The financial model of LH updates

By on March 9, 2014 2:44:26 PM from JoeUser Forums JoeUser Forums

Frogboy

Join Date 03/2001
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Greeeeeeeeeeeeetings my friends!

This post is more for indie developers who want to know how much money things make. 

First some basics on game budgeting:

  1. Every person on your game you should budget at $10,000 per month. It’s a good rule of thumb. 
  2. You should target a 25% “profit” on your game to cover the unexpected as well as for future growth
  3. Steady State income represents the gross income of your game without sales, promotions, new releases, etc.
  4. Steady state takes 6 months to eliminate the “new game” anomaly.
  5. You need to take opportunity cost into account when budgeting (am I better off working on this versus that?)
  6. Opportunity cost is hard to calculate and is what kills most studios long-term.

The steady state of LH is $40,000 per month.

That doesn’t mean its annual income is $480,000 a year because there are lots of events that cause income spiking (Christmas is a 4X spike, Thanksgiving is a 2X spike, and the Steam July sale is a 3X spike.

For LH, that means I could justify 3 resources on it before taking opportunity costs into account.  Once I consider opportunity costs, the number declines to 1 because those other 2 resources are better off on Galactic Civilizations III or Star Control or “Elemental 3” or what have you.

Before anyone poo-poos 1 resource, bear in mind that I made the original Galactic Civilizations by myself. So 1 person can still get a lot done. But that’s where we are.  1 person means that the game can continue to evolve.  Some months it might be an artist. Another month a developer.  In January, it was Charles (programmer) fixing bugs and tweaking.  In February it was Kael doing new balance changes.  In March it’ll probably be me (I have anger management issues with the game’s pathfinding). 

The main funding source: DLC

DLC is really the funding source.  The base game is doing $25k and DLC is picking up the remaining $15k.  In effect, DLC purchases are providing the $10k resource and the $5k profit necessary to keep the game going.

The next DLC: Spouses

For those of you reading this, the next DLC is going to allow players to have spouses. Kael has meticulously designed a spouse for each player (and to be honest, they’re way cooler than the sovereigns because Kael got to really go crazy with these).

The one AFTER Spouses will probably (but not certainly) be Random Map expansion. That is, a lot more “interesting” stuff for random maps. I plan to do this one myself as I’d like to see random maps made a lot more interesting and I’ve had a lot of practice in the past year in my own “for fun” mods.

Cheers!

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ARESIV
March 17, 2014 6:27:08 PM from Elemental Forums Elemental Forums

I'm a bit puzzled, Gazing didn't even post again, not sure why he deserved another telling off.

In any case Gazing had half a point in that Brad's analysis, while interesting, is obviously very simplistic and is missing the key feedback relationship between number of employees on the project and the income earned from DLC. I suspect that was deliberate on Brad's part, he was just trying to give some idea of the bottom line numbers rather than a detailed breakdown of how they were reached.

So, while Gazing probably deserved a bit of criticism for trying to teach Brad how to suck eggs, it isn't worth going on about.

All IMO   of course.

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March 18, 2014 2:06:43 PM from Elemental Forums Elemental Forums

I'm going to put myself in the firing line and actually defend Gazing.

 

What he is really challenging is this assumption

7) Regardless of how many workers I put on making DLC, it will result in 15k/month.

or as Gazing put it: "You have shown no [or zero] causation between the number of employees and the expected revenue."

From the System engineering side that Gazing is talking about, you have a resource that produces widgets at a rate. Which in this case is a developer making DLC pack content per month. Using 2 resources in theory results in 2x the production rate of widgets a month, so 2x as many DLC or a single DLC worth 2x the content. So twice the income a month?

However, as Gazing admits it's not that simple:

"I know that such a causation exists, and that it is quite difficult to calculate or predict"

That's because 2 workers/resources don't always produce twice as much, and twice as many DLC or a DLC of twice the content, might not sell for twice as much. This is 1 of 2 really tough parts of the problem, Brad has to predict how his rate of return per developer scales with more developers to a DLC. He may already have predicted it as not scaling at all, which is a harsh thing to tell us but may be true. (We will always be willing to pay 15k/month for the DLC regardless of how much or little content it contains). As Brad already mentioned the 2nd really tough part is that he has to predict the same rate or return per developer on other projects, and compare the two options, or opportunity cost.

