Small Business Profit and Cash Flow
A couple posts by Jeff Vogel, founder of Spiderweb Software, discussing the financial success of his small computer gaming company are quite interesting. They provide a nice view of one successful small businesses’ finances and the customer focus and market awareness needed to succeed.
Geneforge 4 cost about $120K and has made about $117K. Given current sales rates, it should be in the black in at most 2-3 months. After that, everything it earns is pure, tasty profit. And we will sell it in bundles (we sell a Geneforge 4-5 bundle already, and a Geneforge 1-5 CD is coming), making more money. So I don’t regret the time spent writing it at all.
And it gets better. What was my reward for the year spent writing Geneforge 4? It wasn’t just the cash. I also own the game! That means, in ten years or so, I can return to it, give it better graphics and interface, add a bonus 2-3 dungeons, and release it to a new generation of gamers. I’ve done it before, with my games Exile 1-3, Blades of Exile, and Nethergate, and the resulting products, since I didn’t need to write them from scratch, were immensely profitable.
Don’t underestimate the value of owning your own intellectual property.
A lot of people have commented that I should lower the game’s price to $10. The idea that this would increase my profits is, I feel, purest nonsense. Bearing in mind that the percentage cost of credit card processing increases as the price goes down, and, to make the same profits from Geneforge 4, I would have had to triple my sales. Triple! As in, go from a conversation rate of about 1.5% to almost 5%. This is just not realistic.
Or, to put it another way, Geneforge 4 was the game where we raised our prices to $28. Our sales did not go down from Geneforge 3 (which was $25). They went up. A lot. And Avernum 5 ($28) sold a lot more than Avernum 4 ($25).
But I think the most important thing to note is that Geneforge 4, after a few years, is almost in the black, and it continues to sell. In the long run, the time spent on it will be quite profitable. Despite the crude graphics. Despite the high price.
A neat example, I think. he doesn’t specifically talk about cash flow but you can see that the business needs to pay salaries and sales come much later. So you need to have cash to sustain the business (which could be a loan, that then is paid back as sales are made). And then, as you have games that were developed earlier you get sales with very little cost to you in the present time (you paid for the bulk of the effort earlier).