I felt the “Nobody is Getting Rich From Exploding Kittens” by Ben Kuchera article needs a full detailed response.
I don’t want to get into the “does the amount of money they make qualify them as ‘rich’” – that’s a personal definition. Personally, I want these Exploding Kitten guys to get rich as hell from this. The fact that they can make money this way is a great sign for the future of creativity.
I’m also not going to get into “are these guys abusing Kickstarter?” (because that’s a stupid question).
I do however want to get into the math at work here, because frankly either they are getting terrible advice or they are getting ripped off by somebody.
First some bonafides. I have done (directly or with partners) more than 10 kick starters. None were the size of Exploding Kittens, but I get how they work. I’ve also been involved in the tabletop game biz for 20 years, focused mostly on cards. I’ve managed CCG brands that have printed tens of millions of cards a year, and was working at WotC when we were printing 1 Billion Pokemon cards a month, and was the game designer for Bakugan which also printed hundreds of millions of cards. I have seen production and logistics at just about every level when it comes to games – specifically card games. When I made a Facebook comment about how I thought the numbers in the article were wrong, the first response I got was “I agree with Luke” and it was from the guy who was the global Brand Manager for Magic the Gathering for years. Most would agree that this is a topic I can speak on with some authority.
Enough of that, on to some math…
I’m going to make some assumptions here.
- I have quotes in hand for products I’ve worked on where high quality playing cards cost less than $.01 a card. At quantities well below what they are printing. So I’m pegging the cost of a 56 card deck at $.50.
- I am putting the box and rule sheet at $.60 – even with a magnetic closure. This size box is fairly standard as it hold 2 decks of cards.
- The article has $3 for shipping, that’s what I’ll use (although that seems high, more on that later).
- The backers are being charged extra for international shipping, so I’m going to assume that they did their math right on extra fees and it is a wash.
- IMPORTANT: I am NOT calculating any add-ons (which, by the nature of shipping, are actually more profitable). I’m ONLY using Base game and NSFW game backing numbers. So my total KS income number is only $7.4M, not the almost $8.8M they raised. I’ll adjust back up at the end.
- I’m using $1.50 as a fulfillment amount. Shipping 200K packages gives you a lot of pull with fulfillment organizations.
- I put in $100K of freight – This is a spitball number. I think AdMagic prints in the US though, so if most of their backers are in the US, this could be high.
- I’m assuming zero overage (extra copies printed for retail sale). I know this is unrealistic, but I don’t know their plan after launch. Also, the article was about the Kickstarter, not afterwards (that overage would be an asset anyway).
- I’m assuming 3% overage for customer service.
- I have no idea about this mysterious extra gift. I don’t know if $3 is a good price for it or not. So I’m leaving it off to start and I’ll adjust at the end.
- I’m adding in an addition $50K of misc expenses to cover warehousing and other stuff.
Using those assumptions… (and rounding expenses up a bit and revenue down a bit to be conservative)
Topline Revenue – $7.4M
Revenue after KS fees (est. 9%) – $6.75M
Printing – $350K
Frieght – $100K
Shipping – $655K
Fulfilment – $330K
Misc – $50K
Pre-tax revenue $5.26M
Now, what is missing from this number?
The biggest question mark/missing data point is that I only gave them credit for $7.4M in top-line Kickstarter sales. They actually had 18% more than that. Part of that extra was add-ons (extra money!) and part of that was what they charged for shipping outside of the US. I have no idea how much is for each. I”m going to assume an even split, so $5.74M
They have that mysterious “extra thing” and I have no idea how to account for it. The article says it’ll cost 3$-4$ and it ships with every package. It doesn’t look like it will effect shipping based on the image on the site. Let’s assume it cost $3.50 and each backer gets one and it doesn’t effect shipping cost. So -$770K gets us to ~ $5M.
They might also have signed up with one of those backer-kit type organizations without properly negotiating – some of those take a % of the amount you raised on KS as their fee. I hope they didn’t do that! They should do a custom solution – it’ll pay for itself and more with late add-ons and avoided fees.
I didn’t put in money for folks they hire to take care of stuff related to the campaign. I think it’s a great idea for them to do so, but I have no visibility into that. This would include experts in games and game production, but also lawyers and accountants.
I also didn’t put any money into this calculation based on any investment they make in the future of the Exploding Kittens/game business.
So with those caveats, how confident am I in this $5M pre-tax number? I’m very confident that it is no more than +/- 10%. That’s if I ran the business (or anyone else who has had similar experience). Now they might have made some choices that are not financial (which is totally fine), like maybe they are determined to use one US printer out of patriotism. That will effect their bottom line a lot – although even doubling the printing cost would only drop them to $5M pre-tax.
Some Suggestions and other bits…
- At printing quantities this high, they should consider printing at more than one location. Print their European product in Europe, their Australian/Japanese/etc… product in China, and their US product in the US. Unit costs do go down when you print a lot, but they don’t go down much once you get to 30-50,000 units. This would save them a bunch on freight and shipping, and would make for easier and faster local fulfillment – a real win/win. This could even turn some of those “extra shipping fees” that they charged into profit.
- They should bid out their fulfillment and shipping. UPS for instance lowers shipping rates based on how many packages you ship. If you are shipping 100K packages in the US from their base in Memphis, you might see tremendous savings on both fulfillment fees and shipping. And if you look above, those are actually your largest expenses.
- When the article says “we’re printing almost a million decks of cards” I’m going to assume they are counting each NSFW product they print as 2 decks. If that is not the case and you are overprinting by 500K sellable units, they should stop now and talk to someone about inventory management. Right away. No reason in the world to have more than 25K units in a warehouse at any time. If they are printing that many because they are pre-sold to retailers already, then good on them!
The main mistake of the previous article, and the big lesson here is that Exploding Kittens is one of those rare and wonderful campaigns that has gotten so big that it has left the realm of Kickstarter best practices for production and logistics and entered the large publishing world. If they operate appropriately, they should be able to deliver a tremendous product experience to their fans and make a crap-ton of money. If they just follow what has been done before than I don’t think they will have fully embraced just how different and wonderful Exploding Kittens really is.
If you have experience with this volume of production, I’d love your opinion on my numbers. I’m happy to adjust to get them more accurate.