Business of Gaming Retail
You don’t have similar tools when calculating income.
What do you have?
Matrix Projections
If you had access to the sales figures for other game stores like yours, you could compare the size and scope of your store to theirs and estimate your sales based on the comparison. If, for example, a nearby store does $400,000 a year in sales and you plan to carry similar product lines and have similar space, you might be able to count on anywhere from $250,000 to $450,000 in sales, depending on the comparison.
This method faces two major difficulties. First, unless your store is identical in every way to the comparison stores, the comparison will be invalid. You have to adjust your comparison up or down based on the areas in which you are strong or weak. If the stores in your state are doing $200,000 a year, you’d need an exceptional reason for projecting $350,000 annually. With experience and a personal visit or two you can look at a store, gauge its foot traffic, gauge its inventory levels, and estimate its annual sales. Unless you have industry experience, you’re not likely to be able to do that.
Secondly, and more importantly, you aren’t likely to know how much other game stores do in sales. Most people don’t share that information, and some of those are less likely to share it with a potential competitor. Even on industry-only message boards, discussions of sales are usually relative rather than absolute: “I had a good week”, or “Is anybody else way down from last year?”
Inventory Levels and Turn Rates
Add up the value of the product lines you intend to carry. You have your inventory costs from your expenses sheet, so you know about how much you’ll spend on your goods. Multiply by a reasonable turn rate (for simple math, I’m using annual sales divided by an average inventory at cost). What is a “reasonable turn rate”?
It depends.
Different products turn at different rates. Collectible card games turn quickly; role-playing games sell more slowly. If you plan to earn most of your dollars from the card-floppers, your overall average turn rate will be higher than that of a store selling principally historical miniatures.
Comparative Rates
- CCGs: 6x to 20x
- RPGs: 1x to 6x
- Minis: 2x to 8x
- Board games: 1x to 4x
Stores with a narrow focus—those that see more than half of their sales from a single category—can report even higher turn rates than these.
Obviously, these rates vary tremendously. How do you know whether you could use 3x or 8x for your CCG sales? Look at the marketing section of your business plan. To whom are you advertising? CCG players are younger than RPG players or minis players, and they’re more likely to be male.
Minis players, especially Games Workshop customers, come from higher income groups. If your focus is broad, you’ll bring in more board game players than the other groups. How about game tables, if any? If you have enough space to support competitive events, CCG and minis sales go up (RPGs do increase, but not as much). If your tables are the skinny conference tables, they’re more comfortable for cards. If they’re chest-high and covered with felt, you’ll attract miniatures players.
Another factor in calculating an expected turn rate is your inventory level. If your inventory level is too low, your turn rate will be comparatively high but total sales will be small because you’re missing out on a number of sales. A 25x turn rate on $1,000 worth of Magic yields only $25,000 a year. That’s a great turn rate, but you’re not putting much in the bank. You’d be better off if you add a second game for a total category turn rate of 18x on $2,000 in inventory, or even 14x on $3,000 by carrying a couple of more games.
On the other hand, having too much inventory gives you greater total sales but a lower turn rate. If you carried $15,000 in CCGs (which would be tough), you’re not likely to keep a double-digit turn rate at all.
Things to suggest a higher turn rate:
- Good product knowledge
- A well-rounded advertising plan
- Game space
- Good image
- Multiple product lines
- Frequent activities
- A younger population base
- Good merchandising skills
- A marketing plan that emphasizes competitive prices
- Face-out book displays
- A focus on high-turn products like CCGs
Things to suggest a lower turn rate:
- Low visibility
- Low traffic count
- Unfamiliarity with the products you carry
- High competition
- An older population base
- Carrying used products
- A marketing plan that emphasizes product selection
- Spine out book displays
- A focus on low-turn products like RPGs
All of this brings us back to “How do I calculate my store’s turn rate?” Look at your business plan. Multiply your planned categories by one of the turn rates given within each range. Use a figure closer to the top of the range if you check off items on the “high turn rate” list and a figure closer to the bottom if item of the “low turn rate” list apply to you. Project your sales for each category and add up the totals.
That’s a good figure for your second year.
Your first year will be one of growth, culminating in figures near those. You might want to work backward, counting at month 12 and scaling back a little bit until you get to starting figures half or lower than your final figures. Your first three months should include fairly brisk growth. Monthly growth should slow for a few months and then slow even further near the end of the year. Sales growth of 10-20% a year for the next couple of years is normal.
The Wrong Way
Calculate your sales projection based on a realistic expectation of what your business model and resources can generate. If your plan does not work off that level, rewrite your plan to grow sales or reduce costs. Don’t keep raising your sales projection to meet your needed capital. That’s a recipe for failure.
Workshop
I had two pages of text for a workshop for an imaginary store, but I set that aside for now. If you are in the planning stage and would like help for this difficult element of the plan, please e-mail me or send me a PM through RPG.net. I’d love to include actual figures as an example to go through this material with more detail.
Lloyd Brown
www.lloydwrites.com
