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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on March 4, 2022
Investment range
$6,550 - $12,100
Revenue potential
$60,000 - $290,000 p.a.
Time to build
3 – 6 months
Profit potential
$53,000 - $88,000 p.a.
Industry trend
Growing
Commitment
Flexible
Essential points to keep in mind for a video game venture:
Starting a video game company has pros and cons to consider before deciding if it’s right for you.
Trends in the video games industry include:
Challenges in the video games industry include:
Startup costs for a video game company range from $6,500 to about $12,000. Costs include a high-powered computer and game development software.
You can earn a bachelor’s degree in game development online from schools like Southern New Hampshire University. Of course, that will take several years and cost thousands of dollars. You can also take inexpensive courses on sites like Udemy and Coursera. Most courses cost less than $50 and often are self study. You could probably take several courses for a few hundred dollars and finish in less than six months.
If you want to protect the intellectual property of your games by getting a patent, each patent will cost you about $25,000.
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $150 - $200 | $175 |
| Business licenses and permits | $100 - $300 | $200 |
| Insurance | $100-$300 | $200 |
| Business cards and brochures | $200 - $300 | $250 |
| Website setup | $1,000 - $3,000 | $2,000 |
| High powered computer | $3,000 - $5,000 | $4,000 |
| Game development software | $2,000 - $3,000 | $2,500 |
| Total | $6,550 - $12,100 | $9,325 |
The average price of a video game is about $50, and the profit margin on actual physically purchased games is about 40%. If you create games to be digitally downloaded, your profit margin will be 90%.
You might, however, want to consider starting with an online game costing about $4, with a profit margin of 90%. Your only costs to develop the game are your time after the cost of the software that you purchase.
In your first year or two, you could work from home and have 40 players a day, bringing in nearly $60,000 in annual revenue. This would mean almost $53,000 in profit, assuming that 90% margin. As your brand gains recognition, you could build more games and have 200 players a day. At this stage, you’d probably rent out an office and hire staff, including game designers, reducing your profit margin to 30%. Still, with annual revenue of more than $290,000, you’d make a tidy profit of $88,000.
There are a few barriers to entry for a video game company. Your biggest challenges will be:
Now that you know what’s involved in starting a video game company, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Research video game companies online to examine their products, price points, and customer reviews, as well as what sells best. You’re looking for a market gap to fill. For instance, maybe the market is missing a video game company that targets women.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as sports video games, mobile games, or puzzle games.
This could jumpstart your word-of-mouth marketing and attract clients right away.
You may want to start by offering a free game, or at least a game with a free trial. You also need to decide the format of the games you want to develop – PC, mobile, or downloadable to a console. You also need to decide what genre of games to develop – sports, action, zombie games. The options are endless.
The average price of an online video game is $3 to $4. You should aim for a profit margin of about 90%.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Your target market will be gamers of all ages. You can find younger game players on TikTok and Instagram, and older gamers on Facebook. But the best way to reach out to gamers is probably on online discussion platforms like Steam’s discussion board.
In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office. Find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
Here are some ideas for brainstorming your business name:
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool below. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart.
Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to video game companies.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your video game company will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best option, other than friends and family, for funding a video game business. You might also try crowdfunding if you have an innovative concept.
At some point, if your company is poised for high growth, you may be able to attract venture capital or angel investors.
Starting a video game business requires obtaining a number of licenses and permits from local, state, and federal governments.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your video game business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use game development software, such as Unreal Engine, BuildBox, or GameMaker Studio, to develop your games.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Here are some powerful marketing strategies for your future business:
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your video game company meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your video game business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a video game business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in video games for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in video games. You’ll probably generate new customers or find companies with which you could establish a partnership.
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a video game business include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Video games are exploding, so if you’re a gamer with some programming experience, now is the perfect time to open your own game shop and ride the wave. You could start from home, launch with a free game, and build some buzz before going big.
Now that you know what to do, it’s time to start designing games and begin your entrepreneurial journey to success!
Video games can be incredibly profitable, but the key is creating a hit game that stands out from the crowd and goes viral.
Starting a video game company can be challenging due to the highly competitive and rapidly evolving nature of the industry. It requires a significant investment in resources, including talent, technology, and funding, and a clear understanding of the market demand and trends.
Yes, it is possible to publish a game without a company, especially with the advent of digital distribution platforms such as Steam, App Store, or Google Play. However, forming a company can provide benefits such as liability protection, access to funding and resources, and the ability to establish a brand identity and reputation.
The duration of video game copyright varies depending on the country and the type of copyright protection. In the United States, video games are typically protected by copyright for 70 years after the death of the author or the last surviving author in the case of multiple creators.
The process of designing and developing a video game can involve several stages, including concept ideation, prototyping, pre-production, production, testing, and release. It typically involves a multidisciplinary team of professionals, such as game designers, programmers, artists, musicians, writers, and testers, who collaborate to create a compelling and engaging gaming experience.
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