The video game development market is on the rise. With an estimated global evaluation of $217.06 in 2022 and a compound annual growth rate (CAGR) of 13.4% from 2023 to 2030, now is the time to get involved. For gaming companies looking to make a mark, this is a great year to put out your first game.

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The good news is that today’s tools, technology, and distribution platforms make game development more accessible than ever. With the right mix of creativity, business savvy, and persistence, the opportunity is there.

This guide will walk you through how to start a video game company. Topics include market research, competitive analysis, registering an EIN, obtaining business insurance, opening a business bank account, and more. Here’s everything to know about opening a game development company.

1. Conduct Video Game Market Research

Market research is essential to learning how to start a video game company. It offers insight into developing a business plan, including details on your target market, local market saturation, and trends in products and services.

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Some details you’ll learn through market research for your video game company include:

• The most profitable and popular genres are multiplayer online battle arenas (MOBAs), first-person shooters (FPS), sports games, adventure games, and roleplaying games (RPGs).
• Opportunities exist across genres and platforms. The industry rewards creativity, strong visuals and gameplay, and built-in social/community features.

Keys to succeeding in the highly competitive space include:

• Developing innovative, high-quality games with wide appeal
• Creating immersive cross-platform experiences
• Consider creating mobile apps in the form of games and games for handheld devices
• Building a community around your games through streaming, tournaments, social media
• Leveraging free-to-play models, in-game purchases, subscriptions
• Partnering with publishers, platforms, and influencers
• Utilizing data analytics to refine game design and monetization

The key to success in game development is understanding player demand across genres and platforms, crafting quality experiences, and leveraging communities and partners. For developers with unique ideas and the drive to succeed, it is an ideal time to capitalize on this booming, multi-billion-dollar industry.

2. Analyze the Competition

Understanding the competitive landscape is crucial for any new entrant in the video game industry. Performing thorough competitor analysis should be an ongoing process to inform your strategy and positioning.

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Some ways to get to know local competitors in game development include:

• For direct competitors, you’ll want to deeply analyze their games across multiple dimensions.
• Examine the genre, platform, and monetization model they are utilizing.
• Study their target audience and demographics.
• Evaluate key features and mechanics, while also looking at strengths and weaknesses in gameplay, graphics, and user experience.
• Review their business model, pricing, and in-app purchases.
• Assess their marketing and distribution strategy, along with their social media and community engagement.
• Consider their branding and messaging, funding and partnerships, company culture, and values.
• Closely analyze competitors’ web presence and digital marketing tactics. Evaluate the website’s functionality, visuals, and content.
• Check SEO optimization and keyword rankings.
• Look at social media followers and engagement. Examine video views and streaming numbers.

Competitor analysis is a key input into strategy, product development, marketing, and operations. It ensures you can craft differentiated, appealing games while converting players into long-term fans.

3. Costs to Start a Video Game Business

Starting a successful video game company requires careful financial planning and budgeting. The initial costs to get up and running can be substantial, and ongoing operating costs pile up quickly. Here is an overview of estimated expenses to factor into your business plan:

Start-Up Costs

• Business entity registration fees – $500-1500 to set up an LLC or corporation
• Legal/accounting fees – $1000-5000 to establish contracts, agreements, accounting systems
• Office space – $2,000-10,000/month to lease office space, depending on location and size
• Computer equipment – $3,000-10,000 for high-end PCs/laptops, servers, accessories
• Game engines and software – $0-$1500/month for licenses of game engines like Unity or Unreal
• Website design and development – $3,000-15,000 for a professional studio website
• Branding and logo design – $500-5,000
• Initial marketing activities – $2,000-10,000 for early promotions and advertising
• Initial hiring – Budget adequate salaries and benefits for early team members, estimate $8,000-12,000/month per employee
• Contingency fund – Set aside at least 10-20% of total budget for unforeseen expenses

Total start-up costs can easily exceed $100,000-500,000 depending on studio size, activities, and location. Fundraising or investors are often needed.

