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How to Start a Software Development Business

Software is ubiquitous in today’s world, and many people and organizations can no longer function without the programs they rely on. These programs, of course, must be created, distributed and maintained. That’s the work of software development companies.

The software development industry is both big and strong. According to IBISWorld, the software publishing industry has an annual revenue of $238 billion and a growth rate of 3.9 percent per year. In total, the industry employs more than a half-million people.

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Learn how to start your own Software Development Business and whether it is the right fit for you.

Start a software development business by following these 10 steps:

You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your software development business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Check out our How to Start a Business page.

STEP 1: Plan your business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?
• What will you name your business?

Luckily we have done a lot of this research for you.

What are the costs involved in opening a software development business?

The costs associated with opening a software development company can range from very little (i.e. less than $1,000) to extremely high sums (i.e. venture capital funds). The money invested in a business typically goes toward:

• website hosting expenses and data storage fees
• specialized programs that a project requires
• copyright, trademark and patent fees
• additional employees or contract workers

The variance in startup costs is primarily due to the number of employees and contract workers brought onto the project. Workers speed up the development timeline, but also increase costs.

Paul Jarvis’ company OfCourseBooks is a good example of how a successful business can be started for very little. Jarvis and his team spent $1,125 in startup costs. The funds paid for a website, specialized fonts, stock photography, legal fees, the first month’s operating expenses and a couple other miscellaneous items.

John Sung Kim took a different approach with his company, getting a $40,000 initial investment before developing a call center software program.

What are the ongoing expenses for a software development business?

The ongoing expenses for a software development company also vary. OfCourseBooks costs $45 per month to maintain. A program like Microsoft Dynamics 365 require many more servers and a lot more personnel to maintain, and therefore, has much higher operating expenses.

Who is the target market?

The target market for a software development company can be almost anyone, but it must be well-defined. Business owners need a clear understanding of a need that people or businesses have, and how a program addresses that specific need.

How does a software development business make money?

Software development companies have traditionally charged customers on a per-license basis, but many companies are transitioning to a software-as-a-service (SaaS) structure instead. In SaaS arrangements, customers pay an ongoing fee in order to use the developing company’s program. Some level of support is usually included in this fee.

A few outlying software development companies don’t charge license or subscription fees. Instead, these companies typically either build advertisements into their programs or offer training that does have a fee associated with it.

How much can you charge customers?

There is a great range in how much computer programs cost. Simple apps are frequently free or just a few dollars. Complex enterprise solutions can cost tens of thousands of dollars. For example, Angry Birds originally cost $0.99 to $2.99 and is now free. Microsoft Dynamics 365 can be $190 per user / per month.

How much profit can a software development business make?

While not every business reaches this level, the profit potential for a software development business can be enormous. John Sung Kim stayed with Five9 until its revenue reached $10 million. An IPO on the NASDAQ valued the company at $350 million.

Even much more modest companies have substantial profits. For instance, OfCourseBooks brought in a little over $11,000 in profit before even launching a program.

How can you make your business more profitable?

Software development companies can increase their profits by providing additional services to clients. Expedited support, extra training and program customizations might be offered at an extra cost.

What will you name your business?

Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Software Development Business Name Generator

If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.

When registering a business name, we recommend researching your business name by checking:

• Your state's business records
• Federal and state trademark records
• Social media platforms
• Web domain availability.

It's very important to secure your domain name before someone else does.