Is There Money To Be Made?

As I said in my last post, I'm looking at releasing an Xbox Live Indie Game in the next few months. Today, along with Darius, I started doing a little bit of math about indie game numbers, and it's gotten me wondering, can you actually support yourself, and a company, on indie games (indie, in this case, meaning a smallish team experimenting with interesting gameplay concepts and styles). Now, I understand that this whole post, since it deals more with money than passion, may end up alienating me from the indie community, but as a developer I want to see small experimental games flourish, and I want to see those people developing them do well for themselves. This post questions whether or not that's even possible under our current thoughts and models.

We've been seeing recently a number of small game companies really hitting a wall when it comes to funding. Introversion had a post on their blog about their money problems, and Mommy's Best, though still pushing ahead, made it clear that the number's on Weapon of Choice were not good. We've had rants from game players about alternative funding models and suggestions from Gabe Newell about public funding for games. What can we take from all of this? What can we do for funding models?

So this whole thing starts with one piece of information: How many copies of a single game does a developer need to sell per year in order to support themselves? Let's start at a base line of $40k per year for a single developer. This may sound like a lot for indie developers and, let's face it, it really is. But I will tell you it SHOULD be a pretty good base line number, for a lot of reasons, not the least of which include the fact that, in the US, as a single developer, you will be taxed on that both as a business and again as a person. Also take into account health insurance costs and the possibility of supporting any person other than yourself, and $40k starts to sound pretty slim.

Now we need to figure in loss to distributors. Let's ignore distributors with up front cost / approval process (XBLA, PSN, and WiiWare) because even developing for these services usually requires either an already proven game or proven team, and we're assuming neither. This leaves us with iPhone, PC (in various forms, we'll focus on two as you'll see shortly) and Xbox Live Indie Games. For each platform, you need to look at distribution numbers, likely price points, and gross income, meaning the income after your distributor (or whatever) has taken their fair share.


Let's start with the newest (and, for all accounts, sexiest) guy on the block, the iPhone. Most apps on the iPhone sell for $.99 to $3, with Apple taking 30% off the top. In addition, selling on the iPhone is really all about staying new, staying fresh, and staying on top of the most popular list. In order to do that, you need to stay at the lower price points to encourage impulse buys. That means staying at around $.99 for as long as possible. Here are the numbers:

App Price Gross to Dev Number of Sales Needed / developer
$1 $.70 57,000 / year
$2 $1.40 28,500 / year
$3 $2.10 19,000 / year
$5 $3.50 11,400 / year

So at the pretty much standard rate of $1, a single developer needs to push 57 thousand copies of their game per year in order to support themselves, or push multiple applications which can come up to that number. With the number of iPhones on the market somewhere around 6 to 10 million, the question is, how many sales can you except? Mac Rumors reports 4 apps that easily hit almost a million sales, but what's the data like for games? And indie games at that? The most telling post probably comes from the developer of Dapple, who wrote a very long post on how much money he actually made on the product (summary, he has sold a total of about 500 copies). In addition, this post on the price of apps versus their popularity shows very few indie games in the list, Field Runners (essentially an App Store Launch Title) being the notable exception, and very little money being made. Is it possible to be an indie and loved on the App Store? Only indies who have accomplished this can tell you, but 57,000 copies is a really hard number to hit with something interesting or experimental.

Xbox Live Indie Games

So what about Xbox Live Indie Games. Their Gross To Dev numbers are actually exactly the same, though the $2 price point doesn't exist, and the highest amount you can charge is $5. That said, until recently $2.50 was the lowest you could charge, which required about 22,800 copies to be sold per year. Unfortunately, XBLIG sales figures came up very short for most developers. Total download rates are low, as Indie games were hard to find on the dashboard until recently, and good apps are very hard to find, so I believe most people have been ignoring the service entirely. Sales for most games topped at probably around 5,000 copies since launch, far from the required 22 thousand to support a single developer.


