Looking for a software publisher business plan? You're in the right place.
A publisher has to answer questions a lender or seed investor will ask before anything ships. How much cash do two release cycles burn? How much of next year's revenue comes from people who already own the product? What happens if a launch sells a fifth short? A product description won't answer those.
In this article we'll walk through a complete sample business plan for a Phoenix publisher of photo, PDF and backup utilities, section by section. We'll cover the executive summary, the SWOT analysis and, in particular, all of the financials.
Here's what you'll take away:
- The plan at a glance: see how to put the company, the raise and three years of results on one page
- The four revenue lines: learn how new licenses, upgrades, retail and bundle deals and support plans each earn money, so your forecast shows where growth comes from
- The SWOT analysis: name your weak points, such as an unsigned retail deal, in a way a reader can still back
- The release marketing budget: see what a first year of launches costs per license sold, and which channels carry it
- The five-year profit, cash flow and balance sheet: follow how each hire and each release shows up in the numbers
- The downside case: have an answer ready for "what if sales are 20% short?", along with the steps the founders take in response
If you're planning a software publishing company, read this before you write your own. Supple is fictional, so take what fits your products and change the rest.
In this plan
To turn this example into your own software publisher business plan, use the software publisher business plan template.
Plan at a Glance
Supple is a Phoenix, Arizona publisher of three consumer and prosumer utilities: Supple Photo for editing and organizing pictures, Supple PDF for editing, merging and signing documents, and Supple Backup for scheduled local and cloud backup. Each is sold as a download from the company site, through the Mac and Windows app stores, and as a boxed or bundled product. Elena Marsh and Daniel Okafor founded the company and run it from leased offices in the Phoenix area, opening on January 1, 2027.
The company raises $1,400,000: $400,000 of founder savings, $800,000 from outside seed investors and a $200,000 bank term line. Of that, $229,000 buys workstations and test devices, the first boxed production run, legal work and the launch campaign. The remaining $1,171,000 stays as cash to carry the company through two release cycles of losses.
| Year 1 | Year 2 | Year 3 | |
|---|---|---|---|
| Revenue | $1,070,000 | $2,000,000 | $3,000,000 |
| Net income after start-up costs | ($492,037) | ($142,032) | $112,538 |
| Closing cash | $743,803 | $524,432 | $551,855 |
Supple earns in four ways. A new license is a one-time sale. An annual upgrade is a discounted pass to the next paid release, sold to an existing owner. Retail and OEM bundles bring boxed sell-in and per-copy royalties, and none of that is signed yet. Support and cloud-backup plans bill by the year. In Year 1 new licenses are 58% of revenue; by Year 5 upgrades and renewals are 31% and new licenses 37%.
Year 1 loses money because up to six people are on payroll before the April and October releases have sold. Profit begins in Year 3 and reaches $387,176 in Year 5, a net margin of 8.6%. A second run of the model cuts every revenue line by 20%, holds back hires and marketing, and keeps cash positive in every year.
Supple and Its Three Titles
Legal name: Supple Publishing, Inc., an Arizona corporation. Owners: Elena Marsh and Daniel Okafor, with seed investors holding the balance. Premises: a leased office in the Phoenix metro area, about 2,000 square feet. Opening date: January 1, 2027. Stage: pre-launch. Photo 3.0 and PDF 5.0 are in development on code the founders contribute to the company at formation, and no retail or OEM contract is signed.
What each title does
| Title | What the customer gets | List price | Release plan |
|---|---|---|---|
| Supple Photo | Raw and JPEG editing, batch export, and a catalog searchable by date, camera and keyword | $59.99 | Version 3.0 in April 2027 |
| Supple PDF | Edit, merge, redact, sign and convert PDF files | $69.99 | Version 5.0 in October 2027 |
| Supple Backup | Scheduled backup to a drive or to Supple's cloud storage | $39.99 | Launches with basic cloud storage from a commercial provider; Backup 3.0 with sync in October 2029, built by the engineer hired in month 26 |
Daniel has sold an earlier version of the PDF tool on his own for six years. It has about 24,000 registered owners. At formation he assigns the tool and the customer list to Supple and stops selling it separately. Supple emails the owners under the consent they gave at purchase, which an attorney confirms before the first campaign. That list is the base the first upgrade revenue draws on.
