Meeting the Metrics

A major part of any business plan, is looking at the cost of your project. From the salaries of your team, to the equipment you will need, there is a lot of money spent, to get a project off the ground. This week, we take a look into these sections, of the game market. Many people worry, when a game comes out, and it costs a lot of money. Even big companies will release small games, at what seems to be an expensive cost.

A small breakdown, of just the salaries, of each project will provide some insight, into the cost of even a small game.

No matter what style game, you are working on, a number of artists, programmers, and designers are needed, to complete the game creation. Salaries for each of these vary anywhere from 65 to 80 thousand dollars (USD). That is per person. If the game is going to be developed in a reasonable amount of time, and with matching quality, at least three team members are needed, in each category. Even with the minimum payment, a decent game will cost around a million dollars, in salaries. This is only a portion of the fixed costs, which will not change, throughout the course of the project. The fixed costs are a factor in the profitability of the game, but do not have as much of an effect on the cost of each game.

When looking at how much to sell a game for, the variable costs, or costs that vary throughout the project, have a much larger impact. These costs can be categorized by Advertising, Utilities, Production, and Misc. costs.

Estimates on these costs, and their projected changes, will determine what the sales price of each game (unit) will be, in order to beat production costs. If the price of each game is lower than the expected cost to make each game, than the company is losing money. In order to determine how much each unit should sell for, the company must first have a plan, on how many units it plans to make. Say my company is going to make ten thousand copies of our game. We have factored our variable costs to be around fifty thousand dollars. this means that it will cost me five dollars to make each copy. Now say I sell each copy for ten dollars, and manage to sell all ten thousand copies. This will give me a margin, or profit, of five dollars per copy. However, the total revenue, or what's left after the variable costs, will only leave me with fifty thousand. Most people would say that's a pretty great take, right? But let's not forget our fixed costs, with even the salaries, that still have to be paid. Now we take that fifty thousand out of our fixed cost. We still have money owed, and did not make any profits, from this number.

So how do we get a profit? How many would we have to sell?

In order to figure that out, we first need to figure out the total cost of each unit. To find that, we would add our variable and fixed costs. Then divide the total number of estimated units to be made. This will provide us with the total cost, in order to gain a profit. However, most of the time, this number will be too high, to be a valid estimated cost, for each unit.

So how do we break even?

Since we have our Fixed Costs, and have determined the total cost, to make each unit, we can factor how many units would need to be sold, in order to break even. With this number, we can compare it to the rest of our totals, and make adjustments to the price, and number of units created, to come up with an accurate estimate, and plan.

In the studio, I am working with Team NT diligently, to create this plan of action, for their project. As they approach their final phases, we begin looking at investments, prices, and costs, and what it will take, to make their project a success.

Stay tuned, for future updates, as we continue our journey, through the fields of marketing.