Looking for an apps and software business plan? You're in the right place.
An app company that sells to the public has to answer questions that a client-services shop never faces. How many people must pay before the team is covered? How fast do subscribers leave? What do the app stores keep from every sale? A plan with a single revenue number does not answer any of them.
This article walks through a complete sample plan for a consumer app studio in Los Angeles, section by section. It covers the executive summary, a SWOT analysis and, in particular, the financials: subscribers, churn, hosting, support and five years of profit and loss, cash flow and balance sheet.
Here's what you'll take away:
- The executive summary: see how to explain a portfolio of small apps in one page, so an investor knows what is being raised and why
- The pricing and plan table: learn how monthly, annual and bundle prices combine into one revenue figure per paying subscriber
- The churn and acquisition budget: find out how to tie marketing spend to the number of new payers it must produce, so the revenue line is not a guess
- The unit costs: spot what the app stores and the cloud take from each sale before you build the margin
- The first year, month by month: see which months lose the most, and size the reserve around them
- The five-year statements: understand how each hire and each price change shows up in the numbers
- The downside case: have an answer ready for "what if subscribers come in 20% short?", with the steps management takes in response
If you are building an app company, read this before writing your own plan. The company is fictional, so keep what fits your business and change the rest.
In this plan
To turn this example into your own apps & software business plan, use the apps & software business plan template.
Executive Summary
Tech by Tech is a Los Angeles app studio that builds consumer and prosumer apps, publishes them under its own name and sells them to the public through the Apple App Store and Google Play. It does no client work. Revenue comes from people who download an app and pay: monthly or annual subscriptions, a one-time price on the download, and add-on purchases inside the apps. Lenae Louis, a mobile engineer with eight years at consumer app companies, founded the company, runs product and engineering, and holds the largest share of the equity.
The company opens on 1 January 2027 with $1,430,000: $150,000 from Lenae and $1,280,000 from eight angel investors. About $1.31 million is operating reserve, because a subscription portfolio loses money until enough payers have built up to cover a team. Devices, build-out, legal work, an app security review and the launch campaign take the other $120,500.
| Year 1 | Year 2 | Year 3 | |
|---|---|---|---|
| Revenue | $401,700 | $1,265,700 | $2,173,200 |
| Net income after start-up costs | ($688,073) | ($332,015) | $57,630 |
| Closing cash | $666,782 | $264,300 | $247,385 |
Two subscription apps (Tidyroll, a photo-library cleaner, and Plateful, a meal planner), two paid-upfront apps (Fretboard Coach and Stagecraft) and two older paid apps that Lenae built before founding the company produce the revenue. By December 2027 the store-billed apps have 8,200 paying subscribers. The company loses money in Years 1 and 2, reaches a small profit in Year 3 and earns $519,498 in Year 5 on $3,754,900 of revenue.
Year 2 revenue is 215% above Year 1 because Year 1 covers a ramp from a standing start. December 2027 revenue of $76,600 is a $919,000 annual run rate, and Year 2 averages 38% above it.
A second run of the model takes 20% off every revenue line. With later hiring, the last hire dropped, a 20% marketing cut and a 20% cut to Lenae's salary, cash stays above zero in all five years and the company returns to profit in Year 4. Without those steps the reserve would be gone by the end of Year 3.
The pitch to investors is a portfolio of small apps that share an audience, a billing system and a support desk. Four employees and a contract Android developer can keep six apps current, and every paying subscriber becomes a candidate for the bundle.
The Studio and Its Apps
Legal name: Tech by Tech, Inc., a Delaware corporation headquartered in Los Angeles. Founder: Lenae Louis, CEO and lead engineer. Premises: a leased studio of about 1,000 square feet on the Westside, with hybrid working. Start date: 1 January 2027. Stage: pre-launch. The two back-catalog apps are live and Lenae assigns them to the company in a written IP assignment at opening; the first subscription app is in beta.
Mission
Make a few well-kept apps for everyday jobs, charge a fair price for them and keep them working for years.
Goals for the first two years
- Ship Tidyroll in March 2027, Fretboard Coach in June, Plateful in September and Stagecraft in November.
- Reach 8,200 paying store subscribers by December 2027 and 15,500 by December 2028.
- Hold monthly churn at or below 4.2% across all paying subscribers.
- Finish Year 2 with at least $250,000 in the bank, four employees, a part-time support specialist and a contract Android developer.
