Budgeting

(Note: This is primarily aimed at indie game developers because of recent Reddit and Twitter conversations involving costs, budgeting, and valuing people’s time and efforts.)

 

Funding

I’m firmly against “flexible funding” like IndieGoGo allows. Flexible funding means the campaign receives whatever funds it has raised regardless of whether the “goal” was reached.

The two main reasons for this are:

  • Flexible funding means the creator(s) don’t have to think hard about what they actually need to accomplish the project goals.
  • Flexible funding means they’ll get an inadequate (according to them!) amount of money to try to accomplish the project goals.

Like any other commercial venture one of the biggest risks is simply that the product will not be delivered. This is why a prototype is so significant to have in a crowdfunding (CF) campaign. If you have an early, but working, product in hand that people can poke at and use it greatly mitigates this risk.

Technical and creative chops are requisites for shipping games, but something else can also derail an otherwise on track project: funding. This is why crowdfunding has exploded in recent years after all; people need money to create games.

Aside: Savvy readers will most likely notice a venture capital (VC) undertone to this blog post. While there are lessons one can take away between VC and CF, please note that they are not the same. CF, despite what many people say loudly and repeatedly, is not investing outside of an obtuse, layman definition of the term.

 

Budget

You should have a budget. There are many kinds of budgets but revenue, costs, and profits should always be a part of them. For a game development budget you should have, at the bare minimum, these items:

  • Labor and asset creation costs (e.g. cost to model, rig, and animate a character.)
  • Capital expenditures (e.g. cost of a development computer and two monitors.)
  • Marketing/PR/Advertising costs (e.g. buying Google ads.)
  • Tech support costs (e.g. paying someone to respond to irregular issues.)
  • Quality assurance costs (e.g. pay tester to regression test.)
  • Distribution costs (e.g. platform X takes Y% of gross.)
  • Unit price (e.g. $9.99 per copy of the game.)
  • Projected sales/revenue (e.g. gross $50,000 six months after the game’s release.)
  • Tax/legal/other fees.

In other words you need to create the game, market the game, sell the game, support the game, and collect your money.

If at any point you read one of the above bullet points and thought, “Well I’ll do that myself so it costs nothing” you need to pay more attention to this blog post. None of those costs are zero. They all cost something. You may not personally pay the cost. The cost may be intangible. The cost may be tangible but is not measured in dollars and cents.

But they all cost a non-zero amount.

There was a Reddit post in /r/GameDev recently that highlighted the primary problem: people do not understand what constitutes a cost. I’ve chosen some in-context quotes without attribution to demonstrate:

“Not everyone works on their game full time. If I work on a project after work in my spare time, then that is a 0 budget venture. I’m not spending any more money than I otherwise would have just sitting and watching TV.”

“If I worked on a project for a year in my spare time, it would be exactly the same financially as if I just played video games instead. Therefore, its not cost me anything.”

“Doing game devNas a hobby, you can’t count something thayt would be there regardless as an expense. Ill have a job and pay living expenses whether I work on a game or not.”

“I have a full time job and just work on games in my spare time. As for whether I value my spare time, what does it matter? If I’m not coding, I’ll be playing video games, or watching TV, or playing a game with my wife. I’m not spending any money doing game dev that I wouldn’t be otherwise.”

“It’s called ‘free time’ – you do whatever you want with it and don’t generally put a price on it.”

“For people who are developing games on their own, and have no outside funding, adding their own time to the budget is useless. They are not spending any money on themselves to make the game. Obviously, things would be different if I had a crowd funding source like KickStarter I would probably start budgeting my own time.”

“The purpose of a budget for independent devs is to figure out if you have enough money to complete your project, and if not how much you have to raise or how much scope to cut.
A high school kid working evenings on his game reasonably could have a budget of zero.”

I think you get the idea. You should have winced very hard at every single quote above. They all demonstrate a lack of understanding of opportunity cost and the far less complicated idea that time and effort are not free.

The last is true on its face, but if you need further convincing a simple counter-example is that if your boss asked you to work overtime for extra pay, and you agreed, you surely would not consider the overtime pay as free money. Despite the fact that you worked in your “free time”. Despite the fact that you didn’t need to work overtime. Despite the fact that you did not out of pocket spend more than sitting down watching television.

You certainly would not appreciate your boss forcing you to work overtime for no extra pay because of those facts.

So you should have a budget. A budget with even rough estimates will give you an idea of whether you can afford to complete a project (assuming nothing goes wrong!) A budget lets you know the lay of your costs so you can better determine what can be cut or extended. A budget is what a professional makes because whether it’s your own money on the line, or someone else’s, you can be confident that you can deliver within the constraints and specifications of the project.

Aside: There are serious ethical considerations involved with failing to understand opportunity cost and cost in general. This kind of financial incompetence manifests in vaporware, ridiculous CF campaigns, and, perhaps most insidiously, the poor treatment of freelancers.