 

Which brings a question to ask ourselves: Would you buy x value of DLC a month regardless of how much content is in it? Would you buy 2 DLC packs a month comfortable that they took 2x the effort combined or buy one dlc for twice the profit? How accurately do you weight the contents of a DLC before buying? I'd love to say I'd shell out more money for more content, but deep down, I don't think my estimate of value is accurately scaled to the effort of content that went into it. Also, the forum going crowd is going to be the more interested customers, so if we all say we'd subscribe to 15$ a month, Brad still couldn't easily extrapolate that out to his general customer base.

 

 

 

 

 

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March 21, 2014 2:36:38 PM from Elemental Forums Elemental Forums

This one is just for fun.  (and by the way, I was trying to help Gazing, not defame him)

Say you have 2 expert widget makers at your company (This is the real world mind you) toiling away continuously making widgets (not all are perfect).

One widget maker has a brain hemorrhage and... suddenly production slows to 50% instantly.  What do you do?...

 

The point I was trying to make is that the widget maker is paid by the Widget Co.  Widget Co, then employs a top level Widget Co employee to hire/fire/replace or destroy the new incoming widget maker(s).  The overhead (wages/taxes/rent/ insurance, etc.) IS HUGE!

None of that will make sense to people not in business.  I encourage you to understand it though, and that's why Im thankful that Brad puts out any info at all.  He doesn't have to.

Try to do it Gazing!  Like I said; I wish you the best, but it aint easy.  Words don't make money but in a book, or in the press.

 

Edit! Alert!  I get paid in celery, so I did make some money typing that.  The carrot,... I'm still chasing.

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April 1, 2014 11:48:00 PM from Elemental Forums Elemental Forums

Oh nice. How did I miss this thread?

Looking forward to new DLCs.

How will spouses be handled for custom sovereigns? 

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April 3, 2014 1:21:34 PM from Elemental Forums Elemental Forums

 

First, thank you a lot to Frogboy for posting this. I am very interested into the mechanics of game development.

I have just a comment on the following statement:

"For LH, that means I could justify 3 resources on it before taking opportunity costs into account.  Once I consider opportunity costs, the number declines to 1 because those other 2 resources are better off on Galactic Civilizations III or Star Control or “Elemental 3” or what have you."

This points to the fact that the hiring process in game development is a tough part, i.e. that you should make your plans assuming that you cannot hire in the short term. In fact, if you could hire, you would be better off hiring two more people and staffing them on LH to cover for the two that you are better off staffing on Gal Civ III...  human resources are the key ... 

 

 

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April 3, 2014 5:25:10 PM from Elemental Forums Elemental Forums

Quoting Gazing,

blah blah blah

I'm going to print out what you posted and put it on my bedside cabinet for those nights when I have trouble nodding off.

Great post by Frogboy as always!

 

 

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April 3, 2014 5:46:42 PM from Galactic Civilizations III Forums Galactic Civilizations III Forums

I find your funding model highly contradictory!

First you say this

Quoting ,

The main funding source: DLC

Then you say the next DLC is


The next DLC: Spouses

I know for a fact my spouse is definitely a net loss in terms of revenue! I also got ripped off because I paid for the "Premium Spouse DLC" but they didn't tell me there was an on-going subscription cost of clothing  and shoes that can't be cancelled! I'm also being forced into "DLC: Children"! HEEELLPP!!!! 

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April 3, 2014 5:58:32 PM from Galactic Civilizations III Forums Galactic Civilizations III Forums

Quoting satoru1,
I know for a fact my spouse is definitely a net loss in terms of revenue! I also got ripped off because I paid for the "Premium Spouse DLC" but they didn't tell me there was an on-going subscription cost of clothing  and shoes that can't be cancelled! I'm also being forced into "DLC: Children"! HEEELLPP!!!! 

I wish I had your problem. I can't even get the "Standard Girlfriend DLC". Every time I try it says "We're sorry, but this product isn't available in your region."

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April 3, 2014 7:43:58 PM from Elemental Forums Elemental Forums

Quoting satoru1,

I know for a fact my spouse is definitely a net loss in terms of revenue! I also got ripped off because I paid for the "Premium Spouse DLC" but they didn't tell me there was an on-going subscription cost of clothing  and shoes that can't be cancelled! I'm also being forced into "DLC: Children"! HEEELLPP!!!! 

This is what happens when you view partners as commodities. 

