How Much Does It Cost To Develop A Video Game?

[10.19.17]

By Michael Hoss

Recently there was a discussion over at Kotaku where the author explained what it roughly costs to develop a video game. In said article, the author said that video games are expensive to produce, because every person costs a development studio roughly 10,000 American dollars ($) per month.



What happened next was inevitable. Suddenly, people were yelling that game devs could be more efficient (which I'd agree on at some point for sure) and that developers earn way too much. There have been other comments too, also from fellow industry veterans, explaining the numbers a bit more. That was needed as the article itself just stated numbers, no further information how the numbers are calculated.



This led to a toxic situation: People just saw the numbers and did not have the needed context to interpret these numbers. And within hours the whole discussion was not really helpful anymore, as everyone commented everywhere and on everything - just not based on facts. So, lets clear this up. Let us talk facts today. Today, I'd like to explain things a bit. And why these numbers make sense and why this is not about efficiency.



But wait: Are the numbers right at all? Yes. And no. They are right. And they are wrong. At the very same time. Wait? What? Alright. What does a game cost? It depends on a lot of factors.







First of all: Yes, $10,000 sounds like a realistic number. In some areas. Which brings us to a super important factor. The location. Where is the studio located? Is it located in the United States? In that case the number is quite realistic. Here, in Germany, people usually do the math with around 5.000 Euro, which roughly translates into $6,000. In Eastern Europe it is less. In China as well. It really depends on where a studio is located. Also: Not each studio (or every publisher) pays equally. For some studios in the States it might be $9,000 per Man Month. For some it might be $12,000.



But okay, still, developers earn bags of money, don't they? I mean, they must be swimming in cash each morning before they go to work, right? Wrong. Sadly that's not the case. Honestly, hardly anyone gets rich in the industry. Of course, there are people who get rich. But believe me: Most don't and never will. Not everyone has the luck to produce the next Flappy Bird. They don't get $60,000 per year.



Wait? They don't? Yep. They don't. The numbers which are currently in the discussion are not the salary of an employee but the cost factor the studio has per employee. That includes licenses for programs (Photoshop anyone?), rent for space (and you usually need to have a good location, cause employees are happier if they can actually get to work easily), the working equipment (which reminds me, my machine could use a new processor), insurances (yep, thieves are real and shit can happen), wage labor costs (damn you taxes, right?) and so on.



I don't know the numbers for the States but in Germany the wage labor costs are around 30 - 40% I think (to be honest here, I haven't double checked that. Since I am not a company myself, I luckily do not have to deal with these things but I know that the costs are quite high and I think it still works as an explanation without knowing the exact numbers). That means: Quite a lot of the money is not used for the employee directly, but to actually employ him or her.



It has to be added that not every employee earns the same. Programmers do not earn the same as Artists do not earn the same as Testers do not earn the same as Designers. All the sums here are not actual numbers but just an average number. And that might not be even based on the games industry only but the society in general. And if it was my Company, I'd also add some kind of buffer on top, to make sure I'd be able to pay the bills even if things got tricky.







In the Kotaku discussion I've also read lots of interesting comments about saving money during development. I found at least one comment which brought me close to a facepalm. The comment was about the QA, the quality assurance. It was suggested to get rid of the QA and use Betatests instead. Honestly? That won't work. Each Closed Alpha, Open Alpha, Closed Beta and Open Beta is usually tested upfront. Believe me if I say you wouldn't enjoy such a build if it wasn't. Getting rid of the quality assurance would not be a good idea.



Also: If you are a Indie and / or work in your spare time and / or from your home, it changes the variables of course.



But the question is, what does a game cost in the end? You can do the math on your own now. The rule is rather easy: Find out how many employees a company has. Do some research on where they are located. Take the average costs per man month of that country into account. You now just have to know how long the game was in development and you get a pretty good idea.



You have to deduct quite a few things, too. Many studios hire certain persons only for a certain amount of time. It is usually called ramp-up and ramp-down. In many cases there is a ramp-up in the first months. This is the time where the people get hired. And at some point there is most likely a peak. This is the time where everyone in the studio is working on the game and where every position is taken.



Getting closer to the end of a development circle, people will (or must) leave the studio as they are not needed anymore (Like, a Concept Artists might not have more stuff to do when the project is coming to an end, right?) if no follow up project is available. On the other side you have to add other things. Like outsourcing costs. Or Voice Overs. Or motion capture stuff. Or... well, you get the point, right?



In addition to this: Add Marketing on top of all that. Budgets vary. I know from a few teams that the budgets for a multimillion dollar production are super small. But that's usually not the case. I know that some people say that 20% of the development budget should be put into marketing as well. Others say 50% while some say 100% on top. Some include the distribution costs in the marketing, too. Some don't. But what can be said: It is not done with development only.



There's one thing to add about the marketing costs: They can, in fact, be much higher. If we're talking about a certain budget, marketing budgets can go crazy. We're talking about way more than 100% of the pure development costs here. And if we're talking about games as a service, things get even more complicated as a constant marketing push has to be done (and also a constant development which continues). Or think about the mobile market: To stay on top here, you have to invest...money. Lots of it. And even if you do, that isn't a guaranteed success.



Phew. Well, you're still awake? Glad to hear that. I know, it is a quite boring topic. But someone does not simply open the discussion without explaining stuff. What did we learn from all this? Well, first of all that $10,000 figure doesn't mean much. It is, and yet it isn't. And while this sounds like a paradox, it is a valid statement.



We also learned that video games can be quite expensive if you want to develop them. At least if you want to hire people who can actually pay their bills with the money they earn from it.



And, most importantly, we learned: We should not throw out numbers just for the sake of throwing them but also add how these numbers have to be looked at.



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