Game Finances: Amortization

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What Is Amortization?

This is an accounting term for taking multiple payments over time or spreading a single payment out over a period of time.

Example 1: Taking Multiple Payments

One way you can use amortization to your benefit is to take multiple payments for something. So let’s say you have a yearly upgrade that costs $50. Amortization in this instance means you allow the player to break that payment down into multiple payments. For instance, they might make two payments instead of a single one; $25 for the first 6 months of the upgrade and then another $25 for the last 6 months. With amortization you can brake a payment down into as many smaller payment as you’d like. So instead of taking 2 payments you might decide to take 5 or 6 or 30 — however it best suits your player base and brings you good business. Generally speaking, most people tend to break payments down into no more than 12 just because it makes the accounting practices easier if you have one payment a month. If you broke this $50 upgrade into 12 payments then your players could become an upgraded member for only $4.20 a month.

Why Is Example 1 So Helpful?

Many people are more willing to make smaller payments. This means that even if you don’t get a full year’s upgrade from one member you’re still bringing in income. It also encourages people to try out your upgrade system with a much smaller risk to themselves. If they don’t like the upgrade they’ve only spent half or much less than half the money than if they’d paid for a full year. It also gives them the ability to come and go on their upgrade much more readily than if they had to pay the larger sum each year. They can buy one month and not the other, then come back for the month following that allowing them more flexibility to purchase and keep their upgrade.

What’s The Downside of Example 1?

You may not be bringing in as much money as you like. Because the payments are smaller you also have more online processing fees that are applied, however some payment services will allow you register as a micro-transaction account and will take lower fees since you will be bringing in a higher volume of payments. While payments are likely to happen more frequently they will only be in smaller amounts which may make it seem like your bank account is always struggling to stay at a more comfortable level when you have slower times.

Example 2: Taking One Payment and Spreading It Over a Period of Time

This other example is one that many of you may not know about. It applies the same kind of idea except you only take one payment and you only apply a portion of that payment to your income over a duration. For example, let’s say you got your $50 upgrade and we go back to our 2 payments example. Instead of thinking of that $50 as one payment you apply $25 to this month and then 6 months later you apply the other $25. You may still have the full amount of $50 but you’re not considering it income until a period of time has passed. This idea works best when you break a payment down into bi-annually, quarterly or monthly time periods. So in our second 12 month example, instead of getting $50 for this one payment you apply $4.20 from this payment across every month.

Why Is Example 2 So Helpful?

This is really the icing on the cake and most people don’t realize it! When you take in the one payment and spread it out amongst a period of time it gives you more solid, steady income. Instead of getting $50 one month, and nothing for the next 12 months, you now have a steady stream of income coming in all year long. Generally speaking, with games the upgrade tend to have highs and lows, where people are upgrading a lot and then not upgrading at all. You may get $4,000 in upgrades one month and then nothing or very little for the next two. With this kind of amortization that $4,000 is spread over the rest of the time period. So in our 12 month example you would be bringing in $334 a month instead of $4,000 in one lump sum. This also helps you keep a steady income for the entire year instead of getting less reliable income over the duration of the year, even if the overall total for whatever time period you’re shooting for is lower than what you bring in for a month. It’s great for budgeting and paying your bills and helping you keep your game open even in slower months.

What’s The Downside of Example 1?

This example takes discipline!! It’s a much different way of thinking about the income you’re bringing in because the balance in your bank account may reflect one thing while your calculations reflect another. It is very tempting to just look at your total balance and think I have $4,000 rather than I only have $334 to spend this month. It also requires some math to keep track of how much money you are amortizing over time whereas Example 1 is easier to keep track of because you immediately account for the money from each payment you get.

What do you think about amortization? Do or have you used it? Which type of amortization do you prefer?

I would love to hear your thoughts, comments, questions and experiences!

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The Game Plan: Getting Started

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Your game design can run fairly smoothly or it can be a continuous cesspool of hardships and setbacks and pain points. In the next few series of posts I’m going to try and help walk you through the process of getting your game up and off the ground, from what you’re envisioning in your head to an actual working version. So, let’s get started.

1. Get It Out Of Your Head

It’s time you pull out a pencil, pen, or open your laptop to a writing program. First thing’s first, you have to get your game out of your head. Write it down and put it somewhere you can reference it later.

2. Writer’s Block

So if you’ve opened a text editor or you have a pen in your hand you’ve successfully completed step one. Now, what do you write? I like to start with the five W’s:

Whom?

  • Does your game appeal to a specific age range or interest group or gender or even ethnic background?
  • Will you have a large audience your game will appeal to or a small audience?
  • What are the benefits and downsides of the audience you’ve identified?

What?

  • What kind of game are you trying to make?
  • What programming language best suits this kind of game?
  • Does it fit into a specific genre of game or does it span multiple genres?
  • Does it embody a completely new genre?
  • Can you find other games that are similar to the game you are trying to make? If so, what do these games do well and where do fall short?
  • Are there lots of other games on the market similar to the type of game you’re trying to make?
  • What will your charge for your game?
  • What do other, similar games of this type charge?
  • What are the benefits and downsides of the type of game you’re trying to make?

Where?

  • Where does your game take place?
  • What kind of maps or features or environment are unique to your game?
  • What are the benefits and downsides of where your game takes place?

When?

  • When will you have time to work on this game?
  • When can you start this game?
  • When can you fund the development of this game?
  • What are the benefits and downsides of developing this game?

Why?

  • Why are you making this game?
  • Why is your game unique?
  • Why will your game stand out from the crowd?
  • Why will people choose to play your game over other similar games?
  • Why will people pay for your game?
  • What are the benefits and downsides of making this game?

3. Make A Design Document

Your design document is a refined version of everything you’ve written down in step 2. Go back and really analyze what your goals for the game are and if what you’ve written down makes sense in the larger picture. Sometimes a good idea you have for one area of the game will conflict or make another part of the game tedious, uninspired or downright frustrating. For a game design document I like to use the following format:

  1. Intro
    • What is the vision for your game and a short description of how the game is played
  2. Audience, Platform & Marketing Strategies
    • Who the game is for, what platforms you’re making it for and what sets your game apart that will make it marketable and different from others
  3. Core Gameplay & Mechanics
    • How the game is played including physics, rules and limitations
  4. Characters
    • What characters are in your game including what they look like, their names and backgrounds and personalities
  5. Story, Themes & Twists
    • If your game has an overarching story then you’ll outline your plot and how the game progresses with the story line
  6. World
    • Describe the world your game is set in, including maps and locations and their purpose or importance
  7. Assets
    • All the different images, music, animations, etc that you will need to have a fully functional game
  8. Technical Specs
    • What language you’re using, how games are loaded/saved, where games are stored, the number of servers you’ll need and anything else relating to the technical setup of your game
  9. Interface
    • What the game interface looks like and how the player will interact with it
  10. Outside References
    • Articles, links, design inspriations, or anything else that you’re using as a reference for the game you’re making
  11. Appendix
    • Code style guidelines, dictionary of terms, and anything else that is important for understanding your design document that may not necessarily relate to your game directly

Once you’ve fully fleshed out your game design by going into depth about the features, physics, economy, weapons, characters and how the game works it’s time to break it down. Start by creating lots of of small, easy tasks you can accomplish in order to see your core game mechanics to completion enough that you could play a simple version of your game without any extra bells and whistles. Set yourself up to do as little as you have to but as much as you need to in order to get a really simplified, yet completed, version of your game.