How to Start a Video Game Company

The US is home to millions of gamers, blasting away everyday on top titles like Assassin’s Creed, Grand Theft Auto, Minecraft and Animal Crossing. Video games are booming and will soon be a $300 billion global industry. If you love gaming and have programming experience, you could start your own video game company, give gamers endless hours of fun and grab a sliver of that massive market. Who knows, you might even grow into the next Activision Blizzard or Epic Games. 

Getting there will take a lot of hard work and a good deal of business knowledge. This step-by-step guide can’t help you with the first part, but it does provide all the insight and information you’ll need to develop and launch your own successful video game company.

Step 1: Decide if the Business Is Right for You

Pros and cons

Starting a video game company has pros and cons to consider before deciding if it’s right for you. 

Video game industry trends

Industry size and growth

• Industry size and past growth – The US video game industry is worth $95.4 billion and has seen strong 13% annual growth for five years.((https://www.ibisworld.com/industry-statistics/market-size/video-games-united-states/)) 
• Growth forecast – The global video game market is projected to expand an impressive 80% by 2027, reaching $315 billion.((https://www.mordorintelligence.com/industry-reports/global-gaming-market)) 
• Number of businesses – In 2022, more than 55,000 video game companies are operating in the US.((https://www.ibisworld.com/industry-statistics/number-of-businesses/video-games-united-states/))
• Number of people employed – In 2022, the video games industry employed 298,077 people in the US.((https://www.ibisworld.com/industry-statistics/employment/video-games-united-states/))

Trends and challenges

Trends in the video games industry include:

• Cloud gaming and streaming are growing fast, and most games today are downloaded or accessed online rather than distributed in physical form. About half of games are “PC games” instead of “console games”, but even Nintendo Switch games are downloaded rather than physically purchased. 
• Steam, a platform to play games online, is another new and popular option for gamers who are moving away from console gaming.
• Mobile gaming has exploded in recent years, accounting for about half of all gaming revenue in 2020. 

Challenges in the video games industry include:

• Fears about the impact violent games have on children persist. There have been many studies on the topic with mixed results, and other studies have shown that gaming leads to isolation and poor academic performance. 
• With over a million games already in existence, coming up with brilliant new game ideas gets more difficult every day. 

Demand hotspots

• Most popular states – The most popular states for game developers are Oregon, Washington, and Massachusetts.((https://www.zippia.com/game-developer-jobs/best-states/#texas))
• Least popular states – The least popular states for game developers are Oklahoma, Hawaii, and Iowa.

What kind of people work in Video Games?

• Gender – 24% of video game developers are female, while 76% are male.((https://www.zippia.com/video-game-developer-jobs/demographics/))
• Average level of education – The average video game developer has a bachelor’s degree.
• Average age – The average video game developer in the US is 43.2 years old.

How much does it cost to start a video game business?

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.

How much can you earn from a video game business?

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.

What barriers to entry are there?

There are a few barriers to entry for a video game company. Your biggest challenges will be:

• Extensive skills are required to make video games
• Finding the best game development software

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Step 2: Hone Your Idea

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.

Why? Identify an opportunity

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.

What? Determine your products or services

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.

How much should you charge for video games?

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.

Who? Identify your target 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.

Where? Choose your business premises

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:

• Central location accessible via public transport
• Ventilated and spacious, with good natural light
• Flexible lease that can be extended as your business grows
• Ready-to-use space with no major renovations or repairs needed

Step 3: Brainstorm a Video Game Company Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better 
• Name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “video games” or “games”, boosts SEO
• Name should allow for expansion, for ex: “Arcadia Entertainment” over “eSports Interactive Games”
• Avoid location-based names that might hinder future expansion
• Use online tools like the Step by Step Business Name Generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

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. 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.