Finally we come to PC. On PC, sales numbers small, but you can expect to be able to charge more, though more is expected of a finished product. Games average anywhere from $5 to $30, even from indie developers, and you'd think that, hosting it on your own or through Steam, you'd get more of the pie. Steam unfortunately doesn't publish their numbers, but PayPal does, and we can actually use them as a baseline. Now, we're assuming that you're looking to get above $40,000 here, so we're going to use their range for $10,000 to $100,000, which is 2.2% + .30 per transaction. Here's the numbers:

Game Price Gross to Dev Number of Sales Needed / developer
$5 $4.59 9000 / year
$10 $9.48 4000 / year
$15 $14.37 2800 / year
$20 $19.56 2000 / year
$30 $29.04 1400 / year

Looking at these numbers, it's almost obvious why most successful indie developers start on PC. Even with the PC market shrinking (this talk form GDC shows us that you can expect PC sales numbers in the hundreds of copies, thousands if you're lucky), you get to keep a lot more of your money, and the audience is self selecting. People interested in indie games tend to have PCs and may buy your game. (A note to pirates: Look at those numbers and see how much you're taking from that developer, and the numbers EACH DEVELOPER has to hit before even becoming profitable. That, more than anything, should make you think twice about piracy). Hitting these numbers is possible, but not probable. It's quite obvious, to me, from these numbers why most successful indie devs are one man shops, making fairly quick games. This model doesn't scale to multiple developers, and definitely not for multiple years.

Alternative Funding Models

So what about Gabe's suggestion? Running basically a "stock market" for games where you can invest in projects, get a game out of it, and possibly see a little bit from the net profits off of a game? So far, We've seen a commission system partially go out, and partially work, but what about Gabe's suggestion?

Let's assume that for these systems, we're talking about multi-developer, multi-year projects. Still talking indie, let's say 4 developers over a year and a half, which is pretty reasonable I think. This totals (not taking into account taxes, office space, servers, or anything else) $240,000 that needs to be raised over the course of a year and a half. Though this is potentially possible, we'd have to look at other concerns. If a person invest in this game with a promise of returns on the net profits (after other expenses / taxes), he needs to understand the risks involved. After all, if a game company never hits that $240,000 number, and can't survive long enough to complete the game, that money is lost. Attached to this, is the idea of due diligence. Each investor is now an INVESTOR in your game, and can have possible legal rights to it. If you just take the money and never finish the game, they might be able to sue you. What is there in place to protect both the investor and the investee if this happens?

Now, provided these legal fees could be worked out, how much of net profit would you be looking at loosing, and how much would you charge for each point of net profit? What would developers look to gain, and what would investors look to gain. This post is all about numbers, so here we go.

First, let's start with a game that sells about 20,000 copies at $20 each (we're assuming these are good games that have a following, otherwise they wouldn't have been funded in the first place), on PC using the numbers above. That totals $391,000 revenue on the game, and let's assume (for argument's sake) that we have $41,000 in expenses for the game (to make nice round numbers). That leaves us with $350k net. Assuming we split to always end up with getting the funding we need, here's what the graph looks like:

Percent of Net Available Value for each point Net Total Invested Total Revenue to Investors Total Revenue / point Total Revenue to Developers
70% $3500 $245,000 $245,000 $3,500 $105,000
60% $4000 $240,000 $210,000 $3,500 $110,000
50% $5000 $250,000 $125,000 $2,500 $125,000
30% $8000 $240,000 $105,000 $3,500 $245,000

In general, that's pretty grim. Only in the 70% case do the investors come out just breaking even, and the developers have enough to fund half of their next game. Is it possible? Maybe. But is it worth it for the investors? How many times will an investor loose most of their money from games that aren't finished, or games that don't break 20 to 30 thousand copies before they just kind of give up investing? How much work is required of developers just to set up the legalities to make sure they don't get sued, and their investors don't get screwed?

Another funding model for indie devs is to keep titles relevant from year to year, keeping sales of the title up while you work on the next title, and into your third.  By keeping these games selling, you can start to see actual profits. However, this also means consistently releasing games year after year, and surviving until these games come out. This takes a lot of start up capital, or at least the ability or desire to eat ramen for years on end, with only the smallest chance of reward (from looking at these numbers anyway).


