A few people have pointed out that we decided not to post a detailed budget breakdown for our Kickstarter campaign. We made this decision in part because we believe that the extensive free demo gives ample evidence that we know what we’re doing. But there’s another reason why we didn't post it -- indie game budgets aren't really straightforward and there can be a ton of hidden, bloated, or arbitrary costs. Allow me to illustrate with a brutally honest look into the ledgers of Lazy 8 Studios. To really understand all the ups and downs, let’s peer back a few years back in our studio history.
I started Lazy 8 Studios with $35,000 that I’d saved up while working at another company. It wasn't much, but I quickly managed to find some contracting gigs working on Frontlines: Fuel of War, Xotic, The Daring Game for Girls, and, quite a bit later, Bioshock Infinite: Industrial Revolution.
This part-time work gave me enough money to bring on board an artist and finish the studio’s first game, Cogs, which I’d been designing in my spare time for several years. When Cogs launched in 2009, it wasn't an instant success, but we spent the next year building an audience, applying to festivals, and porting to new platforms. Looking back, that was time well spent and Cogs eventually managed to gross close to a $1 million.
Just to be clear, I was never a millionaire. I pay royalties to my artist, I pay taxes, I have living and studio expenses, and as Cogs rose in popularity, I started building a team to work on Extrasolar. My net worth topped out at $438,000 in July of 2012. I was ecstatic. That’s not enough money to grow a huge team but as long as we could keep our costs under control, it was enough that we could afford to fail once.
That freedom is huge. It let me and my team take risks that we otherwise would never consider sane. From the beginning, we knew that Extrasolar would require us to get past crazy technical hurdles like cloud-based rendering, tough business constraints like storing huge amounts of player data, and challenging marketing problems like attracting an audience for a very unusual experience.
But boy was it fun! Extrasolar has been a dream project for me and everyone on the team.
So, what was the budget for season 1? The question seems straightforward, but it can actually be tough to answer. To explain, let me break down the budget into three different segments: Incontrovertible expenses, studio overhead, and founder salary.
The incontrovertible expenses are things like the wages paid to employees who are working exclusively on your project, marketing costs, server allocation, and festival travel. For Extrasolar, this comes to about $400,000 with the vast majority of that going directly to the people who write the code, make the art, and tell the story. In our case, all of these people are part-time employees who spread their time across multiple projects of their own and with other companies.
Studio expenses include things like office space, software licensing, meals for the team, or wages that go to people who don’t directly work on the project. You've probably heard of the term “Hollywood accounting.” A lot of Hollywood movies promise a royalty stream to some of the production team. To minimize their payout, they’re notorious for liberally including every possible studio expense in a movie budget.
Thankfully, Lazy 8 operates out of a home office, so our studio expenses are fairly low. But they add up over time. For instance, I spend about $7000 a year on meals for the team. (If Google can do it, so can I!)
For many indie teams, the founder salary is where the numbers get really weird. For big studios, the corporation is a completely separate financial entity from the founders. But as with many small studios, Lazy 8 is organized as a sole proprietor LLC. The means that as far as the US government concerned, Lazy 8 is a “pass-through entity” and there is no line between my money and the company’s money.
To help with accounting, I shift money between a company account and a personal account, paying myself a somewhat arbitrary salary of $90,000 per year -- a solid wage, but quite a bit less than I’d make in one of the Bay Area tech companies. When you consider taxes, this gets more complicated. In years where Lazy 8 has done exceptionally well, my entire annual “salary” wouldn't be enough to cover our tax burden. So I pay taxes out of the company’s account. This means that the $90,000 actually goes quite a bit further.
So, where are we now? The money left in our company coffers is down to $37,000 -- not nearly enough to fund season 2. For season 1, video production alone cost $30,000. At our current burn rate, we have enough to last about 3 more months
If I include the founder salary and studio expenses in the Extrasolar production budget, then it jumps from $400,000 to $800,000. Neither budget is more correct than the other. It’s just a matter of perspective.
For those who have been paying close attention to the numbers, you may think that we should be very, very broke right now. The reason we’re not is that revenue from Cogs and our last consulting gig have continued to trickle in over time, including some big paydays like when we were in our first Humble Bundle and when we got paid for our last consulting gig.
The amount we're asking for in our Kickstarter campaign isn't enough to fund season 2 entirely -- but if we combine that with what we have left in the company accounts, then it's just enough to get it done. Almost all of that money will go directly to the programmers, artists, and actors who will be creating the story.
As a reminder, the salary I picked for myself is somewhat arbitrary. I pay myself mostly so that I can look at the accounts and see when the company is in trouble. I always reserve the option to stop paying myself and lend money from my personal account back into the corporate account, which is what I’ll be forced to do in a few months. It’s a clear warning sign, but it’s not the end of the world. It forces me to ask myself, “is this project worth supporting?”
So how much longer can Lazy 8 Studios sustain itself without a cash infusion? The easiest way to measure is to simply divide the remaining cash by the monthly change in our net worth. If we don't meet our Kickstarter goal and I lend most of the money from my personal account back to the studio, not touching my retirement account and saving just enough money to hunt for a new job if that should become necessary, that takes us to early summer of 2015. This might, theoretically, give us enough time to launch the new content, but it would leave nothing at all for marketing or running our server infrastructure and we would very likely be forced to fold.
If our Kickstarter is successful, it will extend the runway until autumn of 2015 -- plenty of time to launch and promote the new season. It will also give us the extra capital we need to boost our video production quality and run our cloud servers.
There are quite a few things that an indie team can do to give themselves more time before a studio is forced to close. You can downsize the team to save money, take on consulting work, or look for outside investment. We’re obviously hoping that a Kickstarter campaign can help, but if it fails, it’s not the end of the world. In fact, even in the absolute worst case scenario where the company can’t find any financial solutions before the money runs out, we have a bunch of talented folks who won’t have any trouble finding a new job.
Realistically, if we don’t hit our Kickstarter goal, I still believe we have enough time to find some sort of solution. Extrasolar has some stellar numbers that should help attract private investors -- but it sure would be nice if our fans could fill that gap instead.
As I proofread the post, I’m starting to realize that the things I didn't mention in the “Extending the Runway” section are just as important as the things I did mention. Personally, I believe that if you can’t afford to pay an employee, you need to let them go and help them find another awesome job. But for heaven’s sake, don’t ask them to work for free. I don’t care how much they enjoy the project. They may be willing to work for sweat equity but I've seen so many cases where this ends poorly.
Likewise, as an employee, don’t accept not being paid. I don’t care how much you love your boss or the project you’re working on. I don’t care that neither you nor your boss feels like you’re being taken advantage of. You owe it to yourself to move on -- you’re worth a paycheck.