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April 4, 2014 10:21:38 PM from Elemental Forums Elemental Forums

Quoting satoru1,
I know for a fact my spouse is definitely a net loss in terms of revenue! I also got ripped off because I paid for the "Premium Spouse DLC" but they didn't tell me there was an on-going subscription cost of clothing and shoes that can't be cancelled! I'm also being forced into "DLC: Children"! HEEELLPP!!!!

Preach it brother

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April 7, 2014 10:56:05 AM from Elemental Forums Elemental Forums

Quoting Rhadagast,



Quoting satoru1,
reply 32
I know for a fact my spouse is definitely a net loss in terms of revenue! I also got ripped off because I paid for the "Premium Spouse DLC" but they didn't tell me there was an on-going subscription cost of clothing and shoes that can't be cancelled! I'm also being forced into "DLC: Children"! HEEELLPP!!!!


Preach it brother

Gotta consider the non-tangible benefits too. 

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April 7, 2014 11:08:42 AM from Galactic Civilizations III Forums Galactic Civilizations III Forums

How will spouses work for custom soverigns? Will we get to make them or will they just not have them?

 

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April 7, 2014 1:10:57 PM from Stardock Forums Stardock Forums

Quoting GFireflyE,



Gotta consider the non-tangible benefits too. 

The non-tangible benefits decrease over time, despite the ever increasing subscription fee.

Especially after the purchase of a few children DLC's...

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April 7, 2014 2:14:14 PM from Elemental Forums Elemental Forums

Quoting econundrum1,
How will spouses work for custom soverigns? Will we get to make them or will they just not have them?

 

I would presume that the spouses are accociated with the race type ... not the sovereign name. Since you need to select a race type in sovereign creation, the spouse would go with it...

That's a presumption though. 

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April 28, 2014 9:51:08 PM from Sins of a Solar Empire Forums Sins of a Solar Empire Forums

@ OP

Thank you so much!

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April 29, 2014 4:59:35 AM from Elemental Forums Elemental Forums

Frogboy, thank you very much for posting this, this great insight into the inner workings of a game dev studio.

To put things in perspective, I am a Product Development Manager for a solutions company, and I mostly deal with enterprise software. When we got going, we weren't doing software, but I started coding some 'mocks' which took hold in the market. The revenue of enterprise software is significantly higher than that of game dev software, and the customer base is even willing to pay for new content (and sometimes patching), which is a vast contrast to game development.

I've always wondered how game devs make cash. It's also amazing to think that games you've developed, which have a large fan base and some critical acclaim globally, are superceeded in revenue by the stuff we build and sell. Your developers are probably more skilled than ours (not having to worry too much about mathematically concepts usually only learnt from a university education) thus will demand higher salaries, and the code base is more than likely significantly more complicated.

It goes to show you really do have to have to have a passion for what you are doing.

 

Also as a note, the entire industry where I sit is now moving towards SaaS (Software as a service). Consumers (Enterprise included) now want to pay x amount per month, instead of expensive license fees up front, even if the monthly cost ends up more than the up front cost.

I wonder if the gaming industry will ever shift to this model. Based on the heart attack many gamers have over DLC/online only/etc, I sense It may take a while, despite the fact these very same consumers are happy to pay monthly fees for things like Spotify.

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April 29, 2014 9:25:32 AM from Stardock Forums Stardock Forums

Quoting ,

  The next DLC: Spouses
For those of you reading this, the next DLC is going to allow players to have spouses. Kael has meticulously designed a spouse for each player (and to be honest, they’re way cooler than the sovereigns because Kael got to really go crazy with these).

Wow - that sounds cool!  Can't wait for these spouses to join their respective leader in-game!  Oh wait....  This refers to the Leader DLC?  Never mind.

The one AFTER Spouses will probably (but not certainly) be Random Map expansion. That is, a lot more “interesting” stuff for random maps. I plan to do this one myself as I’d like to see random maps made a lot more interesting and I’ve had a lot of practice in the past year in my own “for fun” mods.
Cheers!
 

Would be nice if you had someone that actually has more intimate experience with map scripts work on this.  No offense, but you seem more like AI expert plus jack-of-trades.  But I guess I'll withhold judgement until I see the actual offering.

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April 29, 2014 9:25:58 AM from Elemental Forums Elemental Forums

Quoting DaveDash,
 

Also as a note, the entire industry where I sit is now moving towards SaaS (Software as a service). Consumers (Enterprise included) now want to pay x amount per month, instead of expensive license fees up front, even if the monthly cost ends up more than the up front cost.