What each app earns
| App | What it does | How it is priced |
|---|---|---|
| Tidyroll (March 2027) | Finds duplicate, blurry and screenshot clutter in a photo library and clears it | Free scan, then $9.99 a month or $59.99 a year |
| Plateful (September 2027) | Weekly meal plans and a grocery list built from a household's tastes and pantry | $8.99 a month or $54.99 a year |
| Studio bundle | Both subscription apps together | $15.99 a month or $99.99 a year |
| Fretboard Coach (June 2027) | Guided practice routines and a metronome for guitar and bass | $9.99 once, lesson packs from $2.99 |
| Stagecraft (November 2027) | Setlists, charts and a stage-friendly display for gigging musicians | $7.99 once |
| Back catalog | Pixel Pad (a sketching app) and Trailhead Log (a hike log) | $4.99 and $3.99 once |
In Year 1, store-billed subscriptions bring in 65% of revenue, the back catalog 16%, paid-upfront apps 15% and in-app purchases 4%. The back catalog sells about 1,300 copies a month between the two apps, helps with the first year's payroll and fades slowly after that. By Year 5 subscriptions, store and web together, are 92% of revenue. All apps launch on iPhone first, and Android versions follow once the contract Android developer starts in month 11, so Year 1 revenue is mostly Apple-billed.
Platform terms
Apple publishes a reduced 15% commission for developers whose annual proceeds stay below $1 million, and Google Play publishes its own tiered schedule. The plan does not use 15% throughout. Store commissions and backend costs together come to 24% of store-billed subscriptions, 21% to 23% of the other store-billed lines and 13% of web-billed subscriptions in every year. That allows for a blended commission near 19% once proceeds pass $1 million and Apple's lower rate stops applying, offset in part by reduced rates on subscribers kept past 12 months. Commissions can change; confirm the current tiers before relying on them.
Privacy and consumer rules
Apps that collect photos, meal preferences and device data carry privacy duties. Subscriptions sold to California consumers fall under the state's automatic-renewal rules, which govern disclosures and cancellation. The California Consumer Privacy Act may apply once the company handles personal information at a set volume. Counsel reviews the privacy policy, terms and renewal flow before launch. None of this is legal advice.
Where the Apps Compete
The shelf is crowded
Each subscription app sits in a crowded category: free photo cleaners with ads, meal-planning apps backed by recipe publishers, and practice tools for musicians from instrument makers and teachers. The plan names no rival and quotes no competitor price, because listings and prices change each month and each app lists its own.
What the studio sells against them
| Rival type | Why a user picks it | How Tech by Tech differs by design |
|---|---|---|
| Free utilities with ads | No cost to start | Clean interface, no ads, on-device processing for photos |
| Large publisher apps | Brand name, big recipe library | Planning built on what is already in the pantry |
| Single-purpose tools from small teams | Low price | Two apps on one account and one bundle price |
| Doing the job by hand | Free | A scan or a plan in under two minutes |
Why a small studio can still do this
Phones already contain the hardware, the payment system and the distribution. A few engineers and a designer can build and update an app that a user opens every week. The studio's constraint is attention, so most of the plan is about finding payers and keeping them.
SWOT
| Strengths | Weaknesses |
|---|---|
| Founder has shipped consumer apps before | Two subscription products carry nearly all the growth |
| Back-catalog revenue covers part of Year 1 payroll | No brand yet; every app starts with zero reviews |
| On-device photo processing is cheap to run | Store reviews and rankings sit outside the studio's control |
| Opportunities | Threats |
|---|---|
| Direct web billing, where platform rules allow it, raises margin | Store commissions or rules change, or a store suspends an account or listing |
| Bundle cross-sell lifts revenue per payer | Rivals match prices or offer the same features free |
| Content packs sell to people who already use an app | A new phone operating system release breaks an app |
Who Pays for the Apps
Photo clutter owners, 25 to 45
People with several thousand photos and videos on an iPhone who see "storage almost full" warnings. They want the space back without reading every picture. This group accounts for the largest share of Tidyroll payers.
Households that plan the week's dinners
Two-adult and family households who shop once a week and throw away food. They tend to stay longer than the photo group, and the plan's single churn rate averages the two.
Hobby musicians
Guitar and bass players who practice at home and some who gig. They buy once and return for packs. They are the smallest group by dollars and the one most likely to recommend an app.