Ongoing Costs

• Rent and utilities – Budget $2,000-15,000 monthly depending on office size
• Salaries – For a small team of 5-10: $50,000-$100,000+ monthly
• Health insurance – $300-800 per employee monthly
• Game engine subscriptions – $0-$5000 monthly depending on team size
• Cloud computing services – $100-$1000 monthly for server capacity
• Software subscriptions – $100-$500 monthly for project management, communication, and design tools from software companies
• Legal and accounting – $2000-$10,000 annually for corporate filings, accounting, contracts
• Marketing and user acquisition – $5000-$500,000+ monthly depending on launch activities
• Customer service/community management – $4000-$15,000 monthly for 1-2 dedicated staff
• Travel and entertainment – $1000-$10,000 monthly for conferences, events, team bonding
• Hardware upgrades – $5000-$15,000 annually
• Ongoing R&D – 10%-50% of revenue reinvested into new games and technology
• Contingency fund – 10%-20% of operating budget for unexpected costs

Annual operating costs often amount to several million dollars for a studio with 5-20 employees. Revenue from game sales and in-app purchases must exceed expenses, requiring financial discipline.

4. Form a Legal Business Entity

When starting a video game business, one of the first legal steps is choosing a business structure. The four main options each have pros and cons to weigh.

Sole Proprietorship

A sole proprietorship is the simplest structure. You operate as an individual with pass-through income and total managerial control. However, you have unlimited personal liability for debts and obligations. This exposes all your assets if sued. For a video game company facing complex regulations and litigation risks, limiting liability is crucial.

Partnership

A general partnership shares control and profit among partners. However, each partner is also personally liable for all partnership liabilities. Disagreements between partners can also impede decision-making. The lack of liability protection makes a general partnership ill-advised.

Limited Liability Company (LLC)

A limited liability company (LLC) offers the best of both worlds – it limits owner liability and allows pass-through taxation like a partnership while providing the limited liability of a corporation. Owners have flexibility in structuring management and profit sharing.

An LLC limits video game developers’ exposure to lawsuits while granting full control over the business. Most startups in the gaming industry opt for an LLC to properly protect the owners’ assets.

Corporation

A corporation shields owners from personal liability but is taxed separately. Income is also taxed twice – at the corporate level and on dividends. There is extensive corporate record keeping and formalities required.

For a small, early-stage video game company, maintaining proper corporate governance can be an unnecessary drain on limited resources. However, large gaming studios often transition to a C corporation structure to prepare for an IPO.

5. Register Your Business For Taxes

One of the key legal steps when forming your video game company is obtaining an Employer Identification Number (EIN) from the IRS. This unique identifier is required to open business bank accounts, apply for licenses and permits, file taxes, and hire employees.

An EIN is essentially your business’s social security number. It allows you to register your company with state and federal agencies. The IRS uses the EIN to track tax obligations like payroll, income, and employment taxes.

Applying for an EIN is free and can be done online via the IRS website. The process only takes a few minutes. You will need to provide basic information about your business entity and ownership structure.

To apply:

1. Navigate to the EIN Assistant and select your business structure.
2. Enter the legal name and address of your video game company.
3. Select if you will hire employees or file employment tax returns.
4. Provide the principal business activity and owner information.
5. Review the information and submit the EIN application.

The IRS will process the request immediately and provide your EIN confirmation on screen. Be sure to keep this for your records.

In addition to the federal EIN, most states require registering for sales tax permits and business licenses. Check your state’s website for registration procedures, forms, and minimal costs. Proper legal registrations help legitimize your video game business and keep you compliant as you get up and running.

6. Setup Your Accounting

As a video game startup, meticulous bookkeeping and accounting right from the start is critical. With complex revenue streams from game sales, in-app purchases, subscriptions, and more, you need robust processes to track finances. This ensures taxes are filed properly and the company remains compliant.

