Software Business

How Profitable Is A Software Business? (Updated for 2024)

Pat Walls

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Updated: October 10th, 2024

How Profitable Is A Software Business? (Updated for 2024)

So you want to start a software business?

And the first question that came to your mind was, “well, are software businesses actually profitable?”

With a market size of $581B - there’s plenty of business to go around.

Especially considering:

You could start a software business with as low as $50
Based on our data, software businesses generate an average of $58.2M per year
You could see gross margins as high as 89% with software businesses

There’s money to be made. Don’t worry.

But, I don't want to spoil it all. Below we’ll cover everything you need to know when it comes to the profitability of a software business.

Let’s dive in!

Is a software business profitable?

Yes, a software business is generally a profitable business. However, you still need to consider several factors since these things always impact the overall outcome.

For instance, since average revenue is $58.2M per year with an estimated gross margin of 83%, you could expect to recover your investment within 12 months or even less.

But of course, it all comes down to how much you earn compared to the potential revenues of your software business.

To determine whether your business is profitable, you should earn more than your expenses in the beginning months. However, while you're in your first month, it can be challenging to know what to expect.

Therefore, you should maintain a record of your monthly expenses and income to determine whether you're meeting your goals. By doing this step, you can see how your software business is doing and if any changes or adjustments need to be made to enhance or maintain your efforts.

Is a software business worth it?

If you’re wondering if a software business is worth it, the answer is a big YES. With software businesses, you have the potential to earn $58.2M per year (this is based on data reported by real founders).

Further, you could have your initial investment back within months. Simply put, it’s a business worth a shot, especially if you have the resources and make the necessary efforts to achieve or surpass the target.

With a market size of $581B, it will be possible for you to build something that grows and turns into a flourishing business. As such, it’s the type of business you might want to consider starting.

Of course, you must learn and understand every aspect of running a software business to ensure success. Still, as long as you have the initial investment and can endure a few months before your actual gains, this business could be worth it.

You might want to consider reading more specifics about successful software businesses case studies.

Examples Of Profitable Software Businesses

Here are a few examples of profitable software businesses, and a few more details about them:

1. Referral Rock ($840K/year)

Back in 2013, the founder was at a car dealership and overheard a conversation about a referral. He noticed the salesperson’s momentary confusion before switching to sales mode, which sparked curiosity about how traditional businesses manage referrals. This observation led to research, which confirmed that existing referral programs were primarily for e-commerce, unveiling an untapped market for non-e-commerce businesses.

Seeking validation, the founder surveyed small businesses they had connections with, such as real estate agents and local contractors. The feedback was lukewarm, but conversations with consumers participating in referral programs highlighted significant pain points, compelling the founder to move forward despite the initial skepticism. They constructed a minimal viable product (MVP) using simple tools, bypassing a full database to test the waters quickly and cost-effectively.

The founder's approach was hands-on and iterative. They continuously tweaked the product based on user feedback, even conducting manual updates from user inputs gathered through form tools. A pivotal moment was realizing, through direct customer interactions, that the product could indeed charge fees, which validated the business potential and guided strategic decisions thereafter. Despite early challenges, including the struggle to charge customers and manage product scope, the founder’s persistence, driven by customer insights and a pragmatic approach to development, proved crucial in refining the idea and setting Referral Rock on a path to success.

Is it profitable? Yes
How much money it makes: $840K/year

How One Founder Built Referral Rock to $70K/Month Revenue Without Funding

Read this case study

Read by 30 founders

2. Swift App ($120K/year)

Jeet Mehta, one of the founders of Swift App, came up with the idea for the business after hearing the complaints of a sports facility owner. He and his team, all working full-time in Toronto tech, decided to build a prototype that would help facility owners manage bookings and save time. After receiving positive feedback and securing their first paying customer, they launched the business and have since grown to $10K/month in revenue.