Aims for the first two years
- Ship Photo 3.0 in April 2027 and PDF 5.0 in October 2027, each on its announced month.
- Sell about 11,900 new licenses in 2027 and 18,000 in 2028.
- Place the first boxed product with retailers by mid-2027 and sign one OEM bundle.
- Reach $2,000,000 of revenue and a headcount of ten by the end of 2028.
Licenses and legal housekeeping
Supple sells under its own end-user license terms and registers its product names as trademarks. Code-signing certificates and the Mac and Windows developer programs are annual costs. An attorney reviews the license terms, the distributor agreement and each bundle contract before signing, and these contracts decide how much of a boxed or bundled sale the company keeps.
Where Utility Software Sells Now
Four ways to buy a utility
A buyer of a photo, PDF or backup tool today chooses between free tools that come with the operating system, free web tools, subscription suites from large software companies, and independent one-time-license products. Supple is the last of these. It does not claim to beat the first three on price. It offers a permanent license, an optional paid upgrade each year, and a person on the support desk.
What the app stores charge
Distribution through a store costs a commission. Apple publishes a 15% rate on paid apps and in-app purchases for developers whose prior-year proceeds were up to $1 million, and a standard rate above that. Supple's direct cost of 20% on new licenses allows for this, together with card fees on direct sales, affiliate and reseller payouts, refunds and download bandwidth. Other stores set their own terms, and those terms change.
Retail and OEM
Boxed sales go through a distributor to retailers, and the company's net per unit is a fraction of the shelf price. OEM bundles pay a royalty for each copy a hardware maker ships with a device. The terms differ from deal to deal, and the plan uses its own figures of about $18 net per boxed unit and an average $2 royalty per bundled copy. Neither is a quoted market price.
Who else is in the field
| Alternative | What it offers | Why a customer picks it | How Supple differs by design |
|---|---|---|---|
| Tools built into the operating system | Basic photo viewing, PDF reading and backup | Free and already installed | Deeper editing, batch work and scheduled backup in one family |
| Free web tools | Quick PDF and image jobs in a browser | No install | Files stay on the customer's machine |
| Subscription suites from large vendors | Full creative and document platforms | Breadth and constant updates | One-time license and an optional yearly upgrade |
| Other independent publishers | Single-purpose paid utilities | Focus on one task | Three titles sharing one account, one upgrade offer and one support desk |
| Open-source programs | Free editors and backup tools | No cost, community support | A maintained product with a support desk and a boxed option |
Each row describes a category and where Supple sits against it, and it is not a ranking. Prices and products change often, so none are quoted.
SWOT
| Strengths | Weaknesses |
|---|---|
| A 24,000-owner list to sell upgrades to from week one | No retail or OEM contract is signed |
| Three titles sharing one customer account | A small team, with two founders carrying product and company |
| A permanent-license offer that subscription suites do not make | Year 1 loses $492,037 and relies on the reserve |
| Opportunities | Threats |
|---|---|
| Buyers tired of monthly fees | Operating-system makers adding features to their built-in tools |
| Bundle deals with hardware makers | Store commission changes or a policy change on upgrade pricing |
| Yearly paid releases that bring back buyers | A delayed release moving revenue into the next year |
Who Buys a Photo, PDF or Backup Utility
The hobbyist and home office
A typical buyer is a home user with years of photos and a pile of documents, or a one-person business that has outgrown free tools. They are comfortable installing software, dislike recurring charges, and will pay $40 to $70 for a tool they keep. They turn up on a search for "edit raw photos without a subscription" or "merge PDF files offline".
