Game Industry Word Problems

Game development is hard enough. Worrying about rent, car payments and other normal life stressor just complicates the process even more. This little bit of math can give you a realistic view of what you need to do from a business side in order to actually make a living through your craft.

The Word Problem

An independent game company of 3 people wants to earn a comfortable living making mobile games. How many units of a game(s) do they need to sell each year to stay solvent (in business)?

The Variables - aka Expenses

Salaries are the largest whole number of any budget. My recommendation is to take $100K as your baseline for each person and then move the number according to cost of living for your area. The $100K is the average income required for median cost of living of middle-class areas. Ie: If you live someplace reasonable and want to own property, have a car, cell phone and some spare cash for fun and one vacation a year this is probably about what you’ll need to earn*. Some people have less expenses, others have more, but for families of 2-4 this is the OK spot. For this little start-up who can work from home (and therefore some place inexpensive) I’ve lowered that number to $70K for break-even on the company.

There are loads of other things you can expense, but this is the core list.                       

Total:  $228,750

However, this isn’t how much you need to make – it’s your direct costs. Sadly, you need to have a much larger total if you are going to have the ability to pay this out.            

Earnings Required

Distribution Costs:                  30% (Turns out Apple, Amazon, etc. want their cut)

Taxes:                                      35% (This is where a good Accountant can save you thousands)

228,750 / .7 = $326,786 / .65 = $502,748 (rounded up)

I highly recommend building a spreadsheet. That way you can tweak numbers to see what happens. Sadly, the multipliers are not tweakable. (Unless you are planning to escape to a non-extradition country.)

I have seen many people do the math in their head, and this leads to forgetting something big. Company budgets are best done when the whole company is sitting at a table thinking it over. And only very experienced developers go through the next step. For our little studio this is the number of units required, annually, to stay in business.

‘Build it and They Will Come’ is a Lie.

This is where a good marketing budget earns it’s keep. There is a reason I consider $3,000 to be a paltry amount of marketing dollars. For every dollar spent you are trying to sell 27 people, which isn’t easy to do. My advice is to check out something called a Sales Funnel. You don’t need to be an expert, but you should have a realistic look at how much money it takes to get people to buy your game.

Market Size is another area that people often overlook. How many people want to play a dinosaur who terrorizes L.A.? Or as an eye surgeon? If you don’t know beyond ‘me’, then you may end up selling less than 1,000 units. (Most games do for this very reason.)

The Punchline

Net 30 or Net 60 are business terms for ‘Pay you 1 or 2 months later’. Pretty much all businesses have this as part of their business model. December sales will show up in mid-February on a Net 30 model, or mid-March on a Net 60. Check with the distributor to look for all of the hidden punchlines. When planning your budget include at least 3 months beyond the end of the development cycle. This is a far more realistic view of how long your cash reserves need to last. This is also why producer agonize over spreadsheets most of the time.

Last Thoughts

Take your time, crunch the numbers, and make sure you have the personal financial ability to weather a few years of little to no income. It generally takes companies somewhere between 3-5 years to break even, if it takes off. Speak with professionals who know their stuff and understand what you are getting into from the beginning. Half of the game industry is making a game. The other half is getting that game bought. Have a plan for marketing and sales just as you have a plan for the game design, art direction, audio direction and engine architecture. Then go make a living!

*Footnote: $100K is based on US salaries in the major areas for game development, and cost of living varies drastically by location and personal situation. After running the numbers for Austin, TX baseline living wage (not minimum wage) is $40k. This is based on a single person living alone, paying college loans, in a cheap apartment, with basic utilities, basic healthcare and no money to travel or do stuff. Please note I explicitly called out wanting a middle-class life as the goal - not the starting point. Figure out how low you can go and then crunch numbers based on that.

Edits: Typos, explanation and accurate math formula.