Accounting Software

Begin by implementing small business accounting software like QuickBooks. This automates tasks like invoicing, expense tracking, reporting, and reconciliation by integrating with your business bank accounts and credit cards. QuickBooks makes organizing video game company finances easy.

Hire an Accountant

Hiring an accountant provides expertise in filing taxes, preparing financial statements, and advising on accounting practices tailored to the gaming industry. They offer services like:

• Bookkeeping – Recording income and expenses
• Payroll – Calculating wages and tax withholdings
• Cash flow analysis – Monitoring cash coming in and out
• Tax preparation – Filing quarterly estimated payments and annual returns

Expect to invest $1,000-$5,000 annually for an accountant depending on your needs. This upfront expense can prevent costly errors and provide peace of mind at tax time.

Open a Business Bank Account

Maintaining a clear separation of business and personal finances is also critical. Open a dedicated business checking account and credit card solely for company expenses. Never co-mingle personal and company funds.

Apply for a Business Bank Account

Applying for a business credit card is straightforward by providing your EIN, company financial statements, and ownership information. Credit limits are lower than personal cards but sufficient for most expenses.

7. Obtain Licenses and Permits

Before officially launching your video game company, it is crucial to have all required licenses and permits in place. Find federal license information through the U.S. Small Business Administration. The SBA also offers a local search tool for state and city requirements.

On the federal level, you may need to obtain:

• A trademark registration from the US Patent and Trademark Office to protect your studio name, logo, and game titles. This grants exclusive nationwide usage rights and the ability to sue infringers. The process takes 6-12 months and requires submitting an application and legal fees of around $250-$500 per mark.
• Copyright registration from the US Copyright Office to protect unique game characters, stories, graphics, and code. This is obtained by applying and $40 fee along with samples of original work. Registration must occur before any infringement to enable damage recovery in lawsuits.

At the state and local level, typical licenses and permits include:

• A business license that legitimizes your company and allows you to collect sales tax. Applications require a copy of your business formation documents and fees ranging from $50-$500.
• Zoning permits if renovating or leasing office space, costing $75-$500 depending on location. These verify the property is properly zoned and that renovations meet the code.
• Local construction permits for any office fit-out and renovations beyond basic cosmetics. These ensure building safety and proper inspections.
• Fire department permits related to office fire systems, occupancy limits, extinguishers, etc. if mandated for your studio size and layout.
• Health department permits related to employee kitchens, serving food, and other health codes that apply to your office.

Depending on your studio activities, additional documentation may be required such as liquor licenses for game launch events, special venue permits for tournaments, and licenses for warehouse spaces. An attorney can identify all pertinent federal, state, and city-level licenses your particular video game company requires.

The licensing process takes time, so build this into your studio launch plan. Provide detailed business information like legal formation documents, ownership details, office addresses, number of employees, and planned activities. Organizing this information ahead of time expedites obtaining permits.

8. Get Business Insurance

Operating a video game startup without adequate insurance opens the business to major financial risks. The right policies can protect against potential catastrophes that could otherwise bankrupt your company.

Consider a few scenarios: A fire destroys your office and equipment without property insurance to cover damages and rebuilding costs, which leads to permanent closure. Or a visitor slips and falls at your office, sustaining serious injuries.

Without liability insurance, you pay enormous lawsuit settlements out of pocket. Your company could also face a data breach exposing customer information. Lacking cyber insurance means bearing the costs of legal action and regulatory fines yourself.

The right insurance protects against disasters that threaten the company’s survival. Common startup policies include:

• General liability insurance covers legal judgments from bodily injury, property damage, slander, and wrongful termination lawsuits.
• Property insurance reimburses costs to repair or rebuild office space and replace equipment after incidents like fires, floods, or theft.
• Business interruption insurance provides income to continue operations if events force your office to temporarily close.
• Cyber insurance protects against data breaches, network damage, and cyber crimes.
• Errors and omissions insurance covers financial losses from mistakes in services provided.
• Directors’ and officers’ insurance protects individual board members from personal liability in lawsuits.