It is no secret that there are many clients (game developers) that undervalue the time and efforts of artists, musicians, sound engineers, writers, et cetera. Grab a hold of any freelancer and she’ll be able to tell you horror stories; she’ll also be able to point at all her freelancer friends with similar stories to share.

Financial competency is not just a project management necessity, it’s also required to not swindle yourself and others. The stakes are raised in CF campaigns when other people’s money is involved.

 

Real World Costs

Hopefully by this point I have convinced you that time and effort are not free and a budget is useful, if not completely necessary. The same Reddit thread I pulled the quotes from also had some developers who kindly posted general overviews of their own costs:

“We’re a team of 4. We spent roughly $100k developing Shattered Planet for Android, iOS, PC, and Mac, paying ourselves $2k a month for 9 months, from an incubator/accelerator. We’re officially incorporated, but currently we’re hosted by a university as “visiting researchers” because we get free rent and computers/software for doing so.

It was our first game together, and I anticipate we’ll be more efficient for our next one, Moon Hunters, which has a budget of $150k (mostly from an investor, but partially from Shattered Planet sales). One of us has gotten a raise, but it’s not due to skill/value, it’s due to being deeper in debt than the rest of us and being unable to continue any quality of life at $2k a month. This will be coming out of his bonus from Moon Hunters sales.”

Tanya X. Short

 

“$17,475 after spending 1,382 hours over the past 385 days, with at least another 6 months to go before 1.0 (though it will be released before that).

I don’t have a budget, but that doesn’t mean I don’t have expenses, because I certainly value my time which could have been spent doing something else like watching TV. (Not sure why, but that example seems to be brought up every time one of these threads gets discussed. That I haven’t owned a TV for more than 15 years is beside the point 😉

I value my time based on the hourly wage I’d need to get by assuming full time work (i.e. 40 hrs/wk). That comes down to $12.50/hr. Sure I could (and do) make more doing other work, but I’m willing to drop my rate as low as possible since I get to follow my passion.”

Josh Ge

You can also refer to an older blog post, Commercial Indie Games & Risk, where I discuss the development costs of my game Steam Marines as well as Braid, N+, and Dustforce.

 

Valuation

There can be a gray area over what constitutes fair remuneration for their time and efforts depending on skills, experience, and geographical location, but the overarching principle is the same – it’s not free.

I’d like to draw attention to 1) Tanya’s comment about rent, computers, and software since her team was categorized as “visiting researchers”, and 2) Josh’s comment about his $12.50 hourly wage.

While Tanya describes the goods and services as “free” they’re not literally free. I’m not 100% familiar with her team’s academic arrangement but generally speaking visiting researchers are required to lecture/research while they are visiting; the academic institution is simply spreading the cost across its faculty/staff/services/capital structure. This is a value proposition exchanging salary for amenities that have an economy of scale.

I suspect I would consider the budget valuation on the low end with regards to Shattered Planet, and that seems in line with one team member’s raise in Moon Hunters development.

Aside: If you work from home (in the US) you can claim home office deductions. Further if you are a student who is dependent on your parents, there are still tax incentives to file rent/food/et cetera as business expenses if the student is actually running a business from the home, even if the business has a net operating loss.

In Josh’s case he lives in Taipei, a fairly inexpensive location as far as international cities go. Moving to, or already being in, an area with a low cost of living can be an effective cost cutting measure.

 

Opportunity Cost (again)

Opportunity cost is, generally speaking, not intuitive to most people. Even people who should understand opportunity cost may not. Please understand that “I would have done <insert zero financial value activity> instead” does not imply zero opportunity cost. In fact it is very, very difficult to incur zero opportunity cost – some might say that for all intents and purposes it is impossible to do so.

Aside: Away with your PPF graphs, economics students!

As mentioned earlier cost, not just opportunity cost, does not have to be measured in dollars and cents. Cost can be intangible.

 

Closing Thoughts

Opportunity cost is real. Time and effort have value, although not necessarily positive value. These are true for everyone – yourself, yourself when you’re hired to perform a job, and others whom you might hire. Do not deceive yourself into thinking your time and effort cost nothing. More importantly do not deceive yourself into thinking other people’s time and effort cost nothing.

There are zero reasonable circumstances under which time and effort are free. It doesn’t matter if you’re a student, if you’re already financially secure, or your primary useful skill is licking stamps.

Aside: I pointedly observe that even your corpse has value, which is why people can be body donors.

So spend some of your valuable time and effort and determine how to use the rest of it efficiently and effectively.

 

Thanks for reading,
Mister Bums

You can contact me at [email protected]Twitter, or leave a comment below.

It’s (Not?) About the Money

Bias

I’m biased. I like to eat. I like being kept around the normal range of human livable temperatures in all seasons. I like to save money so that one day I’ll be able to retire. Sometimes I like to buy games so I can play them.

This blog post is mostly a response to this article and the conversations that ensued around my Twitter. There is also a TL;DR at the end of the post, but I hope you resist the urge.

