Week 11: Retailer info sent / How shipping works :)
15. February 2021
- 265 Backers have still not filled out the Pledge Manager. Please check your KS email address, on Saturday I sent you another invitation.
- All retailers have received the retailer information from me today.
- In the update I will explain you how shipping costs are calculated :) and why they are so "high".
- Soundtrack of the Week: Assassin's Creed IV - Black Flag (Full Soundtrack)
Did you have a good week? :) As promised, today I will give you a look behind the scenes regarding shipping costs. But first 3 general things...
As of now, 265 backers still have not filled out the Pledge Manager. Please check your KS email address, if you received an invitation from Gamefound on Saturday 13.02, you are one of those 265 backers 😉 Please fill out the Pledge Manager! It is not a big deal and usually takes less than 5min. Thank you very much! One more detail, if you use Kickstarter only with the app and not via a computer/laptop with a "normal" email address, you might not receive the invitations. In that case just contact me, we can solve this together.
Then today I sent out the information to all retailers. If you are a retailer and didn't receive an email from me today, then (1) check your spam folder (2) get in touch with me ([email protected]). Retailers have two weeks to contact me and 6 weeks to place their order.
Those backers who are still waiting for an answer from me regarding a possible South America shipment or the black plush llamas, I have not forgotten you and will get back to you this week, next at the latest. We have no stress and still plenty of time to finalize this. (I had to finish some tasks for P'achakuna that had priority)
Now to the main topic, the shipping costs....
Why are we talking about shipping costs? xD Quite simply, I think this is one of those areas where there is the most misunderstanding between KS creators and backers, or where there are a lot of questions. If you still have questions after what I wrote in this update, feel free to ask them in the comments section.
Let us start with something basic so we are all on the same page. There are basically two shipping models, direct shipping or indirect.
A) Direct: The products are manufactured and then shipped to the creator. The creator creates the packages her-/himself (or with the help of a local fulfillment center) and then the packages are shipped from this one location/country to all over the world. So, there is one central hub for the whole world.
B) Indirect. The products are shipped from the manufacturer on pallets to different fulfillment centers around the world e.g., 5 pallets to the USA, one to Australia, one to Asia, 5 to the EU and the rest to Switzerland. The local fulfillment centers then ship the packages in their regions or countries. In this model, there are multiple hubs.
We use the second model (B) i.e., our US fulfillment center ships everything for USA/Canada, our Chinese fulfillment center all of Asia, EU is fulfilled from Germany, New Zealand/Australia from Australia, and Switzerland/ROW (= Rest of the World) from Switzerland/ROW. Now we are on the same page xD
I must honestly say that the shipping costs are probably the most complicated aspect about a Kickstarter campaign. Because for shipping cost calculation only experience and a good financial understanding helps you. Even for me with now 4 KS campaigns, several years with an online store and an MBA this is not an easy task. I sit before a campaign certainly 1-2 days only on these costs and push the numbers back and forth, increase there a little, lower there a little, etc. Especially for first-time creators, this is almost an impossible task and also a "dangerous" one, if you miscalculate here, you lose thousands of USD incredibly fast. But why is that? There are several reasons....
1) Shipping is a scaling "thing", i.e., the more you ship the cheaper the single kilogram/game becomes. This complicates things because how am I supposed to know how much I can send to a particular region/country before a campaign? Shipping model (B) is smart if you have large quantities, because then you can get products closer to backers on pallets at cheap prices, and can thus lower the cost per kilogram/game. But whether this is possible (no one ships 10 games on a pallet) or how much the price per kilogram is depends entirely on the quantity. I.e., you have to make an estimate for every single region and that before the first backer has pledged.
2) If you use model B, there are also currency fluctuations, because each fulfillment center has its own currency. How are you supposed to know what the CHF/USD exchange rate will be in 6 months, when even the banks do not know 😉
3) And then there are price increases. Every year more is shipped and thus the costs go up, every year the shipping prices per package increase by 5-10%. This also has to be factored in.
But let us assume you have some experience and overcome all these uncertainties and calculate some neatly calculated shipping costs (which are moderately subsidized). Then the following usually happens: Backers complain about the high shipping costs 😉 and that is why I am writing this update now, because these complaints are mostly misunderstandings and are based on the fact that there is a knowledge imbalance i.e., the creator has much more knowledge than the backer on this topic. In addition, the backer simply sees a number and has no explanation. This explanation I want to give you now :)
Many Backers basically make three comparisons (1) To the prices in their local post office (2) To the other countries in the campaign (3) To other campaigns or big online retailers like Amazon.
(1) Comparison with the local post office:
Many backers naturally have shipping costs in mind when sending something to a person in the same country. But there are many things that are forgotten.
(i) Shipping from manufacturer to fulfillment center: Regardless of whether you go with Model A or B, the goods have to get from the manufacturer to the fulfillment center somehow and this does not happen for free.
(ii) In addition, if you are shipping a package, there are labor costs involved, because someone has to pack the package, then there are carton and packing material costs. And "on top" the fulfillment center also wants to earn something.