These numbers make it really obvious to me why most indie (and, in some cases non-indie) business models exist, and why they produce the games they produce. To be successful, you need to be in one of a few situations:

  • A single developer that makes a good title (Petri, for example)
  • A single or set of developers with short release cycles to keep multiple games relivant over short periods of time.  (Almost all iPhone developers).
  • A developer that has an already popular game and is able to get on one of the more visible services  like XBLA, PSN, or WiiWare (That Game Company, the Behemoth, 2D boy, Number None)

This is why indie games experiment the way they do.  Shorten the dev cycle, concentrate on mechanics and prototypes, keep art resources and requirements low, release lots of games quickly.  I feel like there needs to be more available.  I'm sure there are indies out there that want to experiment with things that take longer dev cycles, (weird dynamics, involved dynamic art styles, or, god fobid, strange narative structure), but can't for survivability reasons, and that's a damn shame.

So my answer to everything here is, maybe there's not a good living to be made in indie games. Even with alternative money sources, it doesn't look like you can sustain a business, even of small number of developers, without competing for AAA numbers, which seems to have a quality bar that almost requires a AAA team. Obviously, the math for that is wrong somewhere, as we've seen it happen, but is it worth it for me (or anyone else) to attempt the struggle when the reward seems to be mostly just more struggle? Is there an answer I'm possibly missing? Is there money to be made in remaining truely independent, or even survivability?  And if there is, can it be done for more models than what we have now?

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31 Responses to Is There Money To Be Made?

  1. Pingback: Posts about Mac Rumors as of July 29, 2009 » The Daily Parr

  2. Well put and relevant post. I put up a response of my own.

    […]In my opinion, the public funding idea is really interesting, but it seems like the wrong part of it is getting emphasized[…]

    (I guess the bracketed parentheses are considered stylish)

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  8. TrojanMan06 says:

    Why not work full-time/part-time and program video games in your spare time, until you build up a reputation for yourself? I would imagine this would be the lowest-risk method to do what you love and not kill yourself financially. Also, if you end up producing good quality products, maybe the right person will notice, and hire you full time developing video games with a team. Or even network yourself and build a team of your own with a common goal. Just be as optimistic as possible about it. Many people don’t get to do what they love, as that can drastically differ from what we excel at, however, with a little dedication and hard work you might surprise yourself.

    Just keep at it and see where life takes you.

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  10. Jeff says:

    @TrojanMan06 That’s excellent advice for someone who is looking to break into the industry, but not necessarily for someone already in the industry (like me) who wants to break away and do something indie it’s a bit more difficult.

    Contracting *is* a way to keep any company alive between games, and most indie devs I know do that when times are tough (read the Introversion post).

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  12. Ed says:

    One correction to the premise. As a single developer, you’re not getting taxed twice. Set up your business as an LLC and your tax return and the business’s get combined into one. You write off all the business expenses (including money paid to other team members), and your incoming / business profit get lumped into one and taxed once.

    If you set up as a C or S corporation, you do get taxed both on your income and on the profit of the business (note: profit, not income). The money is still only getting taxed once. This approach is a little more complicated, but may actually result in less of a tax burden if you manage it right. You’re filling two returns, each of which starts at the bottom tax brackets. By doing this you get more money taxed at the lower tax rates. If you keep money in the business and let it get taxed there, then pay it to yourself the next year, you’ll get double taxed, but that’s easily avoidable.

    • Jeff says:

      @Ed Thanks for the correction. I’m not a business mind, and only really have experience working in a S corp and as a contractor, so I’m looking at it from that respect.

      Actually, as I start looking into releasing this game, I may need some help with how to work the financials (specifically, how taxes work for me and the rest of the team considering we’re all going to get percent of either net or gross profit). Would you be available for me to pick your brain on the subject?

  13. wazoo says:

    Excellent post!

    A lot more does need to happen for sales though..such as marketing.

    While these ROI figures are low, are the majority of the Indies sampled actually marketing, or are they making just a few press releases before moving onto the next project?

    The Indies that seem successfull on the PC side of things (such as those reported on ,etc) spend a lot of time and money on marketing..

