The Perils of Reward Tiers in Kickstarter Appeals

April 16, 2012 -

Develop has an interesting article about how War Balloon Games found that the reward tiers it created for its iOS game Star Command have drained much of the cash it generated when it pitched the game to the community in October of last year. The company raised $37,000, but only initially asked the community for $20,000. But what the Star Command developers did not anticipate was the cost of the various reward tiers it created to get donors to drop larger and larger amounts of cash.

These prize fulfillment costs amounted to about $10,000 of the game's total funds, the studio said.

“Our Kickstarter earned $36,967 after asking for $20,000 so that was incredible,” read an update on War Balloon's Kickstarter page. “To begin with, we didn't get all of that. We lost about $2,000 to no-shows; just people that pledged and the funds did not transfer. That got us down to $35k, and Kickstarter and Amazon Payments take their portions, which got us down to right around $32,000. Now, right off the top you had $10,000 for prize fulfillment. That includes printing the posters, the shirts and shipping everything (thanks Australia)."

The company said that it spent $6,000 on music, $4,000 on legal costs, $2,000 on poster art, $1,000 on iPads and $3,000 to exhibit at PAX East from the remaining $22,000. After all those expenses, the studio claims that it had about $6,000 to spend on development.

"If we had to do it again, we would have probably had the price point a bit higher for the t-shirts and posters, as those turned to be a very large expense,” the company claimed. "We also would have included the cost of a 3rd party fulfillment house - we just aren't equipped or skilled in that area, and it was (still is) something that we struggle with."

While the company notes that it was surprised by all the costs, it did not blame supporters for any of the troubles it has encountered financially.

“We're extremely confident were going to hit our summer release date and that never would have happened without you guys,” the post concluded.

Source: Develop


Comments

Re: The Perils of Reward Tiers in Kickstarter Appeals

I feel like I've been sort of waiting to start hearing about these sorts of problems showing up, and good on War Balloon for handling it as gracefully as they have been, but this is something indie studios are generally unprepared for.

In the smaller studios, you don't generally have dedicated project managers and producers handling this sort of task (merchandising, shipping and delivery). Heck, if Fez is any indication, some studios don't even have a project manager to keep them to any kind of deadline. We all know that there is a lot of 'wearing many hats' in small studios, but I think this is a good example of one of the greater benefits of having the infrastructure of a big studio or publisher at your back.

Re: The Perils of Reward Tiers in Kickstarter Appeals

You don't need a publisher structure to avoid these sorts of things. You just need to properly research these issues before hand. Had they done that, they could have done a few things differently.

1) Knowing how much the shirts/poster cost to print and ship could have helped them move those rewards to a higher tier in order to cover those costs.

2) They could have avoided the $4000 cost for legal fees by registering their company themselves and using a service such as http://www.gamedevkit.com/ provided by an actual lawyer in the games industry. That is only $300.

​3) PAX was probably something they didn't have to do and could have dropped altogether. If they really did want to go, they could have looked into splitting a booth with another developer.

​4) On the taxes side of things, they probably could have done their taxes differently and accounted for business expenses and saved some money on taxes or possibly have shown a loss and not paid any. 

​These are just some examples of where they could have saved money and been better off.

Re: The Perils of Reward Tiers in Kickstarter Appeals

You don't need a publisher structure to avoid these sorts of things.

No, of course you don't -- and I didn't assert any such thing. However, publishers and larger studios have more people more specialized so that a programmer doesn't need to learn anything about how silk screening works while a writer tries to figure out mass postage discounts. It's foolish to think that a rag-tag group of developers are going to do merchandising better or more easily than a marketing department.

Yes, they should have understood more of what the cost was to produce those products, but it's also easy to overlook portions of those costs. You might get quotes for printing shirts that doesn't include the cost of shirts. You might forget about shipping or taxing, or maybe if your product is crossing borders any additional costs or tarrifs associated with international business. You may also do your pricing for one type of material (printing method, shirt fabric, paper stock, whatever) only to learn afterwards that you need a slightly more expensive product. There are lots of things you can't be expected to learn without experience.

As for Legal, PAX and Tax costs, I think that's all speculation. There are plenty of circumstances that justify the legal costs and the cost of being at PAX, and you don't have any clue what they are being taxed for their working dollars.

