Tales of the Rampant Coyote

Adventures in Indie Gaming!

The Cost of Development

Posted by Rampant Coyote on January 14, 2013

When I hear gamers complain about the cost of video games – and arguing that indie games shouldn’t cost more than $X (X being an arbitrary number, almost always under 10, often less than 5), I wonder if they really understand the cost of making these games. I dream of one day turning “Rampant Games” into a full-time venture with actual employees and a real (small) office and stuff. I’m talking small – maybe 7 people, tops.  But I’m still deep in stage 3 of Jeff Tunnell’s Five Realistic Steps to building a game development company. The costs of running even a tiny full-time studio are pretty daunting.

According to Game Developer Magazine’s annual survey for 2012, the average salary of a lead programmer with LESS than 6 years of experience (so he’s not a very experienced lead at all) is about $90k. A junior programmer with <3 years experience, about $65k.  A lead artist with equivalent experience to your programming lead can command an average of $72k, and a junior artist / animator takes home $46k.  Let’s combine the roles of designer and project lead, assume some decent experience (you really, really want someone with experience under their belt for handling these tasks) with a salary of about $70k. They can double as the sound guy. And the lead tester. And the biz guy. Okay, everybody else in the studio is helping out here. So we have a studio of five guys, working their tails off and wearing multiple hats. These guys need to eat, and there’s only so far the thrill of working for a tiny game studio will take them before they get pulled away to another game studio or some other industry, so we’ll assume they have to earn an average salary.

So right now, we have a burn rate of $343,000 per year for five guys / gals. Now, in the U.S., salaries for full-time staff represent only about 75% of the cost of having an employee. Believe it or not, your employer pays a lot of additional taxes that are never deducted from the employee’s salary. Especially with benefits like insurance and so forth. Even being conservative with those numbers, we’re probably talking about an extra $100,000 on top of that. So…. $443,000 in salaries.

Office space? Let’s assume we can find an office space with utilities (and the all-important high speed Internet) for about $2k a month. So that’s $24,000 / year.

Add in additional costs for furniture, computers, licenses (which can be amortized across multiple years… you hopefully don’t have to buy new chairs or computers every year), outsourcing some content or tasks to third parties, and so forth, you’re talking about a burn rate that could easily tip a half-million dollars a year.

So however a game is priced, whatever monetization scheme you choose, and however many games the studio is able to crank out per year (hopefully more than one!), you’ll need to be able to sustain an average of $42,000 revenue per month to keep the studio alive. Even if you could could get your developers to accept starvation wages, make everybody works from home on their own Internet connection, and somehow manage to cut that burn rate in half, you’d have to sustain over $20,000 a month in revenue – and at that rate, you may have people looking to either see the next title knock it out of the park, or they’ll be looking for greener pastures soon thereafter.  People gotta eat and pay the rent.

Contrary to what seems to be a popular belief, most indie games don’t sell millions of copies. Minecraft is not a small aberration. Most indie games do not sell six digits. In fact, most indie games do not sell five digits. Even with indies, it’s a hit-driven industry. Oftentimes a game will either pay for itself several times over, or it will actually lose money, with not a whole lot of middle ground.

Naturally, there are lots of other ways to play with the numbers to make them work… but as a guy who’s former game-dev boss is currently serving jail time for playing with the numbers a little too much when the revenue stream got weird, I get the impression that ultimately the math must make sense and isn’t overwhelmingly tractable. Eventually, game pricing is going to have to find some kind of equilibrium with cost of development.

Filed Under: Biz, Game Development - Comments: 7 Comments to Read

  • Dave Toulouse said,

    Steam Greenlight is a “nice” place to see people who have probably no intention to play X game complaining about its price anyway.

    Last one I noticed was the Smuggler 5 entry (http://steamcommunity.com/sharedfiles/filedetails/?id=100928089)

    “Big studios dont need greenlight, indie devs do, indie dev prices are required. 10-15 and you would have been greenlit is my guess.”

    “Don’t be Greedy now.”

    “looks great but I’d say value of 10”

    “had my vote till the price tag, think i will pass”

    That last one is weird since the person pretty much know the game would end up being on sale one day… but still prefer to not vote for it.

    Now I have no opinion on the price of this game. If I want it I pay otherwise I don’t and I spare the dev from my “oh so magnificent wisdom on game pricing” everyone seems to have these days.

