Here, you will learn how to put together a strong software business plan, and about the different software business models available to you.
Keep reading to learn more about the various ways you can monetize a software business:
You can also download our detailed, professional business plan templates specifically designed for software and SaaS companies.
Download the SaaS business plan template here, or
download the software company business plan template here.
Do you think you have only one or two options for your software business plan? Traditionally this has been the case. The traditional vendor of software or services into an enterprise end customer base (or small/medium business) typically based their revenue on (1) software licensing and support, or (2) pay-by-the-hour software/infrastructure consulting services, or (3) a combination of the two.
Both of these software development business models can provide obstacles to new sales and growing your business. They can also limit your software marketing strategy and sales opportunities. This can be even more of a challenge in the current economic climate with shrinking budgets, while a strategy such as using a subscription or SaaS model can provide a lower initial adoption cost for your customer.
In the case of one-time software license fees, the challenge is one of having to continuously find new customers for your software product, or figure out ways to get new license fees from existing customers (upgrades, additional support, etc). In the case of the consulting services model, the challenge for a small firm is one of only having so many hours in the day available to bill – how do you grow your revenue base, beyond just adding additional consultants?
In fact, in today’s marketplace, there are a number of newer (and in some cases re-born) software business plans that vendors are finding are more profitable and offer more opportunity for recurring revenue and for growth than the one-time-software-license or bill-by-the-hour models. Generally, this involves identifying ways to offer your product in some type of ongoing fee type model so that you can continue to get paid by your customers so long as they are using your product or service. We have found that a usage-model-based analysis works well to identify which business model is best for your business (more on that below).
Some of these new software development business models (some not so new) are described below, or you can access our guidelines to writing your own software business plan here. You can also use our time-saving Software Company Business Plan Template pack as well as this SaaS business planning package if you are planning a Software-as-a-Service business. These are the templates we use in our professional consulting engagements with great customer feedback.
Alternatively, click here for our list of the best other business plan templates, tools, and resources. We also offer a fixed price consulting service to review and provide written input on your software business plan and strategy.
1. Go With Subscription Fees
Do you have a way to offer your product or service on a subscription basis rather than a one-time license fee? In some cases, a combination of the two is the best model. This can be an easy change to make, without significant impact to your software business plan. However, make sure you have the ability to provide some level of ongoing value-add to your customer (additional continued support, ongoing consulting or customization, frequent component updates, etc).
2. Stick with License Fees with a Menu of Smaller Offerings
If your product lends itself well to componentization this can be a good way to go. Not only would you componentize your product in the software development lifecycle, but figure out ways to offer components individually priced and licensed. If your menu of options is large enough, with frequent changes or updates, this can provide you some recurring revenue without a substantial change in the software development business plan, customer base or sales strategy.
3. Offer Software as a Service (SaaS)
A lot has been written about the move toward software-as-a-service, offering software over the web as a subscription service, while the software itself is hosted by a 3rd party (or by the ISV themselves). Business customers are now adopting SaaS in many business functions and vertical industries. SaaS can also lower the initial adoption cost for the customer, making the SaaS model more attractive in times of limited budgets. You could consider completely moving your product to the SaaS model, or offering two different options to your customers: one the traditional license, and the other a lighter hosted service.
Moving to SaaS is generally a bigger change to make, with new sales strategies and partners involved, and different business metrics compared to the software license model. But done right it could significantly grow your customer base and make it easier for your customers to get started with your product.
For more about how the move to a SaaS model can impact your business, take a look at our article on the business implications of moving to a SaaS business model, and this article on SaaS metrics. However, make sure you do your up-front planning for the SaaS offering. Find out why having a solid SaaS business plan is even more important than for other software business models.
Finally, try to think out-of-the-box to identify value-add business software services you can provide to your customers. This will allow you to maximize the pricing for your offering versus a more commodity service.
4. Provide Software Consulting Business Services Finally, you could choose to supplement your software product strategy with additional for-fee consulting services to provide the customization and implementation support that traditionally might be bundled with a vertical high-price-tag software solution. If you’re going the SaaS route, this could include helping your customers align their infrastructure and business processes to take the best advantage of the service that they are adopting.
5. Provide "Free" Software
Yes, your company does need to make money. But there are many examples of software firms adopting some variant of a free software business model, providing their core software for free, and upselling to a paid version or finding their revenue in other ways (support, value-add services, paid add-on modules, or advertising... just to name a few).
6. Resell Software
You can either resell software that another company has produced (for example, if you do not have software development expertise yourself), or you can make your software available solely as a resale or re-branded product. Take a look at
this article for more information on software reselling.
As you can tell, there are various ways in which you can grow your software business by offering a variety of business software services. So how do you determine which is right for your product and target market? We have developed a usage-model-driven analysis to define the software business plan and marketing strategy and find the optimal market fit for your software solution.
You can choose the do-it-yourself option, have some coaching / mentoring help, or we can do it for you. Choose below: