ECONOMIES OF SCALE (by Tom Russell)

So, we've been in business now for a little over a month. For the most part, everything is going according to our diabolical plan: people are buying the games, people are liking the games, people are talking about the games. We've kept up fairly regularly with our social media obligations, updating Facebook a few times a week, checking BGG and CSW daily for questions and concerns and then answering them, and producing articles for this blog at a fairly steady pace.

We're not yet in the black, but we're not that far in the red, either. Our profit margin is pretty tight, so after paying for the production of the game and setting aside money for royalties, the remainder isn't exactly an impressive amount, and right now all of that is going toward overhead and art. One reason we've had difficulty finding wider distribution is that in order to make carrying our games worth it for those distributors, we'd need to basically sell the games at cost, or at a loss. (We are working with some interested parties on a solution to this, however.) 

Tom was discussing this with The Big Board's Kevin Sharp over the phone this past week, and Kev made the very good point that if we were to do a traditional print run that the production cost of each game would drop significantly. He's not the first one to bring this up. If we were to do even a small print run, say only a thousand copies, of The Scheldt Campaign, we'd be spending a little over four times less than we would using our current print-on-demand method, and assuming we sell every copy, our profit margin would more than double. We'd be spending less money, and making more money. 

So, why on earth are we doing things the hard way? Economies of scale is a ridiculously easy concept to grasp, so why aren't we grasping it? Well, there are two factors that played a major role in our decision to go with a print-on-demand model: liquidity and demand.

Just to throw some numbers out there, let's say a small print run of a thousand copies for Game X would cost us about six bucks per unit; therefore, the cost of the whole run is only six thousand dollars. That's a lot less than paying for each unit one at a time. But in order to do that, you need to actually have six thousand dollars to spend. More pointedly, you actually need to have six thousand dollars that you can afford to lose. Quite simply, we don't have that kind of money. For us, six thousand dollars is a significant chunk of change. And remember, that's just for the printing costs for one game. If we wanted to release a game every month, we're talking about $72,000 a year. And brother, we don't even make half of that in a year, let alone having it sitting around to spend on our sideline. 

There are ways around this, of course. GMT, and many other companies, use a P500 system: once a game has 500 pre-orders, boom, they have the money to go to press, and they're reasonably certain that there will be enough demand to keep themselves in the black and then some. Kickstarter is another popular method, and some folks have wondered, well, why don't you try crowdfunding? And both of these are where we run into the problem with demand.

Now, we think there is a market for our games; if there wasn't, we wouldn't be publishing them. But when we went into this, we had some specific projections for each game. These projections were based on past experience; Mary was responsible for the publication of some fifteen games over the course of six months, and having access to those sales figures, we got a pretty good idea of how much we could realistically expect one game or another to sell. We figured when we started Hollandspiele that The Scheldt Campaign would sell this many copies in its first month, and that many in its second; we figured that The Grunwald Swords would sell less than Scheldt, but fall within a certain range. And in both cases the games in question have done pretty much what we thought they would do, though, we are very happy to report, they each performed at the top of their expected range.

But, spoiler alert, that's still a whole heck of a lot less than a thousand copies! So much less that if we had printed a thousand copies of each, we would have dismissed the games as abject failures, and been seriously worried about whether or not we would be able to keep our house. We certainly wouldn't even be thinking about publishing more games, certainly not a new game every month, and certainly not games on fairly obscure topics!

Or to put it another way, folks, there's a reason why there are dozens and dozens of games on the Eastern Front, and zero games on the Barbary Wars (but, hey, we're working on it). Tom was speaking with Lock N Load's David Heath a few weeks back, and David (a wonderful, warm, and friendly guy, by-the-by) mentioned the "three N's and a Z" that were guaranteed to sell: NATO, Nukes, Nazis, and Zombies. Now, we won't necessarily shy away from those topics (well, maybe the Zombies) or other perennial favorites like the ACW and Napoleonic era. But part of why we started Hollandspiele is that we wanted to publish a wide variety of games that reflect our eclectic tastes and interests, without risking our own financial stability, and without turning our garage into a depressing warehouse for unsold games.

We have a friend who runs a small Eurogames company who more-or-less did exactly that. He has published six games. We're going to set aside the first of those six games for a moment, and just look at games two through six. Each of these were printed in small runs of between 1,000 and 1,500 copies; between these five, a total of 6,000 units were produced, and only 2,900 of them had been sold. One of the games only sold 300 copies out of a 1,500 copy run. That meant he had over three thousand unsold games sitting in his garage. It was actually worse than that, though; that first game that we set aside? That was his best-seller, with nearly two thousand copies in player hands. Unfortunately, he printed ten thousand copies of that one, and eight thousand of those are still sitting in his garage. His adventures in publishing put him into serious, crippling debt, and had a hugely detrimental effect on his happiness and personal relationships. And every time he goes into his garage, he gets reminded of that. So, yeah, no thank you.

So that, in a nutshell, is why POD is not only attractive to us, but frankly the only option that lets us publish the games we want, as often as we want, without the sort of serious financial risk (and all the concomitant consequences) that would come with more traditional printing methods.