I’ve recently bumped into a very interesting and thought-provoking discussion in one of my LinkedIn groups. One former military man  asked other group members how much it would cost him and his partners to launch a game development studio in the United States including everything from employee salaries to paying utility bills. The question caused a heated discussion and here’s my round-up of it.

In the United States, rough cost of setting up and running an MMO games dev studio for 12 months is almost $618,000 including federal withholding, social security, insurance and state tax and excluding variable costs such as Internet, electricity, heat, etc. This cost is comprised of the following items:

  • 8 people (1 front-end and 1 back-end programmers, 1 software engineer, 1 2D/3D artist, 1 game designer, 1 PM / team lead, 1 QA engineer, 1 systems administrator, all middle guys) – on average $73,000 gross per person per year = app. $584,000
  • Workstations (basic furniture, PCs, monitors) – app. $1,200 per person (*8) = $9,600
  • Office space rent for 12 months (nothing fancy) – app. $24,000

Don’t forget to include 5% to 10% overhead on top of each person’s salary (this overhead includes office utilities costs depending on state and location) and consider other tiny things that cost money when developing your budget. The above costs are still pretty rough, but they do provide you with a general picture of how much the endeavor will cost you in the United States.

Also, according to the discussion, it is critical to keep an eye on the team costs after the game has been launched. It’s silly to estimate the game project in the following way: development takes X months, we burn Y per month, so we need X*Y in total. In reality, you may need twice as much time to promote the game, create a functional support service and fix post-release bugs. Once done, you will need to upgrade your product, add some new features, improve functionality or design, etc. This should be done on a regular basis. Once you stop doing it, your game will die. Things such as promotion or support should better be outsourced to digital PR agencies and call center providers, but most of technical things will have to remain in-house. As you see, starting and running an own game dev studio can be very time consuming and expensive. And what if the game fails to capture players just because you’ve initially targeted the wrong audience? There’re lots of risks related to it, aren’t they?

Some gaming experts agreed in the discussion that the perfect scenario for running a games dev studio would be to keep a small core team in-house to deal with creative part, game specs and briefs, manage feedback and oversee the process, while outsourcing development and promotion assets.

Setting up a remote Agile team in a lower-cost location can be a very effective measure to address strategic long-term requirements of your games studio. A Dedicated Development Team model is able to save you up to 60% of game development and related costs in a long run. When you choose a Salary Plus Management Fee pricing, you get a fully transparent IT staffing venture and a fully predictable game development budget. You basically pay each member’s salary on your dedicated team and a provider’s management fee that covers all of the services provided (e.g., search for candidates, cost of workstation, overhead, etc). You fully forget about HR, administrative and infrastructure bustle and focus 100% of your efforts on project management.

Here’s a rough estimate of how much it’ll cost you to run the same 8-persons game development team in Ukraine:

  • 8 people (salary + management fee) – on average $20,000 + $22,000 per person  = $352,000 per annum (including all taxes and overheads!)

That’s it! The money you save can go to your game promotion budgets or you can easily add more specialists to your in-house or dedicated development teams to boost the effort.

Also remember that in countries like Ukraine you’re able to get senior level professionals to work on your game that you can’t really afford in the United States or Western Europe, especially if your brand is not yet known to the broad audience. On average, it takes 2 to 3 years to develop one big name hardcore title and for this you’ll need 200-300 people on staff. When you use offsite dedicated teams, you’re able to scale up according to your current business needs and significantly shorten your time to market. Global game dev giants such as Playtech and Bigfish already have fully operational game development setups in Ukraine counting more than 200 people each. It looks like proper use of offshore IT staffing plays a pivotal role in their overall success, doesn’t it?