The process of getting insured involves first determining needed coverage types and limits. Then get quotes from multiple business insurers. Next, select a carrier and policy that meets your needs and budget. Complete applications providing details on your video game company. Finally, pay premiums to activate coverage.

9. Create an Office Space

Having a professional office space lends legitimacy and provides room to grow for a video game startup. It enables collaboration during game development, hosting publishers and partners, and accommodating additional hires. Weigh several options to meet launch needs within budget.

Home Office

A home office cuts costs and offers convenience early on. Dedicate space exclusively for work to avoid distractions. However, limited space can hamper team meetings and expansions. You also sacrifice professionalism meeting clients at home. Expect to invest in a dedicated broadband connection and furnishings.

Coworking Office

Coworking spaces like WeWork provide an instant professional environment with amenities like conference rooms, WiFi, kitchens, and printing. The open layout enables collaboration and networking with other tenants. Monthly costs typically start around $300 per desk. While flexible, Coworking lacks privacy for confidential calls and IP security.

Commercial Office

A traditional office lease provides the most control yet requires upfront capital. Expect to budget $10-$30 per square foot in monthly rent plus taxes, utilities, and other fees. Hire contractors for any desired renovation and furniture purchases.

Signing personally guarantees the lease, so consider forming an entity first. While more expensive initially, a long-term lease enables customization and expansion as your studio scales.

10. Source Your Equipment

Launching a video game studio requires obtaining specialized equipment like high-end computers, servers, software, and furniture. Explore these options to secure needed gear affordably.

Buy New

Buying new ensures the latest technology and warranty protections. Desktops and laptops fitted for game development run $1,000-$5,000 from vendors like Dell, HP, and Apple depending on specs. Ergonomic desks and chairs cost several hundred per station. Shop smart by waiting for sales events or buying certified refurbished items when available.

Buy Used

Purchasing used equipment through sites like Craigslist, Facebook Marketplace, and eBay can yield major savings, with items discounted by over 50% in some cases. When buying remotely, focus on reputable sellers with detailed listings, maintenance records, and at least a 30-day warranty.

Rent

Renting workspaces already outfitted with furniture and computers can also be cost-effective starting. Coworking offices offer move-in ready private offices, potentially saving tens of thousands in upfront investments. However, monthly rental fees still apply for the duration needed.

Lease

Leasing business equipment through companies like Dell Financial Services enables paying over 12-48 months. This preserves capital for other startup needs. Lease-to-own plans give the flexibility to upgrade technology before the term ends. Just be sure to negotiate fair monthly rates and avoid predatory terms.

11. Establish Your Brand Assets

Crafting a strong brand identity is crucial for standing out in the competitive gaming industry. Ensure your studio makes a memorable first impression by proactively developing key branding assets.

Get a Business Phone Number

Begin by securing a professional business phone number through a service like RingCentral. Toll-free and local numbers with custom greetings and extensions project legitimacy when prospecting publishers, booking media interviews, and communicating with partners.

Design a Logo

Next, create a logo that encapsulates your studio’s vision. Consider an abstract mark, letterform, or illustrated character logo. Tools like Looka make it easy to develop and iterate ideas. Repeating your logo across websites, game art, merchandise, and promo items trains customers to recognize your brand.

Print Business Cards

To network at conferences and events, business cards from Vistaprint enable sharing contacts quickly. Your founders and developers should also have cards on hand when meeting potential investors and partners.

Don’t forget signage for trade show booths, office wayfinding, and branding exterior entryways. Vistaprint offers fast online ordering of banners, acrylic signs, window graphics, and displays with your logo.

Buy a Domain Name

Securing a domain name is equally important. Aim for yourstudio.com or .game to reinforce branding and trust. Use Namecheap to check availability and register domains affordably.

Design a Website

Building a modern website on platforms like Wix provides a hub for your brand. Showcase games, team bios, job listings, investor info, and contact forms professionally. Or you can hire seasoned developers through Fiverr to handle site construction, saving precious internal resources.

