Polygon posted up an article talking about the success of the Exploding Kittens Kickstarter. They point out that, while the campaign made $8.7 million, it’s not like that money’s all profit. That’s gross, not net (for you finances-type). It’s a common misconception about Kickstarter campaigns. Anyway, check out the article. It’s a good read, and a good “reality check” on what people think happens after a Kickstarter campaign ends.
From the post:
Exploding Kittens is the work of game designers Elan Lee and Shane Small, along with artist Matthew Inman of The Oatmeal.
It’s a card game for two to five players that has become the most successful gaming Kickstarter of all time, raising $8,782,571 from 219,382 backers.
Which is absurd, right? How does a simple card game raise over $8 million, and what the heck will that money be used for? The criticisms of the product, and its immense success, began well before the campaign was over, and at first glance the economics of the project appear to be a dream come true. The assumption is that everyone involved just made a ton of money.
I spoke with Cards Against Humanity’s Max Temkin to discuss the economics of a Kickstarter project this large. Temkin is no stranger to creating and shipping large amounts of a card game, and Cards Against Humanity’s own manufacturing and fulfillment partners, Ad Magic, will be producing Exploding Kittens.
Cards Against Humanity itself was Kickstarted back in 2011, bringing in $15,570 from a $4,000 goal.
“I think given enough continued interest in the game and time, it’s possible it will make really good money,” Temkin told Polygon. “But what they have right now is a lot of expenses to meet to fulfill this Kickstarter and put this thing in production.”
He then began to break down the numbers, and it became clear very quickly that the riches everyone assumes exist around this project are still mostly hypothetical.
“I think what most people tend to forget is Kickstarter is a contract that you’re signing with every single backer,” Elan Lee told Polygon. “What that means is we have to give them the thing that we promised.”
I asked him point blank: Aren’t you going to walk away from this a millionaire? “No,” he said, laughing. “Absolutely not.”
You have to make and ship them
While around 220,000 individuals backed the game, many purchased multiple decks. Lee told us the production order will be slightly less than one million decks of cards. “The production cost is all in manufacturing,” Temkin explained.
It’s relatively inexpensive to design a card game, as one only needs paper and drawing materials, but creating and shipping the final product is significantly more expensive than the act of sending out download codes for a digital product.
The cards have to be sourced, using specific kinds of stock for playing cards. They have to be coated in a specific way to become water-resistant and durable. “It’s the baseline of what people expect from a game of this quality,” Temkin said.
The packaging — including the custom boxes, which hold two decks and feature a hinged lid and a magnetic clasp — has to be manufactured.
Temkin began to break down the cost of making the product real. The game itself will cost around $5 to manufacture including packaging. The “surprise” added to the Kickstarter campaign, which is something Temkin said will be “very cool,” adds another $3 to $4 per game.
Shipping is around $3 per game, with international shipping averaging as much as $10 per game. Then there’s the cost of fulfillment itself, which includes making sure the boxes are packed up safely and shipped where they need to go. That adds an extra $1.50 per game.
These costs add up quickly, and Temkin estimates that around 2 percent of shipments will be lost or damaged or will otherwise need to be resent, which means around 10,000 extra copies of the game will need to be made and reshipped to make sure every customer is happy.
“We’re printing nearly a million decks of cards right now, and that’s really expensive, and really hard to do,” Lee explained. “The hidden costs and the productions issues that come up and the fulfillment centers we have to commission — keep in mind this is our first card game — there are all these little things that come up that we’re going to use that money for.”
All told, Temkin estimates it will cost around $14 to $15 to create and ship each deck. This version of the product, according to Lee, is too expensive to offer on a standard retail basis.
“The decks that the backers are getting and the packaging and the surprise in the box? Those are things we’ll never produce again,” he said. “Frankly they’re just too expensive, it’s not a good business to keep doing that forever.”
“We will be producing more decks, we’ll figure out a retail plan, but the stuff that we give in this initial run we’re never going to produce again. It’s nothing we can afford to do more than just this once as a thank you to the people who helped us out.”
You also can’t look at the money brought in as pure revenue; Kickstarter takes its own cut of the overall total, plus a per-pledge payment processing fee:
That means $750,000 or so just left the project, which eats directly into the profit margin.
The payout from Exploding Kittens is certainly going to be sizable, but don’t fool yourself into thinking anyone is becoming wealthy from this one Kickstarter, especially with three individuals splitting the profit. In a best-case scenario, it’s likely everyone involved will make a nice six-figure profit from the Kickstarter campaign, but no one is running to the bank with millions of dollars.
Is this what Kickstarter is for?
The other criticism about Exploding Kittens is the question of whether three individuals who could have made the card game without Kickstarter are abusing the service, using it as a way to drive pre-orders instead of a platform that helps smaller creators release a product that may not exist any other way.
Temkin disagrees with that assessment.
“The three of them had this idea, they got excited about it and they wanted to know if this was something people would want. Kickstarter is perfect for that,” he told Polygon.
Lee told Polygon that the original plan was to order 500 decks of the game, and then fulfill orders in the garage during the launch party to keep costs down. They’re now dealing with organizing and hiring fulfillment centers around the world, and dealing with the costs and challenges of delivering a physical product to hundreds of thousands of customers.
“The thing I want to know is if this is a tool that is helping someone make a creative project that is otherwise a huge risk,” Temkin told Polygon about Kickstarter. The site also allows them to interact with the fans and keep them up to date with what’s happening. Lee said that there may be many ways to raise money for a card game, but Kickstarter offers significant advantages if you want to build a strong base for your game.
“The reason we chose to do it on Kickstarter is that we’re not interested in just building a game, we’re interested in building a community,” Lee stated. They’re going to play test the game and offer looks at the product as its being designed. It’s going to be a collaborative process. “We don’t see it as a pre-sale thing, we look at it as building a community, and together we can build this thing way better than it can be built any other way.”
The economics of Kickstarter
If Exploding Kittens’ creators wanted to print 420,000 copies of the game and ship them, hoping they would sell, the project would cost around $6.3 million, with no guarantee of return. Using Kickstarter allowed them to not only promote the project, but use sales to fund the game’s creation, removing that risk and allowing them to increase the profit margin.
While everyone involved with Exploding Kittens will likely earn a very nice payday, the number of copies sold and the profit made from them won’t be ridiculous; a better word is meaningful. Kickstarter allowed them to scale expectations and sales while removing much of the upfront cost and risk. It’s not a perversion of the crowdfunding model; it’s a great example of a team using it well.
(For more on companies using Kickstarter for funding and inventory management, see The Verge’s report on Pebble’s newest smart watch)
Board games and card games are a brutal business. If you print too few, you lose sales during your initial push. Print too many, and your entire profit margin sits in unused inventory. Kickstarter allowed Exploding Kittens to scale appropriately, and adjust the plans for the game’s release.
“That’s exactly why you use Kickstarter. The process of over-ordering or under-ordering is what bankrupts companies. If instead you can figure out the right number, and do it in a safe, guaranteed way with the community standing behind you suddenly you have literally Kickstarted a new business,” Lee told Polygon. “That’s the point of that site.”