ve finally dealt with the last of their billing issues, but who knows.  It might still happen…

Video Review: Space Alert

This week’s review is for the classic, high-energy and high-stress cooperative game, Space Alert — and the newest reprint has just arrived in stock after a few months’ absence from our shelves. This is a true co-op in which everyone must work together just to squeak by on the skin of their teeth, and is tempered with some great atmosphere and humour.

We’re raising funds for next year’s season of reviews on IndieGoGo! Visit our campaign page before November 24th to find out how you can help.