Wednesday, March 16, 2011

Indie Develoment and Money

One big question I had when first considering this move was, "How much is enough? How much money would I need to save up to make a real go of this?" Since there are likely others that will ask this, I've compiled some helpful tips and considerations here.

Everyone's needs are different, as are everyone's circumstances. But no matter who you are, there are some questions you'll need answered before you can really resolve the above questions. Questions like how much money do you spend in a month? How much of that is necessary vs. discretionary? What type of games do you intend to make? Will you need help making them?

What Are Your Recurring Expenses?
Let's start with the first one. What are your monthly expenses? Or better yet, what will they be once you are developing the game, full steam ahead?

In order to even roughly estimate what a month of living would cost, I had to know what my spending habits were like from month-to-month. This is something that takes a few months to figure out, as things can vary quite a bit over time. Even seasonal costs can play a surprising role (e.g. heating bills in winter can be a big deal, as can gifts during the holidays). In the ideal case, you'd map this out for an entire year, to see the full 12 month spectrum of spending. But if that's not possible, at least bear seasonal costs in mind when looking at your spending habits.

Fortunately, Rochelle and I had done this on a few occasions, so I had some numbers to go by. (Credit is due for Rochelle, who drove a lot of this process for the two of us.) We had a pretty good idea of how we were spending money. To help visualize these costs, I've created and shared an Indie Game Development Costs Spreadsheet. These ongoing expenses can be found in the "Monthly Expenses" worksheet of that spreadsheet. Feel free to download it and try it out.

The following is a summary of those cost areas in the sheet:
  • Debt (Loans, interest, credit cards)
  • Entertainment - Eating out (restaurants, bars, cafes)
  • Entertainment - Other (movies, concerts)
  • Entertainment - Vacation
  • Gifts (Christmas gifts for family, charity)
  • Government registrations (drivers license fees, health cards, immigration docs)
  • Groceries
  • Household goods (mops, toasters, furniture)
  • Housing - Rent/Mortgage
  • Insurance - Life
  • Insurance - Property
  • Insurance - Car
  • Maintenance - Car
  • Maintenance - House
  • Medical (Dentist appointments, prescriptions)
  • Miscellaneous (ATM withdrawals and fees)
  • Office supplies (printer cartridges, paper)
  • Payment processing (credit card and bank fees for customer payments)
  • Personal grooming (haircuts)
  • Personal treats (luxury purchases and gifts for self)
  • Pet supplies (food, cat litter)
  • Salaries (full-time staff)
  • Subscriptions (Website hosting, Xbox Live, Netflix, gym memberships)
  • Transportation - Fuel
  • Transportation - Parking
  • Transportation - Public transit
  • Utilities - Cell phone fees
  • Utilities - Electricity/Heat
  • Utilities - Gas
  • Utilities - Internet/Phone
  • Utilities - Water
  • Vet Bill
Getting values for each of the above is a big help. It not only gives you a more accurate accounting of costs, but it also creates a clearer picture of your spending habits. Seeing all the numbers in print really helped us optimize our spending, and save quite a bit from our original spending habits.

What are your one-time expenses?
Apart from month-to-month living, there are some one-time costs to consider. As above, this will depend a lot on who you are, what you're going to build, and how long it will take. Are you founding a studio, or working from your home? Do you need any additional equipment or software? Are you doing everything solo, or do you plan to hire help?

There's also a question of forming a corporation vs. sole proprietorship, each of which has implications. Doing the latter is usually easier, but the former is often financially safer. And forming a corporation may require the help of a lawyer on the paperwork, not to mention an accountant.

And then there are costs of development. You may have to hire contract help in a pinch, or license stock art, music, or middleware. Even if you have the talent to do them all, you may not have the time. There's also the question of advertising and marketing, which might include visiting GDC, PAX, or other conferences. And some folks may be considering releasing on a platform with launch costs or certification fees, such as XBL or PSN. A lot of these costs are hard to predict now, but can really sting if ignored.

They can be found in the "One-time Expenses" worksheet of the aforementioned Indie Game Development Costs Spreadsheet.

The following is a summary of one-time costs:
  • Advertising fees (AdWords, Facebook ads)
  • Certification fees (XBL, PSN)
  • Conferences and conventions (GDC, PAX, travel costs)
  • Copyright application fees
  • Development hardware (PCs, devkits, target platform hardware)
  • Incorporation fees (application fee, lawyers fees, accountant fees)
  • Licenses and permits (state/provincial business licenses)
  • Real estate (agent fees, down payment on office space)
  • Salaries (contract workers)
  • Software (Flash, E-commerce middleware, Unity, Visual Studio, 3DSMax, Photoshop)
  • Stock art, music, or sounds
  • Trademark search and registration
  • Website registration (URL)
In my case, I plan on working from my home office, so I can steer clear of office space costs. I also plan on doing most of the work myself, with contract help where needed. So no full-time salaries or benefits to pay. I'm developing a Flash game, and already have a PC and the necessary software for doing it (and can ignore the XBL and PSN fees).