(iii) If it is model A, then this is international shipping across borders and then it becomes very expensive very quickly e.g., costs for 2kg sent from Switzerland to New Zealand are 50 CHF (57 USD). In addition, it is also costly, because with such packages a simple address label is no longer sufficient. It needs a pro forma invoice, a customs declaration of the products in the package, etc. (= more labor costs)
(iv) In addition, the package "should" be priority and tracked (= fast, and traceable), which also has its price.
(v) And then many backers want "Shipping friendliness" = they do not want to pay customs/VAT at the door when the package arrives (what I totally understand). But this only works with model B. With this one, we the creators pay the customs/VAT. This is also smart, because let us make an example. If I send a product with a value of 100 CHF from Switzerland to Germany, the buyer (if the package gets stuck at customs) pays 19% (19 CHF) VAT and possibly even customs duty. But if we as creator import the product with model B into the country, the 19% or customs duty is only paid for the manufacturing costs (e.g. 10 CHF) and is therefore only 1.90 CHF. But in both ways, someone has to pay these costs (e.g. 50:50 shared between creator and backers).
(vi) Last but not least, there are defined shipping levels, e.g. 1kg, 2kg, 5kg, 10kg etc. Whether you send something with 1.01kg or with 1.99kg costs exactly the same with many shipping companies. I.e., if you are just unfavorable with a product, the product costs can appear as too "high", even if they are not at all.
Also, I can assure you that no creator (unless he/she is crazy) wants to earn money on shipping costs. Because backers hate shipping costs. If I would want to make more money for whatever reason, I would increase the product price and definitely not the shipping costs! If I could offer you free shipping I would do it all the time.
2) Comparison with other countries.
This is always a complicated thing too, but understandable. In the last campaign, for example, backers from Greece came to me and asked why the US has lower costs than them. After all, P'achakuna is produced in Germany and is therefore much closer to Greece than to the US. At first glance, this also looks strange, but there are many good explanations/reasons for this.
- Exchange rate: 1 EUR is more valuable than 1 CHF and 1 USD is less valuable than 1 CHF. For the same amount of CHF, I can send more stuff in the US than in the EU.
- VAT: The USA has no VAT. The VAT in the EU/Europe is very high (19%+) and this also increases the shipping costs.
- General costs: It is just a fact that it is cheaper to send something within the US and China than within Europe. In the entire US I can send a package for around 10USD+, in Europe that is impossible (and yes, I compared many shipping services 😉). Since the EU is not a single country, but a union of countries, shipping simply costs more the further a country is from Germany.
- Around 60%+ of all backers are from the US, therefore we can send several pallets there and the cost per copy for this bulk transport is 1-2USD. If we would have such numbers in e.g., Greece, we would ofc also send pallets there and then send the packages within Greece (= way lower shipping costs), but we will never have such high numbers in Greece. (we have 2-3 backers from there)
- The importance of the USA: As written above, 60%+ of all backers on KS are from the US and that is important to keep in mind when you set the shipping costs. It is totally common on KS that the US shipping costs are subsidized the most. But no worries, it is not a gigantic different i.e. 1-1.5USD more than the other countries. But that is important, because if you have a high enough number from one country you can compensate this subsidization with lower bulk shipping costs per copy = in the end it is not more subsidized than other regions.
- Side Note: Maybe someone would now expect that Canada also have "low" shipping costs, but that is not the case. And that is again due to the same reason that are also true for "outer" Europe: They have VAT (=GST), we have to ship these packages from the US to Canada (more bulk shipping costs), they have higher costs within Canada, we have not that many backers from Canada (= higher bulk shipping per game) etc.
3) Comparison with other campaigns.
Low shipping costs or even "free shipping" on Amazon is only possible through enormous quantities, i.e., these campaigns/platforms have lower prices because they are larger and can ship more. If we could fill thousands of planes/trucks or even whole ships with our products like Amazon, then I could definitely offer you "Free Shipping". Because first of all my shipping costs per game would then be enormously low and secondly, I would sell so many games that I make my money with the enormous quantity of games and not with the single game. That is just a different dimension, we operate in a completely different universe than Amazon.
So, you see, shipping is a complicated thing and whether shipping costs are too high depends entirely on the company, its capabilities, the location, the quantity, and so on. I can really guarantee you that every time I will make/made every effort to offer you as low shipping costs as possible.
If you are unsure about certain campaigns on Kickstarter, feel free to always ask me and I will be happy to take a look for you. Personally, I appreciate it more when the shipping costs of a campaign feel a bit "high" than when I see very low (unrealistic) costs (especially from first time creators). Because then something is wrong. Either the person has no idea how shipping works, or the product price is totally inflated, and the shipping is paid with the huge product margin.
Actually, I also wanted to explain something about product pricing, but this update is now already a bit full xD I will talk about this next week. I hope you enjoyed this behind the scenes look :) i know it is a bit "nerdy" but hopefully it was still interesting. Have a good time and if you have any questions, just contact me, I am always happy to take the time for you.
With best regards,
Marc & Samuel