I get lots of emails from people who are interested in publishing a game of their own design. Some want to start small, like I did with Border Reivers and the limited edition of It's Alive!, others want to jump in at the deep end and get their games manufactured professionally and try to sell to shops.
To do the latter you've got to be prepared to risk a large chunk of money and hence the possibility of failure and the loss of that large chunk (or a proportion of it). I thought I'd give an example here with some numbers, so you can see what I mean. These aren't accurate figures from one of my games, but they are indicative, so not miles out either.
Let's say you're a small publisher (like the now legendary Reiver Games), who want to aim at the smaller, lighter, cheaper end of the market. You've designed a game, and you think it's a winner. You think it would sell well at around £20-25. So the first thing to do is to price up getting it made. The more copies you make the cheaper it will be per copy, but the bigger the risk involved as you will have to invest more money, and sell more copies to break even/make a profit.
To sell to shops and distributors you need to be able to make a profit when selling the games at 40% of retail: i.e. £8-£10. Out of this you need to be able to pay your overheads, wages and marketing, so you really need to be getting the games make for around 20% of retail: £4-5.
You approach a manufacturer and get some manufacturing quotes. Your quotes come back as: £9,000 for 1,000 copies (£9 per copy), £12,000 for 2,000 copies (£6 per copy) or £15,000 for 3,000 copies (£5 per copy).
If you want to only make 1,000 copies you need to either sell it at £45, sell it at £25 with almost no margin, or do something in between. Remember to make a profit you need to sell at least the break even number (if you are selling at £10 to distributors and they cost you £9, you won't break even until you've sold 90%, i.e. 900 copies, and even if you achieve a sell out, you'll only make £1,000 profit, which is probably not enough to cover your overheads, wages and marketing budget). If the market for your game at £25 is only 900 people will buy it then you will at least cover the cost of manufacturing, but you will lose money on overheads, etc.
Making 2,000 copies you need to either sell it at £30, sell it at £25 with a 66% margin, or do something in between. Now the break even number at £25 RRP is a smaller percentage of the print run (60%), but with the bigger print run this means more copies (1,200). If you manage to sell 1,200 you've covered the cost of manufacturing, but not your overheads. If you sell out, you've made £8,000 (minus overheads, wages and marketing budget), but can you sell 2,000 copies? It doesn't sound that many when you consider there are 300 million people in the US and more in Europe, but with your marketing budget what proportion of those people will hear about your games? And what proportion of those who hear about them will be interested? If the market is 900 people you will lose £7,500.
If you go for 3,000 copies then selling at £25 RRP (i.e. £10 to distributors) then you will break even at 1,500 and if you sell out you will make £15,000! Of course, that means selling even more copies. If the market for you game is only 900, then you will lose £10,500.
The million dollar question is how many copies of a game can you sell? It depends on a lot of factors. The quality of the game. The effectiveness of your marketing. The price point you've pitched at (you'll sell more games at £5 than at £50 all other things being equal). When you start out in this business you don't really know what you can achieve, that information comes from experience. If you've never made a game in your life you've no idea how many copies you can sell. If you've sold 20 games, with sales of between 1,200 and 12,000 copies you've got a much better idea of how many copies you can sell of a given game at a given price.
A further spanner in the works comes from the time to sell out. Say you make 2,000 copies and you will sell them all. Great. That's £8,000 in the bank. Minus overheads. Let's say your overheads are £1,500 a month (which includes a modest wage, warehousing and a few other things). If you sell out in a month you've made £20,000, minus the manufacturing cost: £12,000 and one month's overheads: £1,500. So £6,500 of profit. Nice work. But one month seems a little unlikely. Let's say it takes you six months to sell out. Now the overheads are £9,000 and you've lost £1,000. If it takes two years, then you'll lose £28,000!
How on earth can I still be in business I hear you ask? My overheads are extremely low (I'm still not taking a salary), and having multiple games means I've spread the risk. Also the overheads only apply once. My overheads are the same whether I have one game or several, so getting income from multiple games all offset the overheads.
For the record, It's Alive! has been out nearly 15 months and I'm still a good distance away from selling out of it.