What triggers a purchase
A storage warning, a free scan that shows how many photos could go, a week of wasted groceries, or a bad rehearsal. Every app lets the user see value before a paywall appears.
What the payer expects
The app works the first time. Cancelling takes two taps. Prices stay put during a subscription. Questions get an answer in a day.
From Install to Subscriber
The path through the store
A listing view leads to an install, the install to a free scan or a sample plan, and the scan to a trial offer. The plan uses 3.5% of installs turning into paying subscribers; each app tests its own rate.
Pricing and plans
Each subscription app offers monthly and annual plans, and a bundle covers both. Annual plans carry about 60% of payers and lock in a year of revenue. The list prices blend to about $8.10 per payer per month. After free trials, promotions and regional pricing the plan books $7.40 in Year 1 and lets it drift up to $8.40 by Year 5 as list prices are tested, about 3% a year.
Keeping payers
The plan uses 4.2% monthly churn across all paying subscribers, about 40% of the base lost over a year. At that rate a payer stays about 24 months, and a $7.40 payer yields roughly $176 of revenue over that time, about $135 after direct costs. Churn for consumer subscriptions varies widely by category and price, so this is a planning figure, and the downside case cuts revenue directly instead of relying on it holding.
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Store-billed payers at year end | 8,200 | 15,500 | 22,500 | 27,000 | 30,000 |
| Web-billed payers at year end | – | – | 2,000 | 4,500 | 6,800 |
| Gross new payers in the year | 9,500 | 13,272 | 19,080 | 21,112 | 22,512 |
Direct web billing
From January 2029 the apps offer a web checkout through a merchant-of-record service, which collects sales tax and charges a payment fee. Whether apps may link users out to a web checkout depends on each platform's rules and on court rulings, which differ by country and have moved often. The plan starts web billing at zero in Years 1 and 2 and reaches 6,800 web payers by Year 5. If the platforms did not allow it, the $583,100 web line in Year 5 would be billed through the stores instead, at roughly eleven points higher direct cost.
Seeding the first payers
Lenae brings a mailing list of about 20,000 people from her earlier apps and cross-promotes inside the two back-catalog apps. Those two sources supply the earliest subscribers before any paid advertising runs.
Stop rule
An app with fewer than 1,000 paying subscribers twelve months after launch gets no new feature work, only fixes, and its engineer hours move to the apps that are growing.
Acquisition Budget
What the money buys
Year 1 marketing runs $223,000 in operating spend plus a $38,000 launch campaign funded from the raise. Operating spend covers paid installs, creator partnerships, store-listing testing and tools for the keyword work that lifts apps in store search. It falls from 56% of revenue in Year 1 to 14% in Year 5.
The budget is built from the payer count. A new payer costs about $22 in Year 1, $25 in Year 2, $23 in Year 3, $22 in Year 4 and $21 in Year 5 once all channels are blended, plus a small fixed budget for paid-app launches and tools. A payer won through paid ads alone is far dearer, about $80 at the plan's $2.80 install cost and 3.5% conversion rate, so the blended figure only holds if roughly seven out of ten new payers arrive without a paid click. Those come from store search, referrals, the studio's own cross-promotion and press. This is the plan's most demanding figure.
| Year | Gross new payers | Cost per new payer | Marketing line |
|---|---|---|---|
| 1 | 9,500 | $22 | $223,000 |
| 2 | 13,272 | $25 | $356,000 |
| 3 | 19,080 | $23 | $469,000 |
| 4 | 21,112 | $22 | $498,000 |
| 5 | 22,512 | $21 | $509,000 |
Payback
At $7.40 a month and 23.2% direct costs, a new payer returns about $5.70 a month, so a $22 payer repays in about four months. A payer won only through paid ads, at $80, would take about fourteen months.
Milestones
- March 2027: Tidyroll live; 350 payers by month end.
- September 2027: Plateful live; 5,100 store payers across both apps.
- December 2027: 8,200 store payers and $56,600 of store-billed subscription revenue in the month.
- December 2028: 15,500 store payers; web checkout in test.
- January 2029: web checkout opens to existing users first.
Shipping and Supporting the Apps
Where the work happens
Six live apps need a weekly release rhythm. Engineers ship updates every two to three weeks, with an annual rework when Apple and Google release new operating systems each autumn. Designers own onboarding, paywalls and store listings, which move the conversion rate more than a new feature does. A contract Android developer, full time from month 11, ports each app to Android after its iPhone release.