12. Join Associations and Groups

Joining relevant local organizations and online communities can provide invaluable connections and insights for a video game startup. Surround yourself with fellow developers, designers, and gaming entrepreneurs.

Local Associations

Seek out local developer associations like the International Game Developers Association with chapters nationwide. Attend meetups to exchange tips on game engines, monetization, work culture, and more. Conferences like IndieCade enable networking with industry veterans.

Local Meetups

Utilize sites like Meetup to find regular gaming mixers and demo days in your city. These facilitate collaborations, playtesting sessions, and recruiting opportunities. Interacting in person often leads to long-term partnerships.

Facebook Groups

For broader connections, join developer forums and communities on Facebook. The Video Games, Video Game Business Owners – Buy / Sell / Trade, and Video Game Collecting & Discussion have thousands of global members. Share work samples and puzzles to solve. Learn from countless peers simultaneously at any hour.

13. How to Market a Video Game Business

Marketing is indispensable for building awareness and driving sales of your games. Leverage both digital campaigns and real-world promotion to maximize reach across player demographics.

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Personal Networking

Start by engaging your personal and professional networks. Existing relationships often convert to early customers for video game companies. Offer exclusive early access or limited edition swag to fans who pre-order or recommend to friends. Word-of-mouth is still a powerful driver.

Digital Marketing

For digital marketing:

• Run Google and Facebook ads targeted using interests like specific game genres, competing titles, and gaming influencers. Geo-target cities with vibrant gaming communities.
• Start a YouTube channel posting trailers, playthroughs, development vlogs, and teasers. Collaborate with influencers.
• Write developer blog posts with behind-the-scenes details to build hype and SEO.
• Promote on Reddit, Discord, and forums related to your game type. Engage authentically with these communities.
• Leverage affiliate marketing partnerships with streamers, sites, and influencers.
• Retarget website visitors with ads and special offers via platforms like Facebook Pixel.
• Optimize for keywords gamers are searching like your genre and platform.

Traditional Marketing

For traditional marketing:

• Attend local gaming conferences and tournaments to demo games and network.
• Distribute flyers and brochures at comic book shops, gaming cafes, and electronics stores.
• Take out ads in gaming magazines and websites tied to your target genre.
• Seek reviews and press via personalized outreach to journalists.
• Utilize billboards, radio spots, and TV ads in specific markets where your game has traction.
• Sponsor esports tournaments and college gaming events to get products used competitively.

Amplify word-of-mouth and digital campaigns through targeted real-world promotion. Analyze data to refine strategies and maximize ROI across channels. Consistent marketing is table stakes for indie studios hoping to break through the noise. Leverage the uniqueness of your games across both digital and traditional avenues to build a fanbase.

14. Focus on the Customer

Providing exemplary customer service must be a priority, even for indie game developers. How you support players builds loyalty that fuels referrals and reviews.

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Some ways to improve customer focus in your own video game company include:

• Be available to respond to questions and feedback emails swiftly. A quick turnaround on tech support tickets fixes issues before frustration sets in.
• Monitor forums and social channels to address concerns transparently. Publicly thank users for constructive critiques that improve games.
• Make yourself accessible through Discord chats and Reddit AMAs. Let players feel heard by the studio leadership directly.
• When mistakes happen, offer sincere apologies and make things right. If a release is buggy, gift players free in-game items or currency to rebuild goodwill.
• Surprise inactive users with comeback offers if they churn. Welcome them back warmly if they return.
• Consider refunding dissatisfied purchasers, even if not obligated. Losing some revenue prevents greater reputation damage.
• Thank players who leave positive reviews or endorsements. Spotlight their content across your social channels.
• Service with empathy, patience, and understanding. Gamers are real people, not just metrics.

By providing support as dedicated as the development team, you earn trust. Players become advocates who drive ongoing sales through referrals. They quickly forgive missteps because the relationship is valued. Make customer service not just a cost center, but a profit center, through earned loyalty.