Having a budget is very important for both long-term businesses and every day activities. It helps stay under the limit and is a very good tool for controlling large amounts of money. Used properly, it can help businesses reach their goals, become financially healthy, and keep their money loads in check. An advantage of having a Budget, is that it helps keep your money in check, meaning you will always have reserve money for certain situations. A disadvantage of having a budget is that it means you cannot afford certain equipment or technology. For example, if you are a development studio, and have a budget, you may be working on a next Gen game, but because of your budget you cannot afford the next best software for animation and sound.
Having a budget can also effect other companies. It can help convince other companies/businesses that you are reliable, causing potential investments into your business/company.
Calculating risks and profits is also very important in businesses and can b achieved by having a budget for your money. This way you can plan ahead and organised your money for the future, in terms of how it will be spent and what it will be spent on.
When creating a budget, there are three things that companies will consider and must understand, Variable Costs, Fixed Costs and knowing their Break Even Point.
Variable Costs are expenses within a business that constantly change, for example, company Staff, Company Assets. Another example of a Variable Cost is the price of the products that you sell, which will indefinitely change throughout the span of your business. Variable costs can always be expressed as percentages of you sales, as it represents the amount of money loss to those expenses. For example, if you own a pizza restaurant, and you sell pizzas for £10 each, but the ingredients cost £6, then your variable percentage is 60%. This scale can be used for any amount of the same product, meaning for any amount of that product 60% will be the cost for the variable expenses.
When Variable costs are calculated and deducted from the money made, you are left with Gross Profit. Gross profit is all the money left from paying off all of your variable costs. In the pizza case, the Gross profit would be £4 pound, because £10 - £6 = £4. This means that the gross profit percentage is 40%. Calculating Gross profit also helps with understanding your limits and money boundaries.
Fixed Costs
Fixed Costs, as the name suggests, are expenses that never change in price such as Rent, tax, customer pay and utilities. Even though Fixed costs don't change their prices, they can still change in total Cost depending on your sales and multiple Fixed costs. For example, if you started selling more pizzas than you could make in you restaurant, then you would have to hire more employees in order o help you, meaning you will have to pay more people from your own profit, also meaning that the total Fixed cost price has gotten bigger. By using fixed costs and Gross profit, you can calculate the total Net Profit. Net profit is all that is left after paying both you Variable costs and Fixed costs.
Breaking even point
The breaking even point is as the name implies, the point of just managing to pay both Variable costs and Fixed costs. This means have neither made money nor lost money, because you have only just paid off your expenses. Breaking point is needed for 2 reasons, the first, is to understanding how much money a company needs to make in order to not loose money. The second reason is for calculating possible net profit.
How was the money made?
Coins
In the 70s and the 80s, Games developers invested in arcade machinery for games. They placed multiple Arcade boxes in different locations and made plug in only. These arcades used coins to function, making it easy for kids to play games, using a simple financial transaction method. Because of this, there was a massive coin shortage in japan in 1978.
Consoles
From the 80s onward to the 2000s, businesses sold games through their consoles, sold through retail outlets, back in the day it was this system was very lucrative; if you didn't own a console then you wouldn't be able to play certain games at all, even though console games were the most popular games back in the day. This meant that developers could not create games that couldn't be played on a Microsoft, Nintendo or Sony device. Computer Games were also popular but because of the lac of users and computer developers they did not sell as well. As a result, in 2001 Sony and Nintendo became the dominant companies.
Digital Distribution
From the 2000s to the present day Digital distribution technology in gaming has become very popular and efficient, as it has various advantages over regular retailers and physical copies of games. Unlike disks, it doesn't require any storage space, beating the purpose for warehousing. it also makes it very efficient for the buyers too as they no longer have to visit a retailer in order to purchase games. Because gamer's are connecting to the internet and use online gaming, publishers and developers can observe and see patterns through purchase activity. In a way, the player is becoming apart of the development team. This is mainly due to the extensive use of smartphones, Tablets and Online TV services. meaning that retailers are becoming obsolete.
Playing games online through the internet, but most people are always put off by adds and other game advertisements. The advertisements are usually around the playing area, almost pushing the player to press on them. Many games now days also opt for subscription services for their games, along with in game transactions. In game transactions have increasingly popular with social games, on social media, such as Facebook. This line of games has massively increased revenue income for the games industry. This method is very beneficial for third party publishers in the industry, as they can add value to all the games using add-ons and in games transactions, therefore also increasing the cost of the game. This explains why smartphone and tablet platforms are the most used. They are usually free on android and IOS devices, but then require money for further development. For example, Clash Of Clans is a free to play, but has an in game Gem system that can be used to speed up
Market and industry Trends
Th most common trend in the gaming industry is the popular dominance of strong brands. From small low budget games for smartphones, to big console titles, publishers now days tend to contract themselves with big names in order to give their games stability.
