The Exchange Rate and Pricing Increases

As some of you might know, the Bank of Canada revised their overnight lending rate from 1% to 0.75%. That caused a one day CAD$0.05 drop in the exchange rate, driving us down to CAD$1.25 on that day itself. It’s now at CAD$1.27 to US$1. What does that mean? It means that a game that we purchased at US$20 last month has gone from CAD$23 (US$ exchange of $1.20) to CAD$25.40.

New Pricing

To keep our margins consistent, what we’ve done is adjusted our exchange rate calculation to CAD$1.25.  That’s a bit lower than the actual exchange rate, and somewhat lower than what we’d actually get from the bank (who take their cut when you do an exchange), but it’s what we expect the currency to be at for the long term.

Of course, we could be wrong – our currency could weaken significantly more.  It’s not as if we haven’t seen drops down to CAD$1.50 before in our history. If we do see significant changes, we’ll probably be adjusting our prices again.

Inconsistent Changes

Note that not all our products come from the States anymore due to publisher restrictions.  While it’s always been cheaper for us to buy from the States and bring the products up ourselves, due to on-going publisher restrictions; a large number of our products must be purchased within Canada.  Those include the entire Asmodee, Z-Man, Days of Wonder, Mayfair Games and Fantasy Flight Game lines.  Those prices will see changes on a more on-going basis when our distributors update their prices.  Unfortunately, we can’t predict or even guess at the prices they will charge us, so we’ll be updating when it comes in.

The difference $20 makes

One thing that’s particularly interesting for us is the way sales on Fortress Geek and Starlit Citadel differ, particularly in terms of the average item ordered.  On Starlit, quite a few products used to sell in the $30 – 40 range.  On Fortress Geek, that price drops significantly and most products that sell are in the $12 – 25 range.  So, a $20 difference.

What does that mean?

We do 5 orders a day on Fortress Geek, each at say $15 on average.  Revenue = $75

We do 5 orders a day on Starlit Citadel, each at $35 range.  Revenue = $175

Assuming we make 40% margin on both, gross profit fir FG – $30 and SC – $70.  If our margin on SC is only 20%, the gross profit is still $35.  Same number of orders, but higher revenue and even with a lower margin, we still make more gross profit.

Of course, cost of goods isn’t the only thing that counts towards gross profit, but it illustrates the point effectively.  On the other hand, it’s easier (in some ways) to sell a product for $15 rather than one for $35 – but online, the difference is marginal.

Changing Marketplace

Why bring this up? Well, partly because of the changing marketplace we see in board games too. We’re seeing a giant split in games, with some of the most popular games in the $10 – 20 range (Sushi Go, Love Letter, the Android: Netrunner Packs, etc.) and a gulf till we hit a lot of the more popular ‘big’ games (Imperial Assault, Mage Knight, Caverna).

Interestingly, the games in-the-middle have stalled for the most part, the one’s in the $40 – 50 range have stopped selling as often – Ticket to Ride, DominionSmall World .  There’s not been a breakout hit in that price category in the last 2 years for the most part unlike previous years, which has meant that we are often processing more orders than ever (for the smaller games) and yet not really making that much more.

It’s a weird thing, and just an artifact of the industry which has been gearing towards ‘bigger’ games or ‘micro’ games.  Of course, this could change very easily with the next set of releases.

Employees, Wages and Hours

Last Christmas, for the first time we had up to 6 employees working in the warehouse at any one time. We didn’t actually increase hours / work that much from the previous year – we just split the hours that we had up among the employees even further. It was an interesting experiment and one that highlighted an oddity in our business and business processes.

Peak Hours

Right now, our peak hours range from Noon to 4pm – basically, just after lunch hour is when many if not all our shipments for that day will have arrived while we have begun processing / pulling orders. By 4pm, all orders that have to go out that day have been processed; so things start slowing down.

During the ‘peak’ period, we might have up to 5 shipments from different vendors arrive and over 60+ orders to process and ship. That’s when we want multiple hands on-deck – some processing orders, some receiving new product, others shipping the order s and doing customer service.

Open Houses & Events

Another benefit of having multiple employees was that we could run Open Houses without burning out employees. We didn’t need to ask employees to work 6 days a week for only a few hours each time every week – instead, we could rotate our employees without a problem even when we had weekly open houses.

Business Sense

In this sense, it makes perfectly logical sense to have multiple part-time workers, none of which are ever given more than 20 – 30 hours. That way, when we do have things on weekends – events, open houses; etc we can flex these employees and have them work extra hours without having to pay over-time.

This also comes into play when you lose an employee – for the few weeks you are down an employee, you just need to increase the hours of your existing employees to make up for it till you hire another individual.

Business Non-sense

Of course, there’s a negative to this. Not everyone is going to be happy / able to work / willing to work for 10-30 hours a week for long periods of time. McDonalds and other fast food areas make do, systemizing the business such that it is easy enough to slot in new people with only a little loss in productivity. We’re not that big (or systemized); so that makes it more difficult, and frankly, trying / keeping people on part-time hours indefinitely might not be fair.

This isn’t true for everyone of course – some employees want the part-time hours and flexibility. Randy is one – he likes the work we do and the hours he gets, but he’s not at all interested in going full-time due to his other commitments. There are obviously others like this (students, artists, etc).

Still, if you hire someone on a part-time basis with no expectation of ever going full-time, you (as the business) can expect to see a higher than normal turnover. Which then compounds the need to have more trained employees so that when you do lose an employee, your normal operations aren’t disrupted.

On the other hand, expecting employees to never leave is rather silly as well…

2015 – A Year of Change

2015 is going to be an interesting year for Starlit Citadel. We are undertaking a large number of changes in the business and I thought some of you might be interested in reading more about it.

Firstly, Kaja our Manager and co-host of the video reviews has left Starlit to pursue self-employment as a teacher in her business Valkyrie Martial Arts. Kaja has been with us for over 3 years (since mid-2011) and has seen the company grow through a significant number of changes and has been instrumental in ensuring the growth has been as smooth as possible. Among other things, she’s the reason we have some of the most up-to-date and well-written processes and procedures I’ve ever seen. Like, seriously – we have better documentation for our processes than multi-million dollar companies I’ve worked for before do. And of course, she’s been the ‘face’ of our video reviews for years.

Kaja’s leaving prompted us to review the video reviews and it’s place in our business and finally, our decision to cut them from our core business activities. While each video itself takes 20 – 30 hours to shoot, there’s also countless hours managing the various platforms and replying to viewers. With over 116 videos shot, we’ve decided that it’s time for us to move on and find better uses for the funds.

With the new funds, we’d like to review new channels and promotions. Perhaps one of our best forms of marketing have been our infographic and game app. However, they are now a year and a half out of date (only a year for the gameApp) and need updating, so we’ll need to fix that as well. We’d love to expand that further, potentially developing the app directly into the site.

Lastly, our second business Fortress Geek has begun to pick up significantly. It’s taken us a while to figure out the marketing and inventory for it, but now that we have we expect to see significant gains in sales – which will require more time dedicated to it by both the staff and myself.

Overall, I’m looking forward to 2015 but expect it’ll be a little rough in the beginning as we all settle down to the new changes.