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Why some Indies (we) can't afford to earn money from crowdfunding

by Logen Keri on 04/30/21 11:26:00 am

The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.

 

On paper, crowdfunding sounds like the greatest opportunity one can have to achieve their goals, and find people willing to go along for the ride. However, the harsh reality is, that it's not for everyone, and in fact, is a highly impossible choice for a good chunk of people.

Whenever there's news about a successful Kickstarter campaign, the majority only ever sees the final number: 'Oh wow, That Game made $80,000, surely they can easily make something good now'. What they tend to forget, is that it's not the final 'budget' one has to their discretion.

Taxes, fees, rewards fulfillment, a lot of it disappears into a void that has nothing to do with working on the actual product itself. While some projects do create a pie chart with an overall breakdown, it's mostly just scratching the surface, and generally things lead to a confusion on why 'things cost as much as they do'.

Firstly, let's talk about the elephant in the room: Startup Indies don't have any money. If they do, they either had a really lucrative job, took a loan, or are privileged. While Grants do exist, they're hard to get, and it's unlikely that someone just thinking about starting a business will manage to get a hold of such. So on average, Indies are hobbyists with day jobs, welfare recipients, or individuals supported by their families. If you have a proper business up and running, you're already a success story, because-


Running a business costs money.

As obvious as this is, yet again, we just tend to forget that a corporation does not just wish itself into existence, it needs resources to be established, and even more of it to continue its existence.

Now here comes the punchline: If you want to make a game full time, you need money. If you want money, you can turn to crowdfunding. But if you want to crowdfund for a legitimate product, you will inevitably need a company around it. And what did we just say about owning a business? You need money. So in short: no money = no business = no crowdfunding.

This, however, is also heavily affected by where you live. Each country has their own laws, regulations, and methodology when it comes to such, so it doesn't necessarily mean that everyone has it as bad as the above, but some do have it worse than others.

In our case, with our game, it's quite possibly almost an impossible task to even attempt a crowdfunding campaign. Let's look at some numbers, and just for the sake of simplicity, let's say the budget for our game is $10,000.

First, we need a company. On average, for a generic .LTD, we'd need at least $10,000 in assets. We can already see that this is not an option, as if we'd have $10,000, we wouldn't need to ask for $10,000. For reference, the minimum monthly wage, after taxes, is about $375. Before taxes, with universal healthcare contribution, and misc things, these non-voluntary added costs, bring it up to about double of that, which the company has to pay out after a single employee. On top of this, come business costs, generic and corporate taxes, that have to be paid, no matter if your company is making any money yet. Meaning, that the $10,000 company asset, disappears rather quickly, even with minimum wage.

Okay, so do we have any other options? Well, luckily for us, there's sole proprietorship, that's more affordable. Not going into excruciatingly miniscule details, you can establish one of such without any assets, with roughly $200 in monthly fees. The catch is, in one calendar year, you can only earn up to about $40,400. If the amount goes over this, 72% of anything you earn beyond that,  is subject to 40% extra 'punishment' tax.

Things are getting complicated, but that's not the end of it. The exact same principle applies, if in a single calendar year, you earn about $10.000. from the same company.

But wait, in this example, we only need $10.000. anyway, so it should be fine?

Well, no.

We established that the budget needed for the game is $10,000. Which means, we need that exact amount. But in order to earn that, there's actually quite a bit of more we need.

Firstly, let's take Kickstarter as an example. If your campaign is a success, Kickstarter itself takes 5%, and the payment processor takes anywhere in between from 3-5%. Again, let's go with the worst scenario here, you lose 10% of your campaign money, so you need to increase the amount you're aiming for.

Secondly, crowdfunding, in legal terms, is not exactly charity. If you ask for 10$ and don't offer anything in return, it is. But if you give out a copy of your game for 10$, it's considered a transaction of goods, meaning that in the case of let's say a European, it's subject to VAT. That's where things get increasingly complicated, but, for the sake of simplicity, let's say that's 20% for now, and you provide a copy of your game, for each 10$ you get.


Let's recap:

Crowdfunding goal: $10,000.

Kickstarter and processing fees: 10%

VAT: 20%

 

We can see that no matter what, we'll have to increase our goal. But hold on a minute, how do we actually do that? Frankly, that's a good question, as again, legality wise, things are getting more and more complicated, and less obvious.

Remember that $10.000. dollar cap from above? Surely, that doesn't apply in our case, right?

Wrong.

While we may be dealing with individuals, our crowdfunding is going through Kickstarter, who in this case is an intermediary. Since we are getting our money from them, and not directly from the people funding the campaign, it's treated as something that falls directly within that cap. Which means that our Campaign Goal, has yet again, needs to be increased to accommodate for the loss.

I'm going to botch the final numbers a bit, and round them up, but in order to get $10.000. we need to actually set our goal at $15.000. That's a 50% increase from our initial goal. Quite ridiculous, isn't it? And this applies the same way to bigger budgets as well.

This isn't the worst part yet, because we're forgetting one more important thing.


Rewards.

The biggest catch of a Crowdfunding Campaign is earning exclusive items, and physical goods. It's been proven to help fund a game multiple times, so it's highly likely that we'll end up doing something too.

But that's the thing, those cost money to produce, and ship, so we'll end up increasing our Crowdfunding Goal, yet again, to compensate for the costs. Of course, we cannot forget that these need to also account for VAT and the other fees as well, let alone the aforementioned 40% extra tax, as we're way over $10.000. at this point.

The last thing we didn't mention: Income Tax.

Now before anyone out there tries to attempt a coup for our case, the fact that we chose a single proprietary company as a startup is what's saving us here: it's exempt from paying such.

If we were a generic .LTD however, that would indeed be a problem, but in that case, there's no cap on how much you can earn in a calendar year, or how much you can get from a single entity.


So let's sum things up, shall we?

 

If we want to run a Crowdfunding campaign for $10.000, in reality we'd be needing to aim for 150-175% of that, depending on our rewards.

 

The achievability of this however is quite frankly a huge gamble, as it heavily depends on what you're creating, what niche you're part of, and how much money people are willing to inject into your project. People also tend to gauge / compare things to one another, and might start to question, why your 'simple' game costs a lot more, than something vastly more complex, just because it's being created in another country.

At the end of the day, it is what it is. You either find workarounds, partners, or move to a country with a better understanding and support for Crowdfunding, or give up on it. For us, it's something that just wouldn't work.


Thank you for reading

 


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