Step 4: Create a Video Game Company Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

• Executive Summary: Present a concise overview of your video game company, emphasizing its focus on developing engaging, innovative games for various platforms.
• Business Overview: Describe your company’s specialization in video game development, including genres, platforms (like PC, consoles, or mobile), and player experiences.
• Product and Services: Detail the types of games you plan to develop, such as action, strategy, or educational games, and additional services like game updates or community management.
• Market Analysis: Assess the current video game market, identifying trends, target demographics, and consumer preferences in gaming.
• Competitive Analysis: Compare your games and development approach to other gaming companies, focusing on what sets your games apart, like unique gameplay mechanics, storylines, or graphics.
• Sales and Marketing: Outline your strategy for marketing and selling your games, including digital distribution channels, partnerships with publishers, or participation in gaming conventions.
• Management Team: Highlight the qualifications and experience of your team, especially in game development, design, and project management.
• Operations Plan: Describe the game development process, from concept and design to coding, testing, and release.
• Financial Plan: Provide an overview of financial aspects, including development costs, revenue models (like sales or subscriptions), and funding strategies.
• Appendix: Include supplementary documents such as game design documents, market research data, or partnership agreements to support your 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.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!

Choose where to register your company

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.

Choose your business structure

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:

• Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
• C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
• S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

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. 

Form Your LLC

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Step 6: Register for Taxes

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.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Venture capital: Venture capital investors take an ownership stake in exchange for funds, so keep in mind that you’d be sacrificing some control over your business. This is generally only available for businesses with high growth potential.
• Angel investors: Reach out to your entire network in search of people interested in investing in early-stage startups in exchange for a stake. Established angel investors are always looking for good opportunities. 
• Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal: Self-fund your business via your savings or the sale of property or other assets.

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.

Step 8: Apply for Video Game Company Licenses and Permits

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.

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.

Step 9: Open a Business Bank Account

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.

Step 10: Get Business Insurance

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:

• General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business Property: Provides coverage for your equipment and supplies.
• Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation: Provides compensation to employees injured on the job.
• Property: Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto: Protection for your company-owned vehicle.
• Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business.

Essential software and tools

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.

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero. 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial. 

Develop your website

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.

Marketing

Here are some powerful marketing strategies for your future business:

1. Engage Influencers: Leverage the power of social media influencers to showcase your game. Collaborate with gaming influencers and streamers to create buzz, generate excitement, and reach a wider audience.
2. Interactive Demos and Beta Testing: Offer interactive demos and beta testing opportunities to build anticipation and gather feedback. This not only involves the gaming community but also creates a sense of exclusivity and involvement.
3. Strategic Partnerships: Form partnerships with other businesses in the gaming industry, such as hardware manufacturers, gaming accessory companies, or even esports organizations. Cross-promotions can significantly broaden your game’s reach.
4. Community Building: Foster a strong online community around your game. Utilize forums, social media groups, and Discord channels to connect players, share updates, and create a loyal fan base that becomes your game’s advocate.
5. Storytelling and Content Creation: Craft compelling stories around your game and its development. Share behind-the-scenes content, developer diaries, and engaging narratives to create a deeper connection with your audience.
6. Participate in Gaming Events: Attend and showcase your game at gaming conventions, conferences, and events. This provides an excellent platform to interact with potential players, receive real-time feedback, and create a memorable presence.
7. Targeted Advertising: Use targeted advertising on platforms like Google Ads and social media to reach specific demographics interested in your game genre. Tailor your ad content to highlight unique features and gameplay experiences.
8. In-Game Events and Challenges: Create in-game events and challenges to keep players engaged. Encourage user-generated content, share highlights on social media, and reward participants to enhance community involvement.
9. Localized Marketing: Tailor your marketing efforts to specific regions and cultural preferences. Localized campaigns, translations, and understanding regional gaming trends can make your game more appealing to diverse audiences.
10. Leverage User Reviews: Encourage players to leave reviews and testimonials. Positive user reviews act as powerful endorsements, influencing potential players and building trust in the gaming community.

Focus on USPs

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:

• Our sports games will make you the MVP
• You’ve never seen game graphics like this 
• The best games for gamer girls! 

Networking

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.

Step 12: Build Your Team

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:

• Designers – video game design
• Developers – develop the game technology
• General Manager – staff management, accounting
• Marketing Lead – SEO strategies, social media

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.

Step 13: Run a Video Game Company – Start Making Money!

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!