Hosting and backend
Tidyroll processes photos on the phone, so its cloud load is light. Plateful keeps accounts, recipes and plan history on a managed cloud database, and sends some requests to a language-model API. Hosting, API calls, receipt validation and push services together run about 5% of subscription revenue, and they sit inside the direct-cost line next to store commissions. Cloud and tool bills are paid on about 25-day terms. A backend and data engineer joins in month 28, once web checkout and shared accounts are live.
Support
A part-time support and community specialist starts in February 2028, working 25 hours a week. Until then Lenae and the growth marketer answer tickets. Refund requests go through the stores, and a help-desk tool, analytics, crash reporting and design software cost $26,000 in Year 1 and $60,000 by Year 5.
Getting paid
Apple and Google each pay out on a published schedule in the weeks after the month in which a sale occurs, and the schedules can change. The model uses 40 days of receivables. Annual subscriptions are paid up front, but the model books them month by month, which understates early cash slightly.
The studio
About 1,000 square feet near Culver City, enough for five desks and test devices, at $58 per square foot per year in Year 1, with increases of about 3% a year. In Year 4 the team moves to about 1,500 square feet at $62. Rent is $58,000 in Year 1 and $95,800 in Year 5.
Protection and compliance
- Cyber, errors-and-omissions, general liability and workers' compensation cover cost $14,000 in Year 1.
- A written privacy policy, terms of service and a renewal and cancellation flow reviewed by counsel before each launch.
- A security review of the first two apps, funded from the raise.
- Los Angeles business tax, the California franchise tax and permits are estimated at $4,000 in Year 1 and rise with revenue. Counsel confirms the actual rates and classification.
Outside help
Freelance illustrators and audio editors supply lesson and recipe content, and a localization service translates store listings into five languages from Year 2.
Who Builds It
Lenae Louis, founder, CEO and lead engineer
Lenae spent eight years building iPhone apps at two Los Angeles consumer app companies, the second as engineering lead for a team of six. She published Pixel Pad and Trailhead Log on her own and has kept both live. She invests $150,000 of savings. Her salary is $125,000, below what she earned before, and it sits inside the cost lines.
Hiring order
Four employees are on payroll by June 2027: Lenae, a senior iOS engineer in month 1, a product designer in month 2 and a growth and store marketer in month 6. A contract Android developer starts in month 11 and a part-time support specialist in month 14. Then hiring waits for revenue: a backend engineer in month 28, a quality engineer in month 42, a senior designer in month 50, a lifecycle marketer in month 53 and a second senior engineer in month 56. Hires from month 38 onward wait until revenue per head has held above $380,000.
Where the team is thin
Lenae has run engineering, not a sales or marketing function. Two gaps stand out: no one on the team has run paid acquisition at scale, and Android work depends on a contractor, which is why the apps ship on iPhone first. The growth marketer's first task is to build the cost-per-payer tracking that the budget depends on.
Advisors and investors
Eight angels invest about $160,000 each, on convertible notes or a priced round that the plan does not model. Two have run consumer subscription apps. A part-time advisor with a marketing background reviews acquisition spend every quarter. A startup law firm handles the investor documents.
Ownership
Lenae holds the largest stake after the round. The plan makes no forecast of any return to investors, and the five-year window pays no distributions.
Financial Plan
The forecast below comes from a single five-year model of the studio, with Year 1 laid out month by month and Years 2 to 5 shown as annual totals. The subscriber counts, churn rate and unit costs that drive revenue are listed first so each dollar can be traced to a payer count and a price.
Raise and use of funds
| Use of funds | Amount |
|---|---|
| Laptops, test iPhones, iPads and Android handsets, monitors | $34,000 |
| Studio build-out and furniture | $14,000 |
| Legal: entity, investor documents, terms of service, privacy policy, trademarks | $24,000 |
| Security review and accessibility audit of the first two apps | $9,000 |
| Developer program memberships, business registrations | $1,500 |
| Launch: store listings, preview video, press kit, creator seeding | $38,000 |
| Operating funding for the two loss-making years before the portfolio pays for the team | $1,309,500 |
| Total uses | $1,430,000 |
| Source of funds | Amount |
|---|---|
| Lenae Louis's savings and proceeds from her earlier job | $150,000 |
| Eight angel investors (about $160,000 each) | $1,280,000 |
| Total sources | $1,430,000 |
The studio raises $1,430,000 in equity and takes on no debt: $150,000 from Lenae and $1,280,000 from eight angel investors. A consumer app company has little to pledge, and monthly debt payments would drain the reserve in the years when the apps are still finding payers. $1,309,500 of the raise, 92%, is held as operating reserve because the base case loses $688,073 in Year 1 and $332,015 in Year 2 before turning to a $57,630 profit in Year 3. The round's price and the investors' share of the company are not modeled.
