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Comment by pwdisswordfishy | Hacker News Reader

Why would 1 unit of this game have a "profit margin" of 10%? It's a video game. He's not selling canned goods.

Of the purchase price that the end-user pays, the retailer has to pay tax. That knocks off a variable percentage. It would be 20% in the UK.

There's also the cost of selling through Steam / Google Play / Whatever - typically 30%.

I assume the developer has some professional expenses - an accountant at a minimum, probably a lawyer, certainly insurance. Maybe they also have a PR team, advertising, and the like. I don't know whether they pay for testers, translators, and things like that.

Then we get on to things like buying a new development machine, going to tech conferences, taking an educational course, backups, and all the other things that a business needs to spend on in order to be effective.

Maybe a profit margin of 10% is unrealistically low - but developing software has legitimate costs. The margin is never going to be 100%.

What do you think the profit margin of canned goods is? They make cents on every can. Something like 2-3%.

The video games industry is filled to the brim with gatekeepers who take their cuts. Valve takes 30%, just for their store. Publishers start at 10%. Your engine might take a cut.

Estimating that Stardew Valley, the big success video game with the lowest overhead bar none, has made 10% profit might be too low. 20%? Might be high.

He used this open source engine, it is free. He is almost certainly getting between 60-70% of revenue after distribution fees. His only other expenses are taxes and the other devs he employs and he was solo until the game made like $100 million. Most of the copies sold for $15 so it seems fair to me to say his companies lifetime revenue is close to $10*number of units sold which is close to half a billion dollars. And since the companies expenses are effectively zero profit is the same. If he’s smart with taxes he’s paid 15% corporate tax rate then 15% capital gains rate which comes out to just under 28% so his own lifetime earnings is probably around $360 million.

> What do you think the profit margin of canned goods is?

For whom? The manufacture? It's closer to 10-30% for the manufacture (lower for white label goods, higher for "premium" brands). And it's higher for products that enjoy monopoly status.

For retailers, it's 2-3%, but retailers also get products on loan and negotiate various agreements that help cover the costs of displays, shipping, marketing, and wastage. So even that small percentage margin is skewed a bit.

There's a reason that retailers and food manufactures ("canned goods") were some of the largest American companies prior to technology taking off. It's a highly profitable industry.

> What do you think the profit margin of canned goods is?

Um, exactly the sort of numbers that you're providing. I'm baffled by the question or what possible relevance you thought it had here.

> 10% profit might be too low. 20%? Might be high.

You think an indie game like the one in question is making less on each copy sold than Valve is making on it? That's nuts. If the creator isn't clearing 50% on each marginal unit sold, then something is seriously wrong.

Besides tax and the store's cut, the games also regularly sales and prices-changes. So you can't just extrapolate the price today with the amount of units sold and assume this to be the revenue.

> you can't just extrapolate the price today with the amount of units sold and assume this to be the revenue

Who did that?

This thread seems to be filled with people who don't understand what marginal cost is.

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