On Mastodon, I read a post where someone claimed that Bungie missing its revenue target by 45% doesn’t mean Bungie isn’t making a profit. The general complaint is that people mix up and misunderstand revenue and profit. And that’s exactly the mistake the author is making here.

The post assumes that the layoffs can’t be justified by missing the revenue target by 45%, because 45% less revenue than planned doesn’t automatically result in a loss.

Just as a refresher: Revenue is a company’s income. That is, any money that flows into the company. Profit is what’s left of that money after all expenses.

When a company creates an annual plan, it sets targets for income and expenses. As a development studio, you can determine the expenses quite accurately, as they mostly consist of personnel costs. On the other hand, the income is the money that we players pay for the game or games. In Bungie’s case, for expansions, season passes, and cosmetic items.

Bungie planned for a certain revenue and, based on its expenses, determined the expected profit or loss. If Bungie planned to make 10 million euros in revenue with 9 million euros in costs, they would have a profit of one million. If the revenue is now 45% below expectations, they only have 4.5 million euros in revenue with the same 9 million euros in costs, suddenly resulting in a loss of 4.5 million euros. If it were a 45% drop in profit, of course, that would mean 550,000 euros in profit instead of one million.

And yes, if you miss your revenue target by 45%, a loss is almost certain. I don’t know any company (except maybe Apple) that has an 80% profit margin. In my example above, Bungie would have had to plan for 20 million euros in revenue with 11 million euros in costs to avoid landing in the red with 45% less revenue. Accordingly, staff aren’t being sacrificed for more profit, but to prevent the company from slipping further into the red.

Without Sony’s backing, it would likely be difficult for Bungie to even maintain its current operations. The costs remain, and if the money doesn’t come from customers, it has to come from investors or banks. But that’s money that has to be paid back with costly interest. So you’re not just saving on direct personnel costs, but also on the costs of acquiring capital.

Therefore, it doesn’t surprise me that costs were cut through layoffs. I do hope, however, that the quality of the products, especially the next Destiny 2 expansion, The Final Shape, doesn’t suffer as a result. Unlike many other players, I won’t be canceling my pre-order; that only makes the situation worse and leads to even more layoffs.