Is it profitable? Yes
How much money it makes: $120K/year
How much did it cost to start: $300

How 3 Friends Turned A Fun Side Project Into A $120K/Year SaaS For Sports Facility Owners

Swift App founders built software to help sports facility owners run their businesses, freeing up valuable time with an easy-to-use online booking system, which has helped the company grow to $10k/month in revenue.

Read this case study

Read by 5,267 founders

3. HMS ($2.7M/year)

Chris Vandersluis founded HMS Software back in 1984 after securing a contract to create a project management tool and timesheet for Philips Electronics. Through iterations and feedback from both project management and finance teams, Vandersluis and his team developed a unique timesheet system that could serve both purposes, ultimately leading to the creation of TimeControl. HMS Software has grown organically and made between $2 million and $3 million in revenue last year, with a profitable margin of approximately 30%.

Is it profitable? Yes
How much money it makes: $2.7M/year
How much did it cost to start: $999

How We Built A Timesheet Solution And Grew It To $2M/Year

Montreal-based software company HMS Software generated between $2 million and $3 million in revenue last year, boasting a 20-30% net profit margin and a successful self-funded model. Its project-based timesheet software, TimeControl, is used by a plethora of large private and public organizations to track both activity-based time for updating project management plans and timesheet data for finance.

Read this case study

Read by 2,142 founders

Learn more about starting a software business:

Where to start?

-> Software business plan
-> How to finance a software business?
-> How much does it cost to start a software business?
-> Pros and cons of a software business

Need inspiration?

-> Other software business success stories
-> Marketing ideas for a software business

Other resources

-> Software business tips

How much can you make with a software business?

With a software business, you can make an average of $58.2M revenue per year (based on data reported by real businesses).

You can start with an initial investment as low as $50. Then, with proper knowledge and sustained effort, you could have an ROI (return of investment) within 12 months.

How much does a software business make a week?

Based on our data, average weekly revenue for a software business ranges around $126K. As such, you could see monthly revenues of $502K.

To know if your software business achieves the weekly profit target, you need to keep track of the total earnings you get per day. Afterward, you'll want to consider subtracting the expenses you have daily.

Learning your weekly profit can also show whether you're hitting your target goal for your software business.

How much do software businesses owners make?

The income of a software business owner can vary depending on various factors such as location, size, competition, and the owner's business skills.

But to give you some idea, the weekly revenue of an established software business is about $126K. But this can be lower or higher depending on so many factors - it's almost impossible to say exactly.

While the potential for earning a good income as a software business owner exists, success in this field requires a commitment to providing quality products and services and building a strong reputation within the community.

Software Business Profit Margins

Generally speaking, a software business can expect profit margin of around 83%. Profit margins refer to the percentage of revenue that remains after deducting all expenses associated with running a business. In the case of a software business, profit margins can vary depending on various factors, such as the type and quality of products sold, the size of the store, and the level of competition in the area.

However, these figures can vary depending on the pricing strategy, inventory management, and overall efficiency of the business. To maintain healthy profit margins, software business owners must focus on managing costs, negotiating favorable supplier terms, and providing high-quality products and services to attract and retain customers. By doing so, software business owners can ensure long-term sustainability and profitability for their business.

Software business owner salary

The salary of a software business owner is an unpredictable figure. It's significantly influenced by numerous factors, including the store's location, its size, and the degree of competition. An owner of a well-established software business, in a prime position, might see an average weekly salary around the ballpark of $104K.

But it's worth noting, such numbers aren't always consistent. The earnings can vary wildly, potentially swinging by as much as 80% either way.

Achieving consistent success and maintaining a reliable income stream in this industry requires a deep commitment. It's imperative to offer high-quality products, deliver impeccable customer service, and nurture a trusted bond with the community you serve.

Conclusion

In a nutshell, based on many of our examples, a software business may be a promising business to start - but the success of your software business mostly depends on your effort and your approach.

If you focus on these, you'll have a much higher chance of a profitable software business.

Part of

Starting A Software Business: Everything You Need To Know

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