The prosumer
Photographers, bookkeepers, consultants and small offices form a smaller group that buys all three titles and pays for the yearly upgrade. This group generates most of the upgrade and support-plan revenue.
The bundle user
A person who buys a new laptop or printer and finds a Supple title in the box has not chosen Supple. The royalty is small, but a share of these users later buy an upgrade or the other titles.
Why they buy
A deadline forces the purchase: a family album to print, a form that must be signed and returned, a drive that has just failed. Support quality decides whether they come back, and a one-line fix in the first week keeps a customer through the next release.
Why they leave
A new version that breaks a file format, a cloud-storage outage, or a free built-in tool that quietly catches up. The plan expects roughly 15% of the installed base to lapse each year.
From Download Page to Shelf and Bundle
Four routes to a sale
Direct downloads from the Supple site carry the best margin because only card fees apply. The Mac and Windows stores bring discovery in exchange for a commission. Boxed product goes through a distributor to a handful of retail accounts, such as electronics chains and online retailers, with most sell-in in the second half of each year. OEM bundles are sold by the account manager hired in month 22 and, before that, by Elena.
The sales plan by year
| Year 1 | Year 3 | Year 5 | |
|---|---|---|---|
| New licenses sold | 11,900 | 23,600 | 30,000 |
| Upgrade passes sold | 5,700 | 18,400 | 28,750 |
| Boxed units sold | 6,000 | 24,000 | 33,000 |
| Bundled copies shipped | 21,000 | 94,000 | 143,000 |
| Support and backup plans | 1,100 | 5,500 | 10,700 |
How upgrades are priced
Owners buy a yearly update pass that gives them the next paid release at a discount, averaging $42 in Year 1 and $48 by Year 5, against $69.99 for a new PDF license. Two paid releases ship each year: Photo 3.0 and PDF 5.0 in 2027, Backup 2.0 and Photo 4.0 in 2028, PDF 6.0 and Backup 3.0 in 2029, and a similar rhythm after that. In January to March 2027 the upgrade revenue is renewals of the legacy owners' existing passes. The company estimates about 70,000 active owners at the start of Year 3 and expects roughly one in four to buy a pass in a year. A support plan costs about $54 a year, and a customer who skips a version can still buy the latest at the new-license price.
Cross-selling
Every purchase confirmation offers the other two titles at a bundle price, and the account system tracks who owns what. The plan counts no separate revenue for suites: a cross-sale appears as a new license.
The retail and bundle pipeline
The plan has two retail sell-in programs and one bundle deal in Year 1, none of them signed, and reaches three bundle deals by Year 5. Royalties are $42,000 of the $150,000 Year 1 line, $188,000 of $620,000 in Year 3 and $286,000 of $880,000 in Year 5. If no bundle deal signs, that part of the line does not arrive. Retail placement is slower and more expensive than direct sales, with co-op fees and trade-show costs of $20,000 in Year 1 rising to $65,000 in Year 5. Year 1 retail and OEM revenue is 14% of the total, because the company does not rely on shelf sales before the product has proved itself online.
Release Marketing and Spend
What the money buys
Year 1 marketing is $275,000, of which $85,000 is launch spending funded from the start-up capital and $190,000 is operating spend. Against 11,900 new licenses, that is about $23 per license in Year 1. By Year 3 marketing is $330,000, or about $14 for each of 23,600 licenses, and by Year 5 $440,000 across 30,000, or about $15.
| Channel | Year 1 operating spend | Role |
|---|---|---|
| Paid search and shopping ads | $62,000 | Searches for photo, PDF and backup tools without a subscription |
| Creator and reviewer partnerships | $34,000 | Review copies and sponsored tutorials for photographers and office users |
| Email and in-product offers | $26,000 | Upgrade offers to the 24,000-owner list and every later buyer |
| Comparison sites and press | $24,000 | Review units and press outreach around each release |
| Release campaigns | $28,000 | Launch pages, videos and screenshots for April and October |
| Co-marketing and store promotions | $16,000 | Featured placements and joint offers with the stores |
Launch spending of $85,000 pays for the site and checkout relaunch ($30,000), packaging design ($22,000), launch video and screenshots ($13,000), store listing assets and translation ($10,000) and reviewer outreach for Photo 3.0 ($10,000).