Subscribers, churn and unit costs
- Store-billed subscriptions start at zero in January 2027. Tidyroll ships in March and Plateful in September. Paying subscribers reach 8,200 by December 2027, then 15,500, 22,500, 27,000 and 30,000 at the end of Years 2 to 5. Revenue per paying subscriber is $7.40 a month in Year 1, rising to $7.60, $8.00, $8.20 and $8.40 as list prices are tested.
- Monthly churn is 4.2% across all paying subscribers, which loses about 40% of the base over a year. Gross new payers each year are the net change in the base plus the payers lost to churn, counting web and store payers together: 9,500 in Year 1 and 22,512 in Year 5. Consumer churn varies widely by category, price and plan mix, so 4.2% is a planning figure.
- Acquisition is priced per new payer, blended across paid and unpaid channels: $22 in Year 1, $25 in Year 2, $23 in Year 3, $22 in Year 4 and $21 in Year 5, plus $14,000 to $36,000 a year for paid-app launches and tools. A payer won only through paid ads costs about $80 ($2.80 per install at 3.5% conversion), so the blended rate requires roughly seven in ten new payers to arrive without a paid click.
- Direct costs are 24% of store-billed subscription revenue (a blended store commission near 19% plus about 5% for hosting, language-model and API calls, receipt validation and push services), 22% of paid-upfront apps, 23% of in-app purchases, 21% of the back catalog and 13% of web-billed subscriptions. Apple publishes a 15% rate below $1 million of annual proceeds and Google publishes its own schedule; both can change.
- Paid-upfront apps sell about 6,500 copies in Year 1 across Fretboard Coach at $9.99 and Stagecraft at $7.99, with unit sales falling after each launch month. Later years add a new paid music app in 2029 and another in 2031. In-app purchases are lesson and recipe packs and unlocks that grow with the subscriber base. The two older back-catalog apps sell about 1,300 copies a month at opening and slip a little each year.
- Direct web subscriptions begin in month 25 at $8.60 a month per payer and reach 6,800 payers by the end of Year 5. They depend on platform rules that vary by country and have changed several times, so the line is the first to cut if the rules tighten.
- Receivables run 40 days because the stores pay out in the weeks after month end, and cloud and vendor bills are paid in 25 days. The model books annual plans month by month, so it understates the cash that annual prepayment brings in early.
- Payroll carries a 27% load for employer taxes, health insurance, California payroll charges, workers' compensation and a retirement match; the part-time specialist carries 15% and the Android contractor none. Pay raises of 3% a year start in Year 2 and appear as their own line, so the salaries in the headcount table stay at launch-year rates.
- Rent is $58 per square foot on 1,000 square feet in Year 1 with 3% annual increases, and the studio moves to about 1,500 square feet at $62 in Year 4. Los Angeles business tax and state franchise tax are an estimate that counsel confirms.
- The model taxes the company as a C corporation at 21% federal and 8.84% California, after the early losses are carried forward. No distributions are paid in the five years.
Revenue by product type
| Revenue stream | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Store-billed subscriptions (Tidyroll and Plateful) | $259,300 | $1,080,700 | $1,824,000 | $2,435,400 | $2,872,800 |
| Direct web subscriptions | $0 | $0 | $103,200 | $335,400 | $583,100 |
| Paid-upfront apps (Fretboard Coach and Stagecraft) | $62,100 | $85,000 | $125,000 | $130,000 | $140,000 |
| Back catalog (two earlier paid apps) | $62,600 | $55,000 | $51,000 | $47,000 | $44,000 |
| In-app purchases and one-time unlocks | $17,700 | $45,000 | $70,000 | $100,000 | $115,000 |
| Total revenue | $401,700 | $1,265,700 | $2,173,200 | $3,047,800 | $3,754,900 |
| Growth on prior year | – | 215% | 72% | 40% | 23% |
Store-billed subscriptions carry the studio, at 65% of Year 1 revenue and 77% of Year 5. Web-billed subscriptions add 16% by Year 5. The back catalog is 16% of Year 1 revenue and shrinks to about 1% by Year 5, so by then the studio no longer depends on work done before it opened. Paid-upfront apps and in-app purchases are the least predictable lines, since each one spikes at launch and fades.