I wonder if the gaming industry will ever shift to this model. Based on the heart attack many gamers have over DLC/online only/etc, I sense It may take a while, despite the fact these very same consumers are happy to pay monthly fees for things like Spotify.

Pay to play? yuck. I tried it for 6 mo when WoW first game out. I felt completely obligated to play lest I throw money away. I truly hope the gaming industry does not shift that way. There will never be any completed products anymore...

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May 1, 2014 1:49:18 AM from Elemental Forums Elemental Forums

Quoting GFireflyE,


Quoting DaveDash, reply 41 

Also as a note, the entire industry where I sit is now moving towards SaaS (Software as a service). Consumers (Enterprise included) now want to pay x amount per month, instead of expensive license fees up front, even if the monthly cost ends up more than the up front cost.

I wonder if the gaming industry will ever shift to this model. Based on the heart attack many gamers have over DLC/online only/etc, I sense It may take a while, despite the fact these very same consumers are happy to pay monthly fees for things like Spotify.


Pay to play? yuck. I tried it for 6 mo when WoW first game out. I felt completely obligated to play lest I throw money away. I truly hope the gaming industry does not shift that way. There will never be any completed products anymore...

 

Yeah probably not that model, but more you pay steam[or other distributor/reseller] $40 per month, and you have access to a chunk of games.

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June 11, 2014 11:36:57 AM from Elemental Forums Elemental Forums

N/A

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June 26, 2014 3:06:27 PM from Sins of a Solar Empire Forums Sins of a Solar Empire Forums

Certainly an interesting read....  Thank you Frogboy for the insight.

 

Quoting DaveDash,
Also as a note, the entire industry where I sit is now moving towards SaaS (Software as a service). Consumers (Enterprise included) now want to pay x amount per month, instead of expensive license fees up front, even if the monthly cost ends up more than the up front cost.

I sure as in the heck don't.  I'd much rather pay that 1 time up front fee because I know I'm going to have the product for much longer than what I'd have to pay via the monthly.  There's no need for me to upgrade to the latest and greatest the moment it comes out if what I'm currently using does the job.

But, yeah, looking at the way many people react when the "new toys" come out (think long lines for the new iPhones ), I can see why this is happening.  The problem for the consumer, in my mind, is that the Pros (new/improved features) are far less than the Cons (increased over time cost).  But of course, that's at a Pro for the business....

 

That said, I actually would be willing to pay a subscription fee to a game provided it meant continuous and active support in adding and improving content for the game and even expanding it in many ways.  WoW would be an example.  I played it for almost a year paying them the $15 a month.  I just eventually grew bored of the end game "mechanics" and moved on (mind you, this was all pre Burning Crusade).  What gets me, though, is when one of these subscription games charges its player base a good amount to play monthly, and then still charges a good amount up front for the game proper or even any released expansions....

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September 12, 2014 7:57:45 PM from Elemental Forums Elemental Forums

Quoting ,
The one AFTER Spouses will probably (but not certainly) be Random Map expansion. That is, a lot more “interesting” stuff for random maps. I plan to do this one myself as I’d like to see random maps made a lot more interesting and I’ve had a lot of practice in the past year in my own “for fun” mods.

Cheers!

 

So when is the next DLC?

It has been quite a long while since this dev journal was posted and I understand it takes time to create content, but some news would be nice.

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September 13, 2014 9:25:03 PM from Elemental Forums Elemental Forums

The next DLC is supposed to be a bunch of new maps (tactical and otherwise).  I'm still learning the stamp editor though so it's going to be a bit still.  

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September 14, 2014 12:34:28 PM from Elemental Forums Elemental Forums
That is great Frogboy, exactly the kind of DLC I want. I have some money on my Steam wallet ready and waiting for it.
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September 14, 2014 3:07:46 PM from Brad Wardell's Little Tiny Frogs Brad Wardell's Little Tiny Frogs

Cool.

Yea, the way the random map generator works is that it takes little chunks of land and puts them together in interesting ways.

Paul Boyer did them for Fallen Enchantress but he's working on GalCiv III now.

His look pretty but I think many FE/LH players would like to see ones that are strategically more interesting. The catch is, it's hard to make them so that they're both pretty and strategically interesting.  I'm getting a lot of practice in though.

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