Release calendar
- January 2027: new site and checkout live; first email to the 24,000 owners.
- April 2027: Photo 3.0 ships.
- May 2027: first boxed sell-in begins.
- October 2027: PDF 5.0 ships and the holiday boxed program starts.
- December 2027: monthly revenue of $144,000.
Building and Shipping the Releases
The office and the build
Supple leases about 2,000 square feet in the Phoenix area at a planning rate of $30 a square foot a year, which is $60,000 in Year 1. The space holds eight shared desks for a hybrid team, a test bench of Windows and Mac machines and phones, and a shelf for boxed stock. In Year 4 the company moves to about 2,900 square feet at a higher rate.
How a release is made
Each title follows a quarterly rhythm: design and specification, development, a beta with about 500 volunteers drawn from the owner list, release-candidate testing on the test bench, and a release. A release and QA engineer joins in month 13, because by then two titles are updating on the same calendar. Contract testers cover localization and accessibility testing for $30,000 in Year 1.
Support
Customers write in through a help desk and a community forum. The company estimates about 12 in 100 license holders write in during a year, which is roughly 4,300 tickets in Year 1. One specialist can handle that volume with help from the founders; a second joins in month 20 and a third in month 44. Priority support plans route to the same desk with a shorter reply time.
Stock and fulfillment
The first production run is 8,000 boxes at about $5 each, which is $40,000. A distributor handles shipping to retailers. Stock on the balance sheet is the first run plus 3% of annual direct costs, which funds reorders and a returns reserve.
Risks and insurance
Insurance covers cyber liability, technology errors and omissions, general liability and workers' compensation, and is planned at $24,000 in Year 1. Customer files stay on customers' machines unless they choose cloud backup, and the cloud service uses encrypted storage from a commercial provider. Compliance work on privacy rules for the cloud product is covered by the legal and professional fees line.
Suppliers
Box printers, a cloud-storage provider, a payment processor and the two app stores. None has an exclusive contract, and the plan does not rely on any single printer or storage provider.
The Founders and the Gaps
Elena Marsh, chief executive
Elena has twelve years in consumer software, nine of them in product and marketing roles at a mid-size software company, where she ran pricing and upgrade campaigns. She leads sales, marketing, finance and retail relationships.
Daniel Okafor, chief technology officer
Daniel has fourteen years as an engineer and has written and sold the original PDF tool himself. He leads engineering and security.
Where the team is thin
The founders have not signed a retail or OEM contract, and neither has run a cloud service at scale. The plan answers each in turn: the account manager hired in month 22 owns retail and OEM, an attorney reviews each contract, and the second version of Backup waits for a dedicated engineer from month 26.
If a founder is out
Each founder is a single point of failure for part of the business. The senior engineer who starts in month 1 can keep releases moving for a few weeks without either founder, and the company holds key-person life and disability cover on both.
Investors and the bank
The founders put in 29% of the capital and the seed investors 57%. Investors receive quarterly financial statements. The bank term line is secured on equipment, stock and receivables, carries the founders' personal guarantees and requires quarterly accounts. The seed investors' ownership percentages are set in the investment agreement and are not part of this plan.
Five Years in Numbers
The forecast covers 2027 to 2031. The first year is shown month by month because the April and October releases and the holiday boxed sell-in move cash sharply; later years are annual. Unit prices and volumes come first so each revenue line can be rebuilt from them.