The first twelve months
| Month | Store-billed subscriptions (Tidyroll and Plateful) | Direct web subscriptions | Paid-upfront apps (Fretboard Coach and Stagecraft) | Back catalog (two earlier paid apps) | In-app purchases and one-time unlocks | Total revenue | EBITDA |
|---|---|---|---|---|---|---|---|
| Jan 2027 | $0 | $0 | $0 | $5,600 | $0 | $5,600 | ($71,837) |
| Feb 2027 | $0 | $0 | $0 | $5,500 | $0 | $5,500 | ($71,913) |
| Mar 2027 | $1,300 | $0 | $0 | $5,500 | $0 | $6,800 | ($70,915) |
| Apr 2027 | $4,600 | $0 | $0 | $5,400 | $0 | $10,000 | ($68,456) |
| May 2027 | $9,300 | $0 | $0 | $5,300 | $0 | $14,600 | ($64,923) |
| Jun 2027 | $14,800 | $0 | $11,000 | $5,200 | $900 | $31,900 | ($51,633) |
| Jul 2027 | $20,900 | $0 | $8,200 | $5,200 | $1,500 | $35,800 | ($48,637) |
| Aug 2027 | $27,400 | $0 | $7,000 | $5,100 | $1,900 | $41,400 | ($44,335) |
| Sep 2027 | $34,200 | $0 | $6,400 | $5,000 | $2,300 | $47,900 | ($39,341) |
| Oct 2027 | $41,400 | $0 | $6,000 | $5,000 | $2,900 | $55,300 | ($33,657) |
| Nov 2027 | $48,800 | $0 | $12,900 | $4,900 | $3,700 | $70,300 | ($22,134) |
| Dec 2027 | $56,600 | $0 | $10,600 | $4,900 | $4,500 | $76,600 | ($17,294) |
Revenue begins at $5,600 in January from the back catalog alone, passes $30,000 in June as Fretboard Coach and the first subscribers arrive, and ends December at $76,600. The monthly operating loss before interest, depreciation and tax (EBITDA) shrinks from $71,837 in January to $17,294 in December, and no month in Year 1 is profitable. Year 2 shows a larger average monthly loss ($26,800) than December 2027 because marketing rises by $133,000 and the support hire lands, and because the model spreads Years 2 to 5 evenly across the months.
Studio headcount
| Role | Annual wage | Starts | Year 1 end | Year 2 end | Year 3 end | Year 4 end | Year 5 end |
|---|---|---|---|---|---|---|---|
| Founder, CEO and lead engineer | $125,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| Senior iOS engineer | $140,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| Product designer | $105,000 | Month 2 | 1 | 1 | 1 | 1 | 1 |
| Growth and app-store marketer | $90,000 | Month 6 | 1 | 1 | 1 | 1 | 1 |
| Android engineer (contract, full time) | $84,000 | Month 11 | 1 | 1 | 1 | 1 | 1 |
| Support and community specialist (part time, 25 hours a week) | $36,000 | Month 14 | – | 0.5 | 0.5 | 0.5 | 0.5 |
| Backend and data engineer | $145,000 | Month 28 | – | – | 1 | 1 | 1 |
| Quality and release engineer | $100,000 | Month 42 | – | – | – | 1 | 1 |
| Senior product designer | $118,000 | Month 50 | – | – | – | – | 1 |
| Lifecycle and retention marketer | $95,000 | Month 53 | – | – | – | – | 1 |
| Second senior engineer (iOS and web) | $145,000 | Month 56 | – | – | – | – | 1 |
| Total payroll incl. on-costs | $539,463 | $706,150 | $847,713 | $967,833 | $1,315,284 |
Four employees are on payroll by June 2027: Lenae, the senior iOS engineer in month 1, the product designer in month 2 and the growth marketer in month 6. The Android developer works under contract from month 11 and the part-time support specialist starts in month 14. After that, hiring waits for revenue: a backend engineer in month 28, a quality engineer in month 42, a senior designer in month 50, a lifecycle marketer in month 53 and a second senior engineer in month 56. Counting the part-time role as half and leaving out the contractor, year-end headcount is 4, 4.5, 5.5, 6.5 and 9.5. Lenae's $125,000 salary starts in month one and sits inside payroll, so profit in the tables is after she has been paid.