That said, there are still a substantial number of fees left on the list above for me to consider. And one of the major deciding factors on those remaining items is whether to incorporate or not. I still haven't decided on the question of incorporation. I'm leaning towards yes at this point, but I'd like to avoid paying a lot in legal and tax advice (both in dollars and sanity). This is a discussion in itself, so it will probably be the subject of a future post.

How Much Development Time Do You Need?
So how many months should you plan for? This number will differ, depending on the person. But a good number of folks out there who have been through this seem to have agreed on a ballpark. They say to plan on 12-24 months before game development is earning enough money to live on. Put another way, plan on needing enough time to release a handful of games before the kinks are worked out, and they are monetizing well enough to live on. Obviously, more complex projects are going to increase the above 12-24 month estimate, but for 2-3 month projects like what I am planning, that's sufficient to get a handful of iterations done before the savings are gone.

There are a few readers who may be thinking of tackling a large project as their first, and 12-24 months may not seem like enough to cover it. While an occasional person has managed to do this and succeed, there are many indies out there who seem to say the same thing, "Make your first game a small one, and get it done as quickly as possible." The reasoning there is sound, if not sobering. There is a good chance your first game won't be a hit, and you'll make a lot of mistakes in creating and launching it. So it's best to get it out of the way early, learn your lessons from it, and save your grand plan for when you've learned from those mistakes.

That's not to say you can't make a cool game as your first. Being motivated to play the game you're making is a huge benefit too. But consider keeping your first game small enough to finish in time to follow-up with another game before you're broke. Or at least consider making your first game a subset of your grand vision, and following-up with expanded editions later. (In the interest of full disclosure, that's the approach that feels best to me. That way, I can still be motivated by working towards my dream game. But I can release it in manageable-sized chunks, to reduce risk.)

Grand Total
If you were able to answer most of the above questions, and estimate your monthly expenses, getting a total is a pretty straightforward process. Simply add-up all your one-time costs, and add that to the product of your monthly expenses times number of months. The aforementioned Indie Game Development Costs Spreadsheet has a worksheet entitled "Studio Funding Worksheet" to help. Simply fill in all monthly and one-time expenses as mentioned above, and the totals will appear in the studio funding worksheet automatically. Then, simply choose the number of months you think you'll need, and voila!


So Where Does the Money Come From?
I'm afraid this is the hard part. And none-too-glamorous, either. There are hundreds of books and articles out there on funding start ups, and covering that comprehensively is beyond the scope of this article. But the answer is hardly unexpected. The rough breakdown consists of:
  1. Save money like hell, and self-fund
  2. Beg friends and family
  3. Beg investors
  4. Beg financial institutions
  5. Beg the government
As I said, not very glamorous. There are some nuances to the above, for sure. Maybe you don't quit your day job and live on savings, but moonlight as an indie instead? Maybe you work part-time to pay the bills? Maybe you get a severance package when your day job folds? And options 2-5 have a wide variety of flavors. Angel investors? Venture capitalists? Government loans? Government incentives?

Furthermore, none of the above are mutually exclusive. In fact, I'm pretty sure most non-solo ventures employ all of the above to some degree. But every person has different circumstances and means. Different connections. And definitely different amounts of ambition. The how is up to you.

What did I do? I did what you'd expect a stubborn yankee to do: option #1. Too proud (and a bit too scared) to borrow from others to fund my adventure, I saved like hell. I avoided debt, cut costs, invested some, and saved the rest. It took a long time (almost 5 years), but I feel better knowing it's my money, and I'm the only one taking the risk. I'd hate to lose someone else's money. I'd feel bad if it was borrowed from a loved one, and my reputation would feel bad if it was from a bank or investor.

And there's another benefit to self-funding: The buck stops with me. It's my dime, so I call all the shots. I like knowing nobody can step in mid-project and say, "We've decided you should make a knock-off of game X, because that has started monetizing well. Forget about your original idea. Creativity and soul are expensive. And risky."

Nope! With self-funding, I'm the captain. I seek the fortune. I set the destination. I make the rules. I keep her afloat.

And if I screw up, I go down with the ship.

4 comments:

  1. Nice post! Insightful to those thinking of going indie (like me). Thanks!

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  2. Glad you found it useful! Indie blogs helped me a lot when I was starting out, so I'm trying to pay the favor forward ;-)

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  3. Dan this is by far the most useful blog post I have seen on Budgeting an Indie company. The most comprehensive list I have seen. Thank you so much for making it available for fellow developers. Peace!!

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