How we do estimates and contracts for game dev

I wrote this up in an email to a friend of a friend; thought I’d post it for anyone curious.

We negotiate with each client.  Our preference is to charge hourly, and to pass along any overages to the client.  Many times, we have to charge using milestones, where we get a certain percentage of the project money for each milestone deliverable (either upon delivery or upon client approval—again, a point that we negotiate).

For very focused kinds of development-only jobs, each feature is spelled out in the contract in a bulletted list, as detailed as possible.  This can definitely limit the amount of exploration and new ideas that we bring to that kind of project.  We give the client an a la carte menu of features in these cases.
We’re still refining our process for estimating larger, milestone based projects.  We have traditionally added up each feature cost based on an hourly estimation for a total, then looked at that total from a bird’s eye view to make sure it was reasonable, made sure it was in the ballpark of the general market prices, etc.  I think that going forward we will end up charging based on the number of iterations of redesign and redevelopment we want from Alpha to Beta and Final.
For game design, we estimate based on the number of prototypes and playtests we want to do, with a schedule of roughly one iteration per week.

I don’t want to give you a contract copy, since each contract at this point is tailored to the project—we try to keep legal fees at 5% to 10% of the gross project estimate, and we only move forward with drafting a contract once we are 90% sure that the deal will happen.  For a general contract to look at, you could Google Game Development Contract and probably get more industry-standard results than we use (we’re a small studio that works with a lot of first-time game clients, or fringe projects).

TL;DR