Break Even

 

Break Even

As a term, break even can be misleading. It can be misleading because it does not take into consideration risk. If you start a (small) game studio with $100,000 and after one year you have $100,000 you are said to have broken even. But that’s a snapshot at that particular point in time. If you reinvest that $100,000 and after yet another year you still have $100,000 you should probably be a little worried that you profited zero dollars for two years in a row.

If next year you take a 30% loss (war chest down to $70,000)  that’s an enormous hit. You can’t sustain another full year of operations and it may snowball from there. You’d really like to go to a 30% profit, but that’s as obvious as it comes. If you ever wondered why business people seem so obsessed with growth this is why; there’s a lot of truth to the idea that you’re either growing or dying.

 

Full Time, Fun Time

Last year I calculated the cost of hiring (local) full time employees as an employer based in Connecticut, USA.

For a $60k USD salary the total cost to me would have been around $75k. That’s pretty close to a bare minimum including FICA, unemployment, Medicare, worker’s comp, 401(k) contributions, insurance, et cetera. That does include some benefits that are not government mandated such as dental.

For a $30k salary the total cost would be about $45k.

Those are 1.25 and 1.5 cost to salary ratios, respectively – not all employer costs are percentages of salaries!

The costs are going to vary a lot by location, and what kind of hardware and software and miscellaneous other fees are required to keep the company running. For example if I require Unity Pro that’s an additional $1,500 a year per employee.

Let’s say they do. Let’s say I also hire two full time $30k salary employees for a project, and I pay myself $30k a year as well. So that’s 3 * $45k + $4.5k = $139.5k of costs a year. Let’s round that to $140k for simplification.

Let’s further say the team works really well and we churn out a pretty okay game in one year. Well what does the company need to gross in order to “break even”?

 

Avocado Maths

Sometimes you just need to get down to the nitty gritty details, even if one party dislikes math.

Avocado Maths
Avocado Maths

Industry standard platform cut is 30% of gross revenue. Tax rate is variable/progressive (in the US) but let’s call it 20% of net revenue.

Aside: At least in the US, unless you are making a ton of money it should not be this (20%) high. You should definitely be able to reduce your taxable income. I just spitballed it as a high ceiling to make the math easier to digest and it’s better to be conservative at this level anyway.

So let’s say you net 56% of gross. That comes out to $140k/0.56 =  $250k to break even. There were three people working on this game, and assuming we value all of them equally each person needs to generate 185% of their cost just to break even.

But no one invests X dollars to only get X back. You expect some profit, Y. If we expect an annual 30% profit how does that affect our gross requirement? Each employee costs $45k and we expect a 0.3 * $45k = $13.5k profit. With three employees each costing $45k that comes out to 3 * $13.5k = $40.5k.

That comes out to $40.5k/0.56 = $72.3k gross revenue on top of the break even, or $322.3k total gross revenue for a 30% profit. Because of all the rounding this actually comes out to ~29% profit. Whoops!

But if you pull that off in this simplified example you’d start the year off with $140k and ended up with $180.5k. That’s not too bad!

 

Per Employee

From the employee’s point of view, they’re getting paid $30k a year. This is not a great salary, all things considered. From that they need to generate $83.3k worth of gross revenue for the company to just theoretically justify their cost. That goes up to $107.4k to hit 29% profit.

Aside: Companies (should not) hire employees to merely “break even” because again there is an associated risk involved that is not imputed into that term, and also because why would anyone want to spend X > 0 dollars to earn zero return?

This is pretty normal, and it’s also one of the reasons productive employees start thinking about saving capital to strike out on their own. I mean if you could theoretically generate $107.4k gross profits by yourself even with the 56% net that’s about $60k. Even taking into account your full compensation/cost to employer that’s a $15k raise*.

Aside: *You know, aside from the fact that you probably worked your ass off to get that raise. There are very few (maybe no) jobs that migrate exactly from 9-5 worker to 9-5 entrepreneur with a pay increase and no associated work/time/effort increase. The only way I can think of this happening is if your employer was really screwing you over on compensation; That’d be about a 33% compensation shortfall in the above scenario, less in terms of a salary shortfall with similar math.

That said there are other variables: you lose any leverage you had working in a company with company resources, you lose cost efficiencies on things like insurance and supplies. You’re working for yourself, which is quite different from a Monday-Friday, 9-5 gig. You need your own capital. You own all the company decisions. But you keep your intellectual property, and if you do strike oil you can reap all (or most or more of) the profits.

 

Steam Marines

The total cost of Steam Marines 1 was $97,913.88 USD which covered a development period of about 2.5 years from 2012-2014. It hit break even in 2014 and has been generating profits since.

Aside: Back in November 2013 I wrote that I projected that Steam Marines 1 would cost around $160k USD to develop. Off by about 40%. Estimates, amirite?

