Monetization Guide #1: Break Even Points

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#1

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What is a Break Even Point? (BEP)

A break even point is the point at which your total expenditure matches your total revenue. It can be used to inform you of how many units (or gamepasses, clothing, DevProducts in terms of Roblox) you need to sell to reach the break even level of output.

A BEP is usually predicted before an event. For example, you might want to see if proceeding with such event would be profitable. Alternatively, it can be done over the duration of a time period (e.g. predicting BEP for the month).

Put pretty simply:

  • If you have a BEP of 100 units then:
    • If you sell 99 products, you are making a loss
    • If you sell 101, you are making a profit

That’s the basics of it, quite simple right?

Margin of Safety

The ‘margin of safety’ is the gap between the current level of output and the break even level of output.

This can be calculated by this formula:
Margin of Safety = actual or budgeted sales - break even sales

Wait, you can calculate the BEP from the margin of safety?!
Yes, you can do this by:
BEP = Units sold - Margin of Safety

Why is this important on Roblox?

As mentioned in the first paragraph, you can use this to calculate your total losses and how much money you need to break even.

Examples of contributors to revenue:

  • Gamepasses
  • Dev Products
  • In game subscriptions
  • Premium payouts
  • Merchandise sales

Examples of contributors to expenditure:

  • Developer payout
  • Game shareholders payout
  • Advertisements

In reality, your business would collapse. On Roblox, that’s not possible (to some degree). However, before you spend a lot of Robux on trivial items, you need to remember that your game needs to thrive. If aspects relating to the maintaining of your game is neglected, it could lead to several things:

  • Lack of updates due to no developer payouts
  • Making a loss (expenditure > profits)
  • Player flow decreasing (incl. CCUs and unique visitor count)

Calculating your BEP

Your break even point can be calculated in two ways.

Calculating your BEP in terms of units
calculating the number of products you need to sell to break even

BEP in Units (units) = (Fixed Costs) / (Sales Price - Variable Costs)
Fixed Costs are the costs that are consistent the whole way throughout the time period. An example would be fixed developer salaries. Variable costs are costs that can change (obviously). For example, commissioning a developer.

Calculating your BEP in terms of revenue
calculating the amount of Robux you need to earn to break even

BEP in Revenue (R$) = BEP in Units * Sales Price
To calculate this, you MUST calculate the ‘BEP in terms of units’ (above) first.
The sales price is how much you sell the product for.

Like this:
If you have a gamepass priced at 200 Robux:

Units Sold Revenue
100 100 units sold * 200 R$ selling price = 20,000 R$
200 200 units sold * 200 R$ selling price = 40,000 R$

Displaying it on a graph

Now you’ve learnt all about how to work it out, now it’s time to plot it on a graph to display it in a more visual manner.

Step 1
Draw & plot your axes and plot your fixed costs on it.

Why is it a horizontal line?
Pretty simply, it’s consistent. It’ll always be the same and won’t change, regardless of units sold. It’s set at a point on the revenue chart and won’t move (unless your costs change).
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Step 2
Plot your total costs.

This will include your variable and fixed costs (hence why it doesn’t start from (0,0) on the graph.

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Step 3
Plot your total revenue.
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As this doesn’t include your total costs, you don’t need to start from the fixed costs line. Always start from the bottom when it comes to revenue. You start with nothing, as harsh as it sounds.

Step 4
Identify your break even point.

It will be where your total costs & revenue intercept each other. This doesn’t include your fixed costs as you haven’t accounted for your variable costs with that line. The fixed costs can be considered a “placeholder”, and it isn’t 100% necessary now.
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Profits & Losses

Once you have reached your break even point and begin to exceed it, you make a profit. However, until you reach your BEP, you will be making a loss.

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losses includes above and below fixed costs line

Sidenotes

What happens if I reduce my expenditure?
Obviously if you reduce your expenditure, your BEP will be lower. This is because you don’t need to sell as many products to match your total costs.
For example, if you paid a developer 50,000 R$ before, but they now only charge 45,000 R$. You only need to sell x products at x price to reach your equal point.

What happens if I increase my expenditure?
If you increase your expenditure, your BEP will be higher. This is because you need to sell more products to match your total costs.
For example, if you paid a developer 50,000 R$ before, but they now charge 55,000 R$. You need to sell x products at x price to reach your equal point.

What happens if I increase my prices?
If you increase your prices, your BEP will be lower. This is because you don’t need to sell as many products to match your total costs due to the higher prices from each item.
For example, if you sold products before at 200 R$/per, but you now sell them at 250 R$/per, you only need to sell x products at x price to reach your equal point.