But ultimately, you're implying that a small studio running in to a problem that is best solved with more money and staff is ultimately as a result of 'not trying hard enough'.

Re: The Perils of Reward Tiers in Kickstarter Appeals

But ultimately, you're implying that a small studio running in to a problem that is best solved with more money and staff is ultimately as a result of 'not trying hard enough'.

​That isn't my position. My position is that this problem is not "best solved with more money and staff". My position is that anyone can start and run a successful business as long as they are willing to learn everything that goes into it. 

It's foolish to think that a rag-tag group of developers are going to do merchandising better or more easily than a marketing department.

No it isn't. Marketing is not the sole expert on how to run a successful merchandising campaign. Your implication that indie developers are too stupid to run things on their own is pretty laughable. Did these guys make some mistakes? Yes. Will other indie developers make the same or similar mistakes? Yes. Will all indie developers make the same or similar mistakes? No. 

As for the printing costs, they are all very much available for those willing to ask and research. I have been to no t-shirt printing shop that quotes a price that does not include all materials. They even list the itemized cost of the whole product. To say that they were surprised by the end cost is a bit naive. The only reason they would be surprised is if they did not research before hand.

​As for the PAX, legal and tax costs, yes a lot of my comments were speculative. However, based on the information available, it does not seem all those costs were warranted. One does not need to hire a lawyer to register a business, trademark and draw up contracts. Tom Buscaglia, whom I linked to, has a very affordable package for making those contracts. $300 + around $500 to register your business on a state and federal level with trademark application is a whole lot less than $4000. All it takes is some time. Of course, I don't expect everyone to know about Tom's offer, but it should be more widely known as he is a very well respected video game attorney.

Re: The Perils of Reward Tiers in Kickstarter Appeals

Your implication that indie developers are too stupid to run things on their own is pretty laughable.

See, now you're just being asinine -- I get the impression you misread my original post and you're too devoted to your own point of view to reconsider to.

You may recall that said War Balloon is handing this problem gracefully. I didn't say they were stupid -- they made expectable mistakes, which indicate that they are new to merchandising and the nature of managing large sums of money and cost -- don't forget, the bulk of game studios deal in data, not product, and they don't have much experience in dealing with the costs associated with physical goods. Why should they?

I also didn't say "indie developers are too stupid" as a generalization. I called them unprepared.  Any game studio's first priority in terms of skills and talent is going to be ​for making games, because any other priority would be patently ridiculous. Indie studios, which are almost by definition small, don't get the luxury of recruiting lots of other skills. A large publisher, however, can afford to employ entire teams of people just for their non-game skills. People who may have no idea how to make a game, but certainly know how to produce shirts, models, posters and CDs.

Marketing is not the sole expert on how to run a successful merchandising campaign

I absolutely agree, however, I also never disagreed. You painted your response to try and make me look dismissive. However, you're completely ignoring the fact that the business of merchandising is, in fact, distinctly separate from the business of making video games. It's absolutely foolish to think that just because you can make a video game that marketing must be easy. You're completely dismissing the expertise of a whole discipline.

What I said was that indie studios generally have very few people doing lots of different things, and it can be extraordinarily difficult on a person. And when you tell someone, "You're wearing the marketing hat now, figure out how to do that", you can't always expect that they will know where to start. They'll do research and it can be flawed. So while sometimes it'll work out, other times it will fail for completely understood reasons.

However, I continued, the expertise of a big publisher's marketing department should never fail in that way unless it's actually incompetent. 

To say that they were surprised by the end cost is a bit naive.

I'm going to have to guess that you've never done any real manufacturing. It's incredibly easy to, say, go to a shop, ask them the cost of doing t-shirt printing. They may tell you a pricing structure for say, up to 250 shirts and costs per shirt and color. Then you come back a month later with your KS money and say, '1000 please', and they say 'no'. They might be busy with other jobs, or unable to handle that load, or certain types of taxes might apply. You could even end up confusing the price of one shirt with another which could cost you a dollar per shirt, and then there's a grand, gone.

Is it a rookie mistake? Absolutely; but should you expect say... a rookie to make those kinds of mistakes? Absolutely. Why? ​Because they aren't experts! And if you don't know what CAN go wrong, how would you know to address those problems? Expecting someone who isn't part of a particular discipline to become an expert by googling it is completely absurd.

 

 
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