Steam Marines 1 Release Date Estimate
Steam Marines 1 Release Date Estimate

The to-date contractor cost of Steam Marines 2 is $82,607.54 USD which has been in development for about 24 months from 2014-2016. That comes out to about $3.4k per month on contractors alone. Alpha release should be Q4 2016 but so far it has generated no revenue through sales of the game as it is not yet available. It also has approximately another 24 more months slated until full release. The costs are unlikely to be linearly correlated with the last 24 months (see Steam Marines 1 mid-project estimate!) but the game will inevitably cost more than its predecessor at this point.

 

What If

What if, instead of hiring contractors, I hired full time employees instead? As a rough guideline let’s take that 1.25 cost to salary ratio we calculated earlier in this post. Let’s further assume that, had I gone that route, Steam Marines 2 would take only 2 years to complete instead of the 4 it’s currently slated for.

I said Steam Marines 2 costs would unlikely be linearly correlated, but let’s assume they are. That would mean that my contractor costs would be $165,215.08 at the end of 4 years. I have four part time contractors, but two of them have a lot larger asset load than the other two, so let’s round that to what would be approximately 3 full time employees. Well, that $82,607.54 spread across 3 employees over 2 years (as opposed to a projected 4 years) comes out to about $27.5k annual salary per employee.

Which is kind of bogus, because it’s already below the pretty low $30k in our previous examples, and that’s just salary, not including other compensation! If they were paid the still-not-great-salary of $30k and cost the company $45k, that comes out to 3 * 2 * $45k = $270k.

$270k is a lot more than $165k (64% more!), even accounting for shaving two years off the project development period. If I discount my own work at their rate of $45k a year I could cut off $90k from the total project cost. Although I also have to add my own work rate onto the project cost for the first two years. Steam Marines 2 now costs $360k after two years in employee compensation.

Additionally employers are generally expected to pay for many costs such as office space, hardware/software, and other overhead for full time employees. Contractors generally work off their own relevant resources, e.g. their own computers, out of their apartments, et cetera.

This is all also assuming that:

  • Full time employees would finish 50% faster, which seems extremely optimistic.
  • The project would hit its 2 or 4 year full release date without significant delays.
  • The linear extrapolation of cost is accurate.
  • Those three contractors accept that really-quite-bad $30k/year salary for the project duration of 2 consecutive years.
  • I can actually round 4 part time contractors to 3 full time employees*.

Aside: *Extremely unlikely. My four contractors are 1) character animator, 2) environment artist, 3) portrait illustrator, and 4) audio. I wear all other hats.

These are four fairly different roles, and while I believe 1 & 2 could perform some similar duties to one another, they’re also the two I mentioned with the higher asset loads. No, in real life if I’d run with 1-2 full time artists and contract out miscellaneous art and the audio.

People are not cogs.

So that’s why I paid contractors instead of hiring full time employees for Steam Marines 2.

 

 

Thanks for reading,
Mister Bums

You can contact me at yjseow@worthlessbums.comTwitter, or leave a comment below!

Sequels and the Past

I Think This Should Work

Recently fellow roguelike developer Josh Ge mentioned that I had been somewhat quiet when talking about Steam Marines 2 – and he had a point, at least on Twitter. I’ve more or less been getting into the swing of doing on-site testing so I can observe people playing super early builds of the game. I think it’s been enlightening.

But the observation’s not exactly correct, either – I’ve just switched up my strategy for keeping Steam Marines 2 alive and kicking at the back of skulls through a system of scheduled media across several sites and forums; I’ve just offloaded a lot of my groundswell marketing efforts off of Twitter.

Aside: Have you not heard of Josh’s game, Cogmind? You should totally check it out.

Cogmind gif
Cogmind!

Todo Lists and You

I used to keep rather detailed todo lists with high and low priority and “maybe” sublists and subtasks with estimates of time to completion in minutes. I don’t do that anymore.

Now my todo lists are split into simply high and low, I keep my high priority list capped at eight items max, and I estimate task completion in days. Additionally any high priority task that does not get completed within the time estimate gets kicked down to low priority.

I changed from high/low/maybe because maybe was just becoming a dumping ground for low priority tasks I wanted to clear out because of time crunch. I switched to estimating task completion in days because frankly estimating in minutes was pointlessly granular and I’m starting to believe that “large” task milestones per day is a better metric overall than time spent per day (in the sense of it is a more accurate indicator of progress.) Capping high priority tasks to eight is largely a method of preventing too many issues of becoming “high”.

When All Tasks Are High Priority

There are differing opinions on time tracking, although maybe not all that different!, although I maintain that keeping a mental model of what I want to do and what I should be angling toward is a net benefit to me. Your mileage may vary.

 

At Some Point You Have To Start Listening To Yourself

This is tricky because I spent the last two years writing part 1 and part 2 of this blog series explaining how I was a ding dong. It can be a bit unintuitive, but you sort of need to be humble enough to admit you don’t know a lot but also arrogant enough to trust yourself to make decisions because you will inevitably be faced with making judgement calls that are unclear and on topics people with more experience than you have disagree on.