What happens if I reduce my prices?
If you reduce your prices, your BEP will be higher. This is because you need to sell more products to match your total costs.
For example, if you sold products before at 250 R$/per, but you now sell them at 200 R$/per, you need to sell x products at x price to reach your equal point.

Is a lower BEP better?
Often, yes. It means you’re closer to breaking even and closer to making a profit, hurray! However, beware high prices. Higher prices may discourage sales, and hence, leave you empty pocketed anyways.

From working out your BEP, you can ask yourself these questions:

  • What are my prices like? Are they reasonable as to reach my goal in x amount of time?
  • When is a reasonable time to reach my break-even? Is it going to take a long time or not as long?
  • As a result, is your game & group sustainable?

And finally, did you really need to buy that Dominus?

:exclamation: This was my second tutorial, any feedback is appreciated! :slight_smile:

38 Likes
Polyheximal - Programmer Portfolio
#2

Im guessing your a fellow business student so hi :wave:

For roblox games, at least not at ‘professional’ level e.g. adopt me, vesteria, red manta I don’t really think break even point is a needed analysis for a few reasons:

Firstly there are no variable costs in roblox so that already invalidates the Total costs and variable costs part of the graph, leaving you with just fixed costs

Secondly Fixed costs will tend to just be the cost of making the game which actually would be a reason to make the analysis early on, but I feel it would be significantly less useful later.

While this is a very useful analysis for businesses which have to pay for the production of their products I feel it is mainly invalid when being used on your stereotypical roblox game.

11 Likes
#3

Similarly to @LuaBearyGood, I don’t believe this is applicable (or at least 100%). I find the graph as the most analytical component of this article for multiple reasons:

  • Constant rate
    • Revenue increases as total expenditure fee increases. This is an indication that profit is being utilized to expand the game, and potentially upgrade it.
  • Indicates success
    • (r - t)/100 to find the percentage of profit (revenue - expenditure). If tracked daily, it could validly represent how successful an update or implement was that required funding.

I understand this is terminology, and consequently can’t be changed—but personally I would exclude the fixed costs as:

  • Stable - no increase, no decrease
  • The y-intercept already incorporates the fixed costs as they seemingly do not change

This is the graph I’ve been referring to:

Additionally, the safety of margin is also important. I do believe that some of the variables used for the formulae could be simplified, but this is my personal opinion.

This is a well-written resource; good job. I think you should include more ways to apply this information as some people may not know how to utilize this article.

3 Likes
#4

I understand your comment, but I included it for the sole reason of giving as much information as possible. Of course, it could be considered superfluous in such a situation, such as using it on Roblox.

I’ve thought about this, but surely the % cut that Roblox takes could relate to this?

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#5

Variable costs are costs that increase with units sold. Applying that to Roblox, it would be something like costs that go up with player count(?).

Depending on the game, you will have variable costs. For example, if you use a custom database that charges based on storage used, that would fall under a variable cost. Another example would be analytics that charge based on player count (or requests, etc).

1 Like
#6

Forgot that, might not be the best idea then. However, that’s a good example of your variable costs- I’m fairly sure that some professional games probably have databases with their storage.

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#7

Variable costs scale depending on the level of output which in this case is robux made, a custom database / analytics would come under fixed costs since it is not dependent on the robux you are earning.

This could be argued, its true. but I don’t really see the point in doing break even for the entire game instead of just group fund intake / your personal income.

4 Likes
#8

While this is a very in-depth tutorial I don’t think it is super necessary on ROBLOX just because of the fact that if you are looking at a relatively small project <100K then the only really costs to worry about are ads and developers, now looking at something like Adopt Me you would have to pay social media managers, game and discord administrators, etc. but in a small startup there just simply aren’t many costs that you have to take care of with formulas and such.

#9

I agree, there are no variable costs on Roblox. This is why it’s so appealing to make it big on Roblox. Your fixed costs are very high when your game is not released yet, and all of a sudden your game can go viral and all your revenue can off-balance for months or years for top games. Making your fixed cost originally making the game seem irrelevant in the larger scheme of things. Making updates to your games wouldn’t be a variable cost because once the update is done, it’s done, you don’t have to spend the labor time on it dependent on how many people play the update.

Personally, I would put Robux from the cut Roblox takes as a COGS as it is just the cost of doing business on Roblox. The only reason to recognize this at all is when you paste in monthly data into a spreadsheet, you don’t do the *.7 right away. To save time
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I have more about it on an older tutorial

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