Tao Wong: Capitalization of a Boardgame Store

Editor’s note: Wong’s first article for Boardgame News, ”Launching a Board Game Store in Canada”, ran in August 2009. A third article will follow this one in October 2009.

One of the questions I get asked is how much it costs to launch a boardgame store. There are two costs that any entrepreneur should plan for: start-up costs and operating costs. This article focuses only on capitilization costs as this is the first step of the business; since I’m from Canada, everything quoted is in Canadian dollars.

A few major costs associated with any business need to be taken into account when considering adequate capitalization for launching your store. While our costs as an online business are somewhat different from a physical store, certain costs will be the same. In addition, costs will vary depending on your long-term strategy and your focus. In general, the major costs are:

• Incorporation, Business License, and other related costs
• Website Design and Set-up
• Payment Gateway
• Inventory
• Capital Equipment

This cost varies depending on whether you incorporate or go it alone as a sole-proprietor or partnership. If incorporating – our suggested avenue – you’ll spend at least $500 after taxes, and this is if you do the work yourself. If you go through a lawyer (e.g., you need changes to the Articles of Incorporation or need a rock-solid shareholder agreement) the cost will go up from there. Figure that with good solid legal representation, which is definitely a good idea if more than one person is involved in ownership, you’ll spend about $2,000. This amount includes your business license, which is cheap and easy to get, though that cost varies according to your municipality.

Range: $500 to $2000

Website Design and Set-up

Asking how much this costs is sort of like asking how long a piece of string is. It really depends on what your site specifications are. For something as sophisticated as Amazon.com, expect to pay hundreds of thousands of dollars. On the low end, I’ve seen quotes for as little as $1,500. Using Yahoo! Merchant Accounts and pre-designed themes, you could probably get a site running for about $250. For something more professional and serious, you will likely get quotes between $7,500 and $15,000 for a full site design, backend set-up, and some customization. You might be able to get it cheaper if you have contacts or are able to do your own design. Obviously, you could go much higher.

The difference between these options comes from your long-term strategy. Yahoo! Merchant Accounts provides you with great basic software, but reduces your ability to customize your brand; it also takes a larger percentage of your revenue, reducing your margins. On the other hand, start-up costs are incredibly low.

Range: $250 to $15,000. Middle range: $7,500 to $10,000

Payment Gateways

These are the guys who actually charge the credit cards processed through your website (or for that matter, at a normal retail store). Moneris is the largest, most sophisticated payment gateway in Canada. Its set-up cost is $500, but it generally charges a low percent on your orders. PayPal is free to set-up. Generally, you can get quotes of $250-500 from other third party gateways.

Range: $250 to 500

Inventory

Inventory has two elements: First, your game stock, and second, packaging materials. Figure to spend at least $250-500 for packaging materials, such as different sizes of cardboard boxes, a weighing scale, tape gun and tape, and printer paper. Once you get started, your on-going costs for packaging materials are low as you can reuse most of the materials from your distributors.

The cost for your game inventory depends on the strategy that you are taking, from being a one-stop shop for all customers to picking out only the best-selling board games and charging a higher premium for them. Obviously, the sky’s the limit for the amount of inventory you would need for the first option. (According to its website, Funagain.com stocks over 4,000 board and card games. With an average $20 cost per game, that’s $80,000 at the minimum in inventory.)

The other side of the spectrum would require you to have a minimum of 200 different board games. At $20 per game and holding only one copy of each game – which is highly unrealistic since you expect to sell titles like Settlers of Catan, Blokus and Ticket to Ride consistently – you are looking at a minimum of $4,000. I would say you need at least $6,000 to give a proper go at this and probably more like $10,000.

Note that this total does not include funds for new games due to arrive in the near future, such as the new printing of Age of Steam or the next print run of Dominion. To be safe, you want to have at least $1,000 free to buy these upcoming games as well as any games special ordered by customers.

One big wrinkle in this picture is how quickly you can get games from your distributors. The faster the transit time between when you place an order with a distributor and when you receive it, the less deeply you will need to stock popular board games. (If an order takes a week to arrive, for example, you will need at least two weeks worth of stock to be safe.)

Finally, keep in mind that this cost covers only board games. Role-playing games, miniatures and other games and game accessories could easily increase this cost.

Range: $6,000 to 80,000. Mid-range: $10,000 to 20,000

Capital Equipment

This category covers everything else you will need to run the business, including a computer, a printer, a dolly, and shelving for your games. Again, the cost varies depending on what you want and whether you already have equipment you can use, such as a good personal computer and printer. Shelving costs vary from $35 IKEA shelves to $90 metal shelves. Dollies are cheap; figure $50-100 depending on the make and brand.

Range: $300 to $3000

Conclusion

Opening an online game store with the minimum amount of investment would cost $7,800. A more reasonable capitalization amount would be around $20,000. I’m certain that I’ve forgotten other expenses, and this amount does not include any on-going fees you will have to pay – only the start-up costs.

I would add that most stores end up stocking at least 400-500 different titles. Figure your inventory costs to that amount with reasonable depth (i.e., 4-5 copies) for the more popular games.

The next article will deal with the ongoing cost of an online business. If you have any questions about this topic, feel free to write me.

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