    Of course the price can have an impact on whether you buy a game or not but I find it curious that people don’t think twice before giving advice on pricing when it’s the 5th game of the serie and previous games were similarly priced…

  • Ayrik said,

    I was waiting for you to mention how many $1 games you’d have to sell to break even. If you’re selling on the App Store, Google Play Store, or similar, where they take 30%, you’re looking at around 60,000 to break even EVERY MONTH! Note that this does not include the taxes you’d have to pay on those copies. I didn’t include that because I don’t know how much it is, but by my guess, you’d need closer to 80,000 or so each month.

  • Rampant Coyote said,

    I decided to leave that one open, ‘since the answer is fairly obvious. The current price war is going to kill a lot of indies.

    I think the trick is that a lot of these big portals are picking up “long tail” sales from gamers who don’t really care much. I mean, I’ve picked up a ton of indie games via various bundles and sales that I’d never have considered otherwise. A couple have ended up being favorites, or at least worth a couple of hours of enjoyment. When a game is in the sub-$3 range, it can pick up a sale from even the most minor interest.

    But I think what’s going to have to happen is that indie games are going to have to pick up a strong, loyal audience willing to pay full price – and that loyalty needs to be rewarded by the developers in a way that the low-interest bottom-feeders won’t (and won’t care about).

  • Yem said,

    Indies need to grow a pair and price their games at what they need to survive/feed themselves/keep making games. People who are crying that your game is $15 instead of $10 or whatever likely won’t be a sale at any price.

    On the other hand, gamers need to realise that ‘indie’ doesn’t mean ‘throwaway’ – while the majority of little titles on steam and mobile apps are shovelware, that doesn’t mean $1 should be the ‘standard’ price, by any means.

    Further, despite being entirely a consumer and not a developer, I feel like you (indies) are hurting yourselves with pay what you want and ‘bundles’, especially early in development/release – as someone who is /happy/ to give $20 or $30 to a game that looks like something I will enjoy, I really feel unappreciated when the developer turns around (sometimes still in alpha/beta/whatever) and says ‘okay, well, you can all just give me whatever you want now’. It has a place at some point in the sales ‘cycle’ of the game, but I would have thought that came fairly late.

    But maybe that is all just me being a bit ‘funny’.

  • Robert Boyd said,

    Right now in your theoretical example, you’ve got 5 full-time employees and you’re paying them industry standard wages and you’ve got an actual office.
    2 programmers
    2 artists
    1 music/design/business

    As you can see, the numbers don’t really work out unless you’ve got a big hit OR can pump out games really fast OR have an extremely niche game that enough people are willing to pay a premium for.

    In contrast, take our studio.
    1 programmer/designer/writer/business
    1 artist/animator/level designer

    We both work at home, so we’re not paying tens of thousands of dollars on an office.

    We outsource the music so we’re paying a few thousand on that per game instead of paying tens of thousands of dollars a year for a full-time employee.

    Admittedly, since our game prices are so low, we need to sell 100,000+ for each new game to keep going, but it’s still much more manageable than it would be with a larger team and an expensive office.

  • automata said,

    I think part of this may be that a lot of consumers simply don’t know how many copy of a game are sold, outside of a few big exceptions like Minecraft which sell quite a lot of copies.

    Even if you know the costs for a game, if you have no idea of how many copies of a game are sold, you can’t do the math. Sure, you can estimate, but when all the data you base your estimates on are either the rare huge numbers, or the AAA “copies shipped” values, or people on the internet claiming or not to have bought/liked a game, then you’re estimates are going to be off.

  • Xenovore said,

    There’s perceived value as well. Personally, I see a game released at a sub-$10 price, or even a sub-$20 price, I pretty much expect it to suck and generally I won’t even look at it. So there’s one reason for indies to not under-price their stuff.

    However, that being said, many indie games are unfortunately worthless garbage to begin with — A) ugly art, B) lame UI, C) weak game-play, or D) all of the above. I.e. stuff that, even if you gave it away for free, I wouldn’t waste my time with!

    Also, indies need to realize that they are in direct competition with a metric shit-ton of older and often still better games, whether from the likes of GoG, or via emulators. So if they can’t make a new game that’s at least as good as the older stuff, they really ought to just throw in the towel. For example, if — hypothetically (read: never gonna happen) — I’m craving a pixelly, ancient-looking, 8-bit game, I’ll just load up something in an Atari or SNES emulator; I’m not ever going to bother with your “nostalgia-retro-classic-homage” game! (So yeah, please stop making that crap.)

    Sorry, a bit ranty here, but the fact is: Most indie devs are not making the games that I want to play! That bugs me; I really want them to, but they are not. So as much as I’d like to support ’em, not gonna happen. (I’m not one for “pity purchases”, no “Awww, you tried sooo hard… good job, your game still sucks terribly, but here’s $10.”)