IP- Intellectual property
A term used for protecting peoples creative ideas and imagination of the mind. For which several rights are put in place for law protection,
Being under the protection of these rights means to have all creations that involve music, art, literacy or even inventions completely protected from fraud and theft. Even if it means owning none tangible assets, that involves symbols, words, phrases and designs. Such rights you may have heard of before, such as Copyrights, trademarks, Industrial Design rights and Patents.
Here is an example of a Franchise licensed IP:
http://cartoonnetwork.wikia.com/wiki/Batman
The DC Character known as Batman:
When Variable costs are calculated and deducted from the money made, you are left with Gross Profit. Gross profit is all the money left from paying off all of your variable costs. In the pizza case, the Gross profit would be £4 pound, because £10 - £6 = £4. This means that the gross profit percentage is 40%. Calculating Gross profit also helps with understanding your limits and money boundaries.
Fixed Costs
Fixed Costs, as the name suggests, are expenses that never change in price such as Rent, tax, customer pay and utilities. Even though Fixed costs don't change their prices, they can still change in total Cost depending on your sales and multiple Fixed costs. For example, if you started selling more pizzas than you could make in you restaurant, then you would have to hire more employees in order o help you, meaning you will have to pay more people from your own profit, also meaning that the total Fixed cost price has gotten bigger. By using fixed costs and Gross profit, you can calculate the total Net Profit. Net profit is all that is left after paying both you Variable costs and Fixed costs.
Breaking even point
The breaking even point is as the name implies, the point of just managing to pay both Variable costs and Fixed costs. This means have neither made money nor lost money, because you have only just paid off your expenses. Breaking point is needed for 2 reasons, the first, is to understanding how much money a company needs to make in order to not loose money. The second reason is for calculating possible net profit.
How was the money made?
Coins
In the 70s and the 80s, Games developers invested in arcade machinery for games. They placed multiple Arcade boxes in different locations and made plug in only. These arcades used coins to function, making it easy for kids to play games, using a simple financial transaction method. Because of this, there was a massive coin shortage in japan in 1978.
Consoles
From the 80s onward to the 2000s, businesses sold games through their consoles, sold through retail outlets, back in the day it was this system was very lucrative; if you didn't own a console then you wouldn't be able to play certain games at all, even though console games were the most popular games back in the day. This meant that developers could not create games that couldn't be played on a Microsoft, Nintendo or Sony device. Computer Games were also popular but because of the lac of users and computer developers they did not sell as well. As a result, in 2001 Sony and Nintendo became the dominant companies.
Digital Distribution
From the 2000s to the present day Digital distribution technology in gaming has become very popular and efficient, as it has various advantages over regular retailers and physical copies of games. Unlike disks, it doesn't require any storage space, beating the purpose for warehousing. it also makes it very efficient for the buyers too as they no longer have to visit a retailer in order to purchase games. Because gamer's are connecting to the internet and use online gaming, publishers and developers can observe and see patterns through purchase activity. In a way, the player is becoming apart of the development team. This is mainly due to the extensive use of smartphones, Tablets and Online TV services. meaning that retailers are becoming obsolete.
Playing games online through the internet, but most people are always put off by adds and other game advertisements. The advertisements are usually around the playing area, almost pushing the player to press on them. Many games now days also opt for subscription services for their games, along with in game transactions. In game transactions have increasingly popular with social games, on social media, such as Facebook. This line of games has massively increased revenue income for the games industry. This method is very beneficial for third party publishers in the industry, as they can add value to all the games using add-ons and in games transactions, therefore also increasing the cost of the game. This explains why smartphone and tablet platforms are the most used. They are usually free on android and IOS devices, but then require money for further development. For example, Clash Of Clans is a free to play, but has an in game Gem system that can be used to speed up
Market and industry Trends
Th most common trend in the gaming industry is the popular dominance of strong brands. From small low budget games for smartphones, to big console titles, publishers now days tend to contract themselves with big names in order to give their games stability.
IP- Intellectual property
A term used for protecting peoples creative ideas and imagination of the mind. For which several rights are put in place for law protection,
Being under the protection of these rights means to have all creations that involve music, art, literacy or even inventions completely protected from fraud and theft. Even if it means owning none tangible assets, that involves symbols, words, phrases and designs. Such rights you may have heard of before, such as Copyrights, trademarks, Industrial Design rights and Patents.
Here is an example of a Franchise licensed IP:
http://cartoonnetwork.wikia.com/wiki/Batman
The DC Character known as Batman:
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