Profit and loss
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $401,700 | $1,265,700 | $2,173,200 | $3,047,800 | $3,754,900 |
| Direct costs (store commissions, hosting, backend and API services, payment fees) | ($93,111) | ($293,380) | ($503,731) | ($706,457) | ($870,357) |
| Gross profit | $308,589 | $972,320 | $1,669,469 | $2,341,343 | $2,884,543 |
| Payroll incl. on-costs | ($539,462) | ($706,150) | ($847,712) | ($967,833) | ($1,315,284) |
| Rent | ($58,000) | ($59,700) | ($61,500) | ($93,000) | ($95,800) |
| Utilities | ($4,200) | ($4,300) | ($4,500) | ($6,100) | ($6,300) |
| Marketing | ($223,000) | ($356,000) | ($469,000) | ($498,000) | ($509,000) |
| Insurance | ($14,000) | ($17,000) | ($20,000) | ($23,000) | ($25,000) |
| Professional fees | ($20,000) | ($22,000) | ($24,000) | ($28,000) | ($30,000) |
| Software subscriptions | ($26,000) | ($36,000) | ($44,000) | ($54,000) | ($60,000) |
| Developer program fees, test devices and beta distribution | ($4,000) | ($6,000) | ($7,000) | ($8,000) | ($8,500) |
| Contract illustration, audio, recipe and lesson content | ($14,000) | ($26,000) | ($28,000) | ($42,000) | ($46,000) |
| Localization and store-listing translation | $0 | ($10,000) | ($10,000) | ($20,000) | ($22,000) |
| Equipment replacement and new-hire kit | $0 | ($12,000) | ($10,000) | ($14,000) | ($12,000) |
| City business tax, state franchise tax and permits | ($4,000) | ($7,500) | ($12,000) | ($16,000) | ($20,000) |
| Recruiting, phones, supplies and travel to two industry conferences | ($7,000) | ($10,000) | ($12,000) | ($13,000) | ($14,000) |
| Annual pay raises (3% a year) | $0 | ($21,185) | ($51,626) | ($89,744) | ($165,080) |
| EBITDA | ($605,073) | ($321,515) | $68,130 | $468,666 | $555,579 |
| Depreciation | ($10,500) | ($10,500) | ($10,500) | ($10,500) | ($2,000) |
| Interest | $0 | $0 | $0 | $0 | $0 |
| Income tax | $0 | $0 | $0 | $0 | ($34,080) |
| Net income before start-up costs | ($615,573) | ($332,015) | $57,630 | $458,166 | $519,498 |
| Start-up costs expensed at opening (legal, licensing, launch marketing) | ($72,500) | $0 | $0 | $0 | $0 |
| Net income after start-up costs | ($688,073) | ($332,015) | $57,630 | $458,166 | $519,498 |
Year 1 loses $615,573 before start-up costs and $688,073 after them, and Year 2 loses $332,015. Year 3 is the first profit, $57,630 on a 2.7% net margin, and the figure is thin because marketing is 22% of revenue that year and the backend hire starts in month 28. Year 4 reaches $458,166 (15.0%). Year 5 is $519,498 (13.8%), a little lower in margin than Year 4 because three Year 5 hires, the full-year cost of the quality engineer and pay raises add $423,000 of payroll. Income tax is zero until Year 5 ($34,080) because the first two years' losses carry forward, and the model applies limits on how much of a loss can offset a year's income. Taxed at the full combined rates, Year 5 net margin would be about 10%. Confirm the treatment with a CPA.
Cash movements
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Cash from operations | ($715,218) | ($402,483) | ($16,914) | $386,705 | $455,234 |
| Devices and studio build-out | ($48,000) | $0 | $0 | $0 | $0 |
| Funding received | $1,430,000 | $0 | $0 | $0 | $0 |
| Loan principal repaid | $0 | $0 | $0 | $0 | $0 |
| Owner distributions | $0 | $0 | $0 | $0 | $0 |
| Net change in cash | $666,782 | ($402,483) | ($16,914) | $386,705 | $455,234 |
| Closing cash | $666,782 | $264,300 | $247,385 | $634,090 | $1,089,324 |
Cash ends every year above zero, and the lowest year-end balance is $247,385 in Year 3. The studio carries no debt and pays no distributions, so cash builds to $1,089,324 by Year 5. The plan holds that balance as reserve against a failed launch and as funding for new apps.