 

Anger

Irritation is the most accurate description for how I felt after reading that article. But that irritation fully blossomed into anger when I started seeing financially successful indie game developers siding with the author of that article.

 

Money, the making of

I would like to start with the article’s premise: that indie gaming has an obsession with making money. Source, please. Anyone? I didn’t think so*. (Note: see bottom of blog post.)

Between the massive amounts of game jams, experimental games, clones, quasi-clones, et cetera made for fun by students, hobbyists, and even professional game developers, it’s not a stretch to say that there are a lot of games made without even an attempt at financial remuneration. I personally participated in 7drl 2014.

But I’ll give you the premise. I will give you the premise just so we can move on.

 

Bankrupt: Creatively, but not monetarily!

Holy shit.

App Promo - Wake Up Call
App Promo – Wake Up Call

You’re telling me that indie developers are so focused on making money, too focused on making money, that 59% of app developers don’t break even on development costs? I know a little bit about development costs. More importantly, I know many developers don’t even know how to calculate development costs. I know this because I get into arguments with them about valuing their own time and efforts and about opportunity cost. If anything the real figure is higher because they are chronically under-reporting their development costs.

Another survey paints a very bleak financial picture of indie game developers:

“Half of indie developers made less than $500 from the sale of their games (which includes in-app purchases and DLC); 13% made between $500 and $3,000, 15% made between $5,000 and $30,000, and 5% made over $200,000. Alternate sources of income (advertising, awards/grants, sponsorship opportunities) remain hard to obtain; 79% of indie devs didn’t make any money from these methods at all. Of the devs that did, 25% made less than $100, 28% made between $100 and $2,000, 22% made between $2,000 and $10,000, 5% made between $10,000 and $20,000, and 20% made over $20,000.”
– Game Developer Salary Survey of 2013 

I know what you’re thinking. Well, they’re not making money because they were making their games with the goal of making money, not making great games! Bullshit for three reasons:

1) Neither you, nor anyone else, is an authority on great™ games. There are simply games that have varying numbers of players and customers. I think 868-HACK is amazing. Other people do not. Most other people have never heard of it. This is unique to zero games.

2) Minecraft vs. Infiniminer. Spelunky pre and post XBLA.

3) There is literally no hard evidence that making a game for money, even primarily for money, results in a terrible™ game. At best you can offer examples of games that were made for money that turned out terrible. You can also find examples of games clearly made for money that turned out well in both Indie and AAA spheres.

Aside: #3 is also a crazy claim because you are currently using about five bajillion (rough estimate) pieces of interactive software, most of them created with commercial profit as a primary motivation, in your daily life that you generally do not consider terrible. They are creative, functional, have cultural impact, and are generally good™ products.

But games are special. Special little snowflakes.

 

Status Quo

I mentioned earlier that the article only irritated me, that the anger came after financially successful indie game developers hopped on board the “money is evil and corrupts all!” choo-choo train. I iterate this because I really want to hammer this home:

Any time someone who has profited from a system tells you that you are focusing too much on the profit, tell them to piss off. Or at least quietly view their opinions with internal skepticism. How convenient that they’ve gotten theirs and:

  • They’ve got the money and tell you not to chase the money!
  • Overcrowded (Steam/Greenlight/cough)! Too much competition for established developers!
  • Starving? Doesn’t matter – focus on the intangibles!
  • Lazy comparison to creative conservatism between Indies versus AAA. How convenient that they leave out every other relevant bit of information and just equate money and creative stagnation. You notice how these same people don’t go crowing about how chasing money is bad when they, or people they know, need to run crowdfunding campaigns? The story changes so fast it’ll make your head spin.

Aside: The Money = No Creativity argument is particularly galling because it promotes the idea that you have to be a starving artist to be a real artist. Or a real indie.

It also promotes the idea that indie developers should be allowed to get away with paying their employees and freelancers less than non-indie developers.

 

One kernel

There is one kernel of truth in that article. It comes in late, near the end:

“… the games that are most widely written about, from Flappy Bird to Grand Theft Auto to Minecraft, are the financial juggernauts. But these are not the only success stories.”

Well shit. That’s sort of the domain of the writers writing about games, isn’t it? It seems like many of those writers have an obsession with using financial success as the only metric to write about games.

Aside 1: You want your game to be culturally relevant? Get people to play and tell other people about it. That’s the only way. You may think FarmVille and Angry Birds are crap, but you didn’t have to Google either of those two games, did you?

Aside 2: This doesn’t just apply to (indie) game developers. Are you a writer? Musician? Sculptor? Get people to read, listen, and look at your stuff. That’s the only way.

 

TL;DR

  • Indie game devs are poorly paid. Shut up about too much focus on money.
  • If you’re okay with maintaining a status quo that supports you at the expense of others in your industry, I don’t wanna be friends with you.
  • If anyone is overly focused on indie games and money, it’s apparently people writing about games (me?)
  • To indie game developers who are new and/or struggling: chin up, make games others can’t even dream of, and never be afraid to ask for payment.

  [email protected]Twitter, or leave a comment below.