The perception of $100 000

I read the other day that the US budget deficit is expected to be $1 300 billion for 2010. Which led me to say to Thomas that we should ask the US government (Yes, I know we are Swedes. Yes, I know it is wrong to expect Swedish game development support from the US government.) for $100 000... Who would notice?

Which led me to think about the perception of numbers, in particular when talking about money. Usually people (such as myself!) perceive money from an individual perspective, making sums like $100 000 appear very large. But, if one puts the same sum into the perspective of a group, the same amount of money is all of a sudden much less (really?!). For instance, 1 300 billion shared by a 300 million population adds up to $4 333.33 per individual. That's not so bad is it?

I'm not going to continue on the topic of the US budget, it only reminded me of a situation about a year ago which in turn will lead to the actual subject of this post.

I met a fellow that does not play games, know anything about the game industry or how you go about creating games. He curiously asked me a bunch of questions regarding these matters and I explained that in general it takes at least one year to create a game, more like two years. I talked a bit about how we worked (from home, with limited resources, etc) and what differs us from a "normal game company". He also asked how it generally works with the development process and how you fund it. I explained, in a simplified form, that you have two options: Either you have the money and you fund the whole development process yourself or, you lack the money and you make a deal with a publisher to fund the development. At the time we were quite close to settling a deal with a publisher, so I got the question: How much are they paying you to create Amnesia?

I hesitated a bit, it is not something that I normally tell people, so he started guessing some figures -What? $25 000? -Well, no. it is more than that... (I replied, thinking about what a good answer would be without giving any numbers) -OK, so it's like $100 000 then? -Uhm... (I didn't get a chance to reply) -Well, that's not so bad! He said cheerfully, reflecting over my previously mentioned "limited resources". To cut things short, we didn't talk much more about it after that as other topics were brought up, but this is basically what this post will be about - How much money is $100 000 when you run a company, in particular an independent game company? I would really like to go over it, because I am not sure how in general people reflect over these types of sums when talking about "Indie games". I have the impression that $100 000 is considered to be a lot of money, but I could be wrong. Is it?

As a starting point, I will summarize a couple of things:

-We are funding the development of Amnesia on our own. When the game is released we have been working on the game for about three (3!) years.

-Initially we had a publisher involved, but we had to terminate that contract and re-think how to create the project on our own.

-We are five full-time workers here at Frictional Games and we also have contractors that do varying amounts of work during periods of the development.

-Last year we had a very successful Steam weekend, followed by a successful Linux weekend and a period after that with better sales than normal due to the extra attention we got from those weekends. It gave us a total of about $80 000 in revenue for that month, 20 times as much as we have on average during a month.

-To keep it simple, let us assume the $80 000 actually were $100 000.

So how long can Frictional Games go on using these $100 000?
Well, lets take a look at how much it costs to pay ourselves a monthly salary of $1 500 each. Our salaries are less than that, they vary a bit too, but as with most things in this post I try to leave the details out of it. We also have to take into account all of the taxes and fees involved. In Sweden we have 30% income tax, but for small amounts such as $1500 it is more around 20%. We also have employer fees that are 32%, 16% if the employee is under the age of 26, these fees are added to the original amount. We also have 12% added for vacation salary, and another 32%/16% of fee added for that sum. That means:

$1 500 paid, gives the receiver $1200 to put in the pocket.
$480 in employer fees.
$180 for the vacation salary.
$58 for the employer fees on the vacation salary.
$2 218 total cost for the company to pay an employee $1500.

Let us round it down to $2 200, that means that for all five members of Frictional Games you get a monthly expense of $11 000. Making $100 000 a sum that would last for almost exactly 9 months. Which sounds really great! But... of course this did not include contractors or any other expenses (server, insurrance, legal advice etc). We could remove all of the contractors and do everything ourselves, but that would only extend the development time and increase the amount of money needed. We really must, and want to, work with the contractors that we do as they are great at their specialities - saving time and producing great content. As an estimate I would remove about 3 months of pay to cover the rest, which leaves us at a best case scenario of 6 months of living time. This too sounds pretty good, but then again a salary of $1 500 is at least $1 000 below an entry salary at a Swedish game company. It is not exactly a salary following the industry norm!

While 6 months is a good time to last, it is only 1/6 of the time needed for the whole Amnesia project. It was 6 months that were given to us from all those that made the two sale weekends so great, but it is not possible to have that type of success all of the time. In particular when the games you have to sell gets older and older, even if you can always reach new customers it is very rare to have those high spikes of revenue.

I hope that this post can give a bit of insight into the needs you have when running an indie game company and trying to make it your full-time job. To show that a sum of $100 000, that I think can be looked upon as a large sum, might not be so large after all when you are a group of people that are sharing it and all the taxes and fees are applied. I would never complain about our situation (it's definitely a good time), but I would not consider it to be a "successful living" just yet, we have a bit to go before we can make a proper living and not constantly having worry about "what happens next month?".