Balance sheet
| At year end | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Cash | $666,782 | $264,300 | $247,385 | $634,090 | $1,089,324 |
| Accounts receivable | $44,022 | $138,707 | $238,159 | $334,005 | $411,496 |
| Devices and studio build-out (net) | $37,500 | $27,000 | $16,500 | $6,000 | $4,000 |
| Total assets | $748,304 | $430,006 | $502,044 | $974,095 | $1,504,820 |
| Accrued cloud, API and vendor bills | $6,377 | $20,094 | $34,502 | $48,387 | $59,614 |
| Bank loan | $0 | $0 | $0 | $0 | $0 |
| Paid-in capital | $1,430,000 | $1,430,000 | $1,430,000 | $1,430,000 | $1,430,000 |
| Retained earnings | ($688,073) | ($1,020,088) | ($962,458) | ($504,292) | $15,206 |
| Total liabilities and equity | $748,304 | $430,006 | $502,044 | $974,095 | $1,504,820 |
Margins and break-even
| Measure | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| EBITDA margin | -150.6% | -25.4% | 3.1% | 15.4% | 14.8% |
| Net margin (before start-up costs) | -153.2% | -26.2% | 2.7% | 15.0% | 13.8% |
| Payroll incl. pay raises as share of revenue | 134% | 57% | 41% | 35% | 39% |
| Revenue per full-time equivalent at year end | $100,425 | $281,267 | $395,127 | $468,892 | $395,253 |
| Average monthly revenue | $33,475 | $105,475 | $181,100 | $253,983 | $312,908 |
| Monthly revenue needed to cover operating costs | $99,112 | $140,352 | $173,709 | $203,144 | $252,640 |
| Debt service cover (EBITDA / interest + principal) | – | – | – | – | – |
The last two rows show what the studio earns each month and what it must earn to cover operating costs. Year 1 averages $33,475 against $99,112 needed, and Year 2 $105,475 against $140,352. Year 3 passes the line, with $181,100 against $173,709. There is no debt, so debt-service cover has nothing to measure.
Subscribers 20% short of plan
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $321,360 | $1,012,560 | $1,738,560 | $2,438,240 | $3,003,920 |
| Net income before start-up costs | ($600,941) | ($401,255) | ($51,097) | $223,234 | $383,350 |
| Net income after start-up costs | ($673,441) | ($401,255) | ($51,097) | $223,234 | $383,350 |
| Closing cash | $688,943 | $233,414 | $124,781 | $292,946 | $625,285 |
This case cuts every revenue line by 20% in all five years, which is the effect of subscribers coming in 20% short while prices hold. The response has five parts. Every hire from month 13 starts six months late, the second senior engineer is never hired, marketing falls 20%, Lenae's salary drops 20% to $100,000 and the studio stays in its first space. With those steps, year-end cash never falls below $124,781 and equity at the end of Year 1 is $756,559. Year 1 closing cash is higher than in the base case because the cuts to marketing and Lenae's salary save more than the lost margin costs and smaller sales mean smaller receivables. Year 3 still loses $51,097; profit returns in Year 4 at $223,234 and reaches $383,350 in Year 5. The model does not cut acquisition cost per payer, so a shortfall caused by weak organic reach would hurt more than this case shows. Without the cuts, the reserve would be gone by the end of Year 3, with year-end cash of about negative $302,000.
Sources
- Apple, App Store Small Business Program: 15% commission for developers whose proceeds stay under $1 million a year. The plan quotes no other Apple tier.
- Google, Google Play service fees: Google publishes its own tiered schedule. The plan quotes no Google rate; check the current schedule.
- California Franchise Tax Board, corporation tax information: the model uses 8.84% for California; confirm the current rate with a CPA.
- California Attorney General, California Consumer Privacy Act: thresholds for covered businesses; confirm with counsel.
- California's automatic renewal law (Business and Professions Code, section 17600 and following): confirm the current text with counsel.
- City of Los Angeles Office of Finance, business tax information: rates and classification are not quoted; counsel confirms.
- The plan's salaries, install costs, conversion rates, churn and per-payer costs are the plan's own planning figures, not market data.
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