Getting paid by publishers
Congratulations! The prototype you’ve been working on has impressed a publisher and they want to fund your next game. You’ve already thought about your budget and have an idea of how much it’s going to cost to bring your game to market.
You’re not done with the financial work yet, though. You’re going to negotiate when and how much you’re going to be paid during the process.
This is where budgeting and cash flow come together.
No, publishers won’t pay you entire amount up front
As you start to think about your project, it’s important to take all of your costs into consideration. This includes personnel (contractors and employees), office rental, software licenses, and other expenses directly and indirectly related to development of your game.
Putting all of these together will give you the overall budget for the project. The GameDev Business Handbook includes budget samples and template forms (available for public use here). These include a cash flow calculator, so you can determine how much your studio is spending each month.
This is crucial, because publishers won’t pay you everything at the start of your project. You’ll receive disbursements at specific milestones throughout the development cycle.
These often trigger at:
- Execution of the contract
- Completion of the Alpha build
- Completion of the Beta build
- Gold Master/Certification submission
What is a milestone?
Milestones are key points in the development cycle, often denoting a shift in work focus. The total amount of publisher funding is divided amongst the milestones. After the initial payment triggered by contract signing, milestones must be approved by the publisher.
Both timing and amount of each disbursement are determined during contract negotiations. Therefore, it’s important to plan conservatively. Build in extra time to complete each milestone.
If you cut it too close during budgeting, you may find yourself in trouble when milestones are delayed. Additionally, publishers will review milestone submissions to ensure contract compliance. If your build doesn’t line up with what you promised, the publisher has the right to reject the milestone.
In those instances, you’ll need to spend more time meeting your contractual obligations. If you haven’t planned ahead, you could find yourself out of money in the middle of your project.
Milestones are a practical application of cash flow
Cash is the lifeblood of business. Without it, you can’t pay employees and contractors or cover the rent. Without staff and a place to work, your project will grind to a halt.
When budgeting for your project and planning your milestones, it’s crucial to build in buffers. As a rule of thumb, anticipate overages of 20 percent across the board.
If you assume that tasks will take more time and investment, you’ll have multiple safety nets. These can be used when you have unexpected technology problems, milestones are rejected, or design is more ambitious than you realized.
It’s also important to factor in lapse in milestone payments. Publishers typically pay on Net 30 terms (30 days after receipt of invoice). Developers can run short between milestone approval and disbursement. It’s a common, but unavoidable tale.
You might be able to get more money from a publisher, if your relationship is strong. It will come at a cost, though. You may need to renegotiate, and the terms won’t be as favorable as your first agreement.
You can read more about working with publishers in The GameDev Business Handbook (available now in digital format).