(There is a TL;DR at the bottom of the post, but I suggest you resist the urge.)
Indie? What does that mean?
I’m using it to mean “small”, as in numbers of people and budget. Commercial means that the game project is intended to generate a financial profit.
When people ask me if Steam Marines is a one man show, I say “no.” I contract out art, music, and sound to other people. My job is to wear all the leftover hats, e.g. programming, technical support, marketing, et cetera.
Finances, numbers, and expectations
Steam Marines was always slated as a commercial indie game. This means that I invest time, money, and effort and intend to come out with a profit. Without that intention it’s not a real commercial enterprise. But not all commercial enterprises turn a profit or break even.
I’m under non-disclosure agreements for the sales data of Steam Marines, so I can’t tell you much about that. There are some postmortems of other commercial indie games that can give you an idea of those numbers, although you should bear in mind that those in aggregate are skewed. There are not nearly as many postmortems for failed games even though they comprise the majority of projects.
What I can tell you about is my expenditures and projections. From that we can determine what my financial return expectations are. I feel that this is something too many indie game developers, and creative entrepreneurs in general, ignore.
Skills to pay the bills
I’m a programmer by training and trade. This is a big deal if you’re trying to create value that relies on programming. It means that I can afford to pay myself less than what I would need to pay someone else of equal skill and motivation.
Steam Marines is currently in alpha. It was originally slated to be a twelve month project, but due to art issues was extended. Then it made its way onto Greenlight then Steam where it’s being sold under Early Access. So the schedule was extended again to account for more features and polish.
My current projection is that it will fully release approximately twenty–four months since it first started development. Given current expenditures I project that by the time Steam Marines is finally released it will have cost me $160,000 USD.
Expected return from an external perspective
If someone invested $160k USD into a business venture, what should an appropriate return be after X months? It obviously depends on what the risks are. Game development, especially indie game development, is highly risky. Steam Marines has no value in terms of intellectual property. It has no previous user base or intangible goodwill from previous titles. The probability that it will not ever break even is high.
Depending on who you ask the internal rate of return for an angel investor is between 20-30% on the “low” end. That is aggregated over multi-year holding periods and multiple investments.
If you take a look at some sales metrics from 2009 (specifically slide 16) it shows that for PC downloadable games:
- Low-end sales is 100-1,000 units.
- Mid-end sales is 1,000-5,000 units.
- High-end sales is 5,000-50,000 units
At the time of this post Steam Marines is on sale (10% off) on Steam for $7.19 USD. If an external investor were to expect a 30% return, per year, on an initial investment of $160k USD, Steam Marines would need to net $270k USD.
Forget that you’re not going to get all that money on day one of release which means that you may have a cash flow problem. Also remember that the $270k USD figure is net, not gross. If a platform or publisher takes a cut, you’ll need to factor that in, too. For example if the game needed to pay a 25% cut (pulled out of the air to make a nice round number) that figure becomes: $360k USD gross.
That turns out to be about 45,000 units at Steam Marines’ base price of $7.99 USD. Remember that the high end of the high end is 50,000 units.
If you think that’s harsh, remember that most games don’t even break even, meaning the investor would lose money after two years. This is also not including taxes which will differ from person to person depending on personal income, capital gains, tax bracket, geographical location, et cetera.
From the self-funded entrepreneur perspective
For Steam Marines I’m both parties in the investment scenario. I invested in my company to develop the game and sell it. This changes a few things.
The biggest is that I’m no longer some guy borrowing money from an outsider for base salary compensation. That means if Steam Marines takes off I get to partake in the profits. Risk equals reward, remember? Just also remember that it is statistically unlikely.
It means that I own my intellectual property and can expand and grow it for my own monetary gain. It means that I can have satisfaction knowing I did most of the work on my own capital.
These are all nice intangible benefits. Unfortunately if you’re relying on that income stream not only do you have a potential cash flow problem you also can’t parlay a lot of those intangible benefits into things like rent or food. Imagine if I was profit sharing between two or three other people like programmers, artists, composers, et cetera. Those people have to eat, too.
Just come out and say it!
I’m not trying to discourage anyone. I want more indie game developers. But I also want them to be financially savvy and understand what they’re getting into. There are a lot of starving artist types who don’t necessarily need to be. Be realistic and understand your circumstances.
There are a lot more words I could write but it would tie into cost of living, politics, healthcare, and so on and so forth. Again, not within scope of this post. I will say that for me to feel comfortable hiring an entry level programmer full time (fair wage, benefits, et cetera) in the state of Connecticut I would need to gross about $100k USD on top of what I need. The obvious result is that the programmer needs to generate more than that in value for my company to be worth hiring.
The simple reality of the situation is that (commercial) games are expensive to make, high risk, and generally do not support their creators well. Please be aware of these facts.
Still stuck on how you think $160k USD is a lot of money?
- Braid apparently cost $200k USD to develop over a three year period. I don’t know how Jonathan Blow valued his time and effort, although he does mention that most of the money was spent on hiring an artist, and he didn’t live in a shack. Clearly if you do live in a shack and eat instant noodles you can make a game for less, too.
- The N+ postmortem estimates that it takes about $125k USD minimum to develop an Xbox Live Arcade game. I wish this had gone into more detail, but the end result is the same – it costs more than you might think at first blush.
- Dustforce developers won $100k USD from a competition that allowed them to bring their prototype to full release. “So if it cost us almost $100k to work for a year and a half, we’d have to make around $67k for every year until we release our next game. However, it would be nice to live a less frugal lifestyle than before, so ideally that figure would be around twice as much. With a rough estimate of three years for our next project, plus a bit of a buffer, we were looking at around $300-400k USD as our final goal. Was that realistic? We had no idea.” – Dustforce developers.
In any case you’re not making Steam Marines or Braid or N+ or Dustforce, so you’ll have to adjust your costs and expectations accordingly.
Well, fine! Then what was I supposed to get out of this?!
- Calculate the cost of making your game.
- Determine how much profit you wish to make.
- Calculate how much gross/net/unit sales at what price point(s) are required.
This can help you determine what work is most valuable, what can be cut or edited, and give you a better framework for understanding how to be a successful indie game developer on your own terms.
The obvious question!
Will Steam Marines be profitable to me? Is my expectation really 30% on my expended time, effort, and capital? My expectation is tempered by the numbers I gave above. I am cautiously optimistic.
The response to Steam Marines has been pretty strong – lots of die hard, permadeath, turn-based strategy fans out there! I think it’s a real possibility. Allow me to take this opportunity to thank all supporters of me and my game! Beyond purchase there is definitely intangible value there – moral support when I doubt myself.
For an initial $160k USD investment over twenty-four months, an expected return of 30% per year, and a 25% share with a distributor/publisher, Steam Marines would need to gross $360k USD, or about 45,000 units at Steam Marines’ current base price of $7.99 USD. This is not including taxes.
If you want to assume 30% over both years, or over two years of development and another twelve months of sales, it would be reduced to $208k USD, or $277k USD including the 25% share. That also brings the required number of unit sales down to just under 35,000.
Other games have cost roughly that amount – it’s not an obscenely high number. Cash flow (related to the game not receiving all revenue in one shot on day one release) is not considered. In general the longer time for earnings means you’d need to gross more. On the other hand your development costs were most likely not accrued in one fat capital infusion of $160k USD, either. Understand the concepts, don’t harp on the exact numbers; the numbers will differ from case to case.
I live in Connecticut, U.S.A. Your cost of living, and that of those you hire, can greatly influence your financial costs and requirements.
Don’t be discouraged, instead be thoughtful.
Thanks for reading,