Startup cost
$1.1k–$40k
TRUiC Business Ideas
How to Start a Software Development Business
Decision Snapshot
Software Development
Idea Score
72
Profit margin
27%
Break-even
4 mo–12 mo
Time to launch
2 wk–12 wk
Demand trend
Stable
5-yr failure rate
—
Capital intensity
Medium
Time commitment
Flexible
Part 1 - How to start a Software Development business - Background
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.
Our guide is in 3 parts:
- Part 1 - How to start a Software Development business - Background
- Part 2 - Our planner tool to see if this idea is the right fit for you
- Part 3 - Action plan to get started
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:
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website hosting expenses and data storage fees
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specialized programs that a project requires
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copyright, trademark and patent fees
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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.
Day-to-Day and Growth
What happens during a typical day at a software development business?
Much of the work that goes on at a software development company is done on a computer. Business owners spend time writing code, testing and debugging programs, marketing their programs and providing support to customers.
What are some skills and experiences that will help you build a successful software development business?
Business owners must themselves know how to code in at least one programming language, and competency in several languages is highly advisable. This technical knowledge is necessary to code and debug programs. Business owners also need it so they can discuss issues with other programmers or developers working on the company’s projects.
People who don’t have sufficient coding knowledge can study different languages through both in-person and online courses. Many community colleges and four-year colleges have computer science programs, and local software developers may offer private tutoring. Regent University, Saint Leo University, Southern New Hampshire University and many other schools offer online degree programs in Computer Science.
What is the growth potential for a software development business?
A software development company can be a small, one-person business, or it can grow into an international corporation. Gorges is a local development company in Ithaca, NY, and Logos is a good example of a niche-specific company. Microsoft and Apple are two of the largest software developers in the world, although their work isn’t limited to only making programs.
What are some insider tips for jump starting a software development business?
Many successful software development companies have raised support on Kickstarter before launching. Jarvis used this strategy to raise over $12,000 before launching OfCourseBooks. Pillars of Eternity, a computer-based role-playing game (RPG) raised almost $4 million on Kickstarter.
How and when to build a team
Whether a software development company hires people depends on the business’ owners expertise, program’s complexity, business’ budget and required timeline.
Business owners who do hire employees frequently bring on computer programmers, computer developers, designers and marketers. All of these people can be hired as traditional employees or on a contract basis. Sometimes, salespeople are brought on board . They may be given a salary, a commission or both.
Part 2 - Is a Software Development business the right fit for you?
Business Evaluation & Strategy Tool
We'll walk you through the four pillars every business needs: Points of Leverage, Marketing Strategy, Financial Model, and Personal Compatibility. At the end you'll see a personalized report and your action plan below will be tailored to your answers.
Step 1 of 4 — Points of Leverage
Every viable business has natural advantages. Below are common leverage points across four categories. Pick the ones that apply to your Software Development business. We've pre-suggested a few based on your idea — review and adjust.
Step 2 of 4 — Marketing Strategy
Without a way to connect with customers, even great businesses fail. Pick the channels you plan to use to reach your customers.
Step 3 of 4 — Financial Model
Enter your monthly baseline costs — the minimum overhead to keep the business running. Then we'll calculate how many sales per month you need to break even.
Step 4 of 4 — Personal Compatibility
A business that doesn't fit your life will fail no matter how good the numbers look. Tell us how this business fits you.
Your Software Development Evaluation Report
Complete the four pillars and your personalized summary will appear here.
Points of Leverage
Marketing Strategy
Financial Model
Personal Compatibility
Part 3 - Action plan to launch your Software Development business in 90 days
Nine concrete steps to take you from idea to open business, grouped into 30-day phases. Complete the planner above and we'll highlight what's most important for your situation.
First 30 days — Foundation
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Form your legal entity
An LLC keeps your personal assets separate from business debts and lawsuits — the most common reason small business owners choose this structure. Sole proprietorships and partnerships do not provide this protection.
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Get an EIN and register for taxes
Apply for your free Employer Identification Number through the IRS, then register for any state or local taxes that apply to your business (sales tax, franchise tax).
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Open a business bank account and credit card
A dedicated business account is required to maintain personal asset protection. Mixing personal and business finances ('piercing the corporate veil') can void your LLC's liability shield.
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Set up business accounting
Recording expenses and income from day one makes tax filing easier and lets you see when the business is actually profitable. Use software (QuickBooks, Wave) or a part-time bookkeeper.
Days 30–60 — Compliance & Risk
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Get permits and licenses
State and local requirements vary widely. Brick-and-mortar businesses typically need a Certificate of Occupancy; service businesses may need specific professional licensing; food businesses need health permits.
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Get business insurance
General Liability Insurance is the most common starting point. If you'll have employees, most states require Workers' Compensation. Specific industries need additional coverage (product liability, professional liability, etc.).
Days 60–90 — Launch
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Define your brand
Your brand is how customers perceive and remember you. A clear name, logo, and visual identity make every later marketing decision easier and protect you legally as you grow.
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Create your business website
Every legitimate business needs a website. Social media pages are not a substitute — you don't own the platform. Modern website builders mean you can launch a clean site in a weekend without a developer.
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Set up your business phone system
A dedicated business number keeps your personal life private, makes the business look legitimate, and lets you route calls professionally. Cloud phone services start under $20/month.