And ultimately what matters is that it works for you, not them. In your situation, not theirs.

In all other cases, hypothesize, test, draw conclusions, and repeat. If it has demonstrably good results keep doing it.

Steam Marines 2 is a sequel. There don’t seem to be that many indie game studios that do sequels. It probably has to do with high failure rate.

But I want to make Steam Marines a franchise: a video game series, a board game, a trading card game, sell merchandise, and so on and so forth.

People have told me it’s a great idea, others tell me it’s a losing proposition. The divide seems to be between developers who believe in failing fast and those who don’t. Franchise building is hard and it takes a lot of time. Risky, say the fail fast crowd. They’re probably not wrong.

Still it’s a goal, and one I think I can achieve.

Aside: I rolled the idea of funding a games analysis/news site around in my head, but ultimately I couldn’t figure out a reliable business model. It really does seem to be a brutally difficult field to succeed in long term.

Motivation

Know what’s cool? Having hardcore fans of your game who still play it years post-release. That’s wild to me. Even wilder? Steam Marines 1 is still kind of in a long tail, selling copies regularly that keeps me fed. Its revenue in 2015 more or less paid for Steam Marines 2 development costs in the same time period.

Also gifs. Lots of gifs.

Steam Marines 1&2 Comparison
Steam Marines 1&2 Comparison

Bonus: This gif informed me that my marine hit animations were broken in the current build. Whoops.

Side projects keep things fresh, even when you’re 2 years into a 4 year project – when you’re in the grinder. I’ve been tinkering with old financial tools (non-game development related), watching some cool stuff on Netflix, and cannibalizing old games to make new ones like this:

Tilting Hard
Tilting Hard – Damn that hitch in the middle!

Twitter is pretty good for this, too. It’s real nice watching devs you know release their games. This blog is also a pretty okay place to rant if need be. I still haunt /r/GameDev now and then, although as the subscriber base grows the place does seem to get more hostile toward even the ideas of running a business and marketing. I also re-read certain articles and re-watch certain videos that are both enjoyable and educational. For example:

I also torment myself by reading news about the US election and Brexit, but that may be too masochistic for many.

538 Nowcast 2016
Fuck  Trump

 

Alpha Release

Steam Marines 2 is nearing its initial alpha release. Itch seems more or less ideal for me because I wanted to 1) narrow my pool of prospective players, and 2) iterate without the almost inevitable backlash that Steam Early Access is coupled with. I also wanted to test some theories I had on pricing, and that’s easier to do with fewer players.

I hope reception is good. I’ve worked on the game for a little over two years now, and that’s a lot of time and effort to spend on anything.

I’ve been trying to get better about working reasonable hours. That is, anywhere from 40-60 hours a week. Which is still a bit obscene, especially taking into consideration that in the US private sector the average hours worked per week is about 34.4. So I’m working on that. But I still don’t know any successful entrepreneurs who worked 40 hours or less a week during the first few years of their business launching. Worthless Bums LLC was formed in October 2011, so I guess maybe I’m a little behind the curve.

I track my hours worked, and I graphed it back in August this year:

Way Too Many Hours
Way Too Many Hours

Part of the problem is I don’t want to grow fast or leverage up. I have the funds, and I can raise more, but I’m having some personal issues with giving up control – namely of code and design. I don’t even like design but I find it hard to give up control.

Another is that I’m a workaholic. I’m always doing something. I can barely sit still for half an hour of television.

Despite (because of?) my ridiculous hours of work, my return on investment, per hour, is good. Unfortunately not as good as my passive investments over the same time period, but my investment portfolio outperforms the S&P 500 by a fairly wide margin; I’m not at all unhappy with my game development business as a business.

Versus S&P500
Versus S&P 500

I’m in a good place financially – I have no grounds for complaint. I can fund Steam Marines 2 development through 2018 without selling another copy of any game so that’s nice.

 

Acts of RNG

I did get tripped up a bit with contractors in 2016.

My character animator decided to take some time off to focus on his own game. This is cool, although the timing was not the best for me – you sort of have to expect this in multi-year projects, even if your contractors are not working on your stuff full time and/or at top priority.

Elasticity
My character artist, Ed’s, Game… Thing

My environment artist got chased out of his home by Hurricane Matthew. Oh dear.

I was a bonehead and because of a communication mixup I wasted a month thinking I was waiting on audio from my audio guy but he was actually waiting on me. The lesson here is don’t go too long without touching base. Depending on how dependable you and the other person is, I recommend touching base at least once every 2 weeks. That said I have a fairly hands off approach to my contractors.

Still, I’m going into 2017 fairly optimistic. Unless the Steam Marines 2 alpha explodes in my face. We’ll see.

 

Thanks for reading,
Mister Bums

You can contact me at yjseow@worthlessbums.comTwitter, or leave a comment below.