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  15. Ron says:

    This is a great post and extremely relevant; especially considering all of the indies out there looking to make a living. In my plans to start an indie studio, I’ve also encountered these dilemmas when looking at the numbers. Since, I also have the dream of making a living producing indie games, I’ve developed a plan to do so (warning: not for quick money seekers or the undedicated).

    Since we want to make good indie games, we do not want to be weighed down by investors or debt, so all funding for games will need to come from the games themselves. Investors tend to demand profits and guarantees which tend to limit games. Debt is similarly restricting, as it sometimes forces strict time lines (i.e. this game needs to done in time to generate money to make loan payments). This also means we will need to keep our day jobs for quite a while.

    We have several ideas for games, some small, some large, and some like Sputnik (HUGE!). Most of the small game ideas are actually coming from the larger games we want to produce. We’ve discovered that we can take small aspects of a larger game and generate a smaller game from it. The beauty of this is that while we have a smaller game to release, much of that game can be re-used in the larger game. Thus we’re actually working on a larger game by releasing smaller games.

    So our basic plan is to release several small games initially (this is good since we still have day jobs; and therefore, available time is limited). The revenue from the games will be re-invested back into the studio, building funds for future games (we don’t need to pay ourselves, since we still have day jobs). Once we’ve built up enough funds, we can quit our day jobs and really concentrate on one of the larger game ideas and may even be able to afford a bit of hired help. Not only will we have the funds available, but during the time we’ve been saving we’ve built up a reputation for the studio.

    Anyways, this post ended up being much longer than I thought and I apologize. I hope this gives some hope and ideas to others.

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  18. fishermen21 says:

    I think contrating is a good way to get started. We plan to work on some cool games (at least three). And they are all not cheap to be done. To get the funding, the equipment, and the experience we decided to do contracting work.
    Here in germany its not that easy, and we are not located in a game-producing hub either. For now, all team members are working at university for their living. All the money from the contracts (and the huge amounts of experience in iPhone dev) helps us to get our ideas rolling and provide us the same time with maybe later needed contacts to designers and marketing people..

  19. Ron says:

    @fishermen21 I’ve considered the contracting route in starting up my studio and after reading James Portnow’s opinion piece, How To Tackle Work For Hire
    , I decided contracting was not in the best interest of my studio. Maybe you’ve already considered the issues mentioned in the article, but if not I strongly urge anyone thinking about contracting to read this article.

  20. fishermen21 says:

    @Ron Yes, the article mentions a lot of the problems we faith. A few months ago, we had the problem, that out team and the company where nearly breaking up, because we lost our focus entirely. However, we talked about it, changed the team structure, because we need some sort of funding. No one in the team currently has the ability to fund a complete game development and we have no name in the cumminty, nor references, we can build on.
    The worst thing while doing contract work is, that we are not able to present us, because the contracts forbid us to reference done projects.
    However, I think, we are now on our way and we will eventually start working on our first own title in the next weeks, using all the money we got through contract work.

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  22. Koen Witters says:

    You should also check out my article on how much money your first game can make. It also hints on how to survive as an indie game developer, but it takes a lot of time and dedication.

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  25. Susan says:

    I recently came across your blog and have been reading along. I thought I would leave my first comment. I don’t know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


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  27. Luke Mildenhall-Ward says:

    I’m a bit late to the party but I thought I’d make an observation regarding your comments on fan-investment in a game. Your biggest issue was investors getting back any of their investment, however (and maybe this has been said before,) as this is the game industry and assumedly the investors will be gamers, can’t their return on investment be a copy of the game on release day?

    This is attractive to fans, as they can feel they’re supporting their favorite developer, and also contributing to a game idea that they really like. In return, the developer could bestow investors gold access to a website with development updates on the game, allowing investors to share ideas and become excited on the forums. And ultimately the investors will see their investment back in the form of a pre-release copy of the game.

    This will be even more attractive to developers. You you can simplify things by setting the investment rate at the cost of a copy of the game, you don’t need to pay back any profits to the investors, or even any of their original investment money. It could essentially be pre-ordering a game.

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