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 yjseow@worthlessbums.comTwitter, or leave a comment below.