Where the $1.4 million goes
| Use of funds | Amount |
|---|---|
| Workstations, test devices (Windows, Mac, phones) and build server | $46,000 |
| Office fit-out | $14,000 |
| First production run of boxed product (8,000 boxes) | $40,000 |
| Legal: entity, IP assignment, trademarks, license terms, retail and bundle contracts | $38,000 |
| Code-signing certificates, developer-program fees, payment setup | $6,000 |
| Launch: site relaunch, packaging design, release campaigns | $85,000 |
| Cash reserve for the first two release cycles | $1,171,000 |
| Total uses | $1,400,000 |
| Source of funds | Amount |
|---|---|
| Elena Marsh's and Daniel Okafor's savings | $400,000 |
| Seed investors (equity) | $800,000 |
| Bank term line, drawn in full at opening | $200,000 |
| Total sources | $1,400,000 |
Supple raises $1,400,000: $400,000 from Elena and Daniel, $800,000 from outside seed investors and a $200,000 bank term line, which is 29%, 57% and 14% of the total. The line runs five years at 9.5% with interest only for six months, secured on equipment, stock and receivables, and the founders would expect to guarantee it personally. A lender may ask for an SBA guarantee or different terms, and the rate is an example, not a quote. Only $229,000 goes into assets, stock and launch work; the other $1,171,000 sits in the bank to carry two release cycles of losses and to leave room for a downside year. The reserve is larger than the build cost suggests because it covers the $758,000 of cash that operations use in Years 1 and 2 and leaves room for a weak year.
Unit prices and volumes behind the forecast
- New licenses average about $52 a copy in Year 1, a blend of Photo at $59.99, PDF at $69.99 and Backup at $39.99 after launch discounts. That is about 11,900 licenses, from direct downloads and the Mac and Windows app stores combined. By Year 3 the blend is about $53 and 23,600 copies; by Year 5 it is $55 and 30,000.
- Upgrade revenue comes from a yearly update pass that gives owners the next paid release at a discount. About 24,000 people own the PDF utility Daniel has sold on his own for six years; the tool and its customer list are assigned to Supple at formation, and the plan gives Supple the right to email them. The pass averages $42 in Year 1, $45 in Year 3 and $48 in Year 5, against new-license prices of $40 to $70. Year 1 brings about 5,700 passes, which is 24% of the legacy owners; Year 3 about 18,400 and Year 5 about 28,750. Active owners at the start of Year 3, counting the legacy list, new licenses, boxed buyers who register and bundle users, are estimated at about 70,000 after a 15% yearly lapse, so roughly one owner in four buys a pass in a year. Releases drive timing: Photo 3.0 and PDF 5.0 in 2027, Backup 2.0 and Photo 4.0 in 2028, PDF 6.0 and Backup 3.0 in 2029, then two paid releases a year after that. January to March upgrade revenue in Year 1 is renewals of the legacy owners' existing passes.
- Retail and OEM revenue is the least certain line because no contract is signed at launch. Boxed units net about $18 each after distributor and retailer margins. Year 1 holds about 6,000 boxed units ($108,000) and $42,000 of bundle royalties, which is about 21,000 bundled copies at an average $2 from one deal. Year 3 holds about 24,000 boxed units ($432,000) and $188,000 of royalties (94,000 copies, two deals), and Year 5 about 33,000 units ($594,000) and $286,000 (143,000 copies, three deals). Bundle terms are negotiated deal by deal and these figures are the plan's own; if no deal signs, the royalty portion of the line does not arrive.
- Priority support and cloud-backup plans bill at about $54 a year. Year 1 has roughly 1,100 plans, Year 3 about 5,500 and Year 5 about 10,700. Cloud storage and card fees make this the costliest line to serve, at 28% of its revenue.
- Direct costs are modeled at 19.6% of revenue in every year, the Year 1 blend of the stream rates below. New licenses carry 20%: card fees, store commissions, affiliate and reseller payouts, refunds and download bandwidth. Upgrades carry 10%, boxed and bundle sales 30% (about $7.50 a box in Year 1: $5 production plus $2.50 of freight and a returns allowance) and support and backup plans 28%. The stream mix shifts only a little, so the true blend would stay near 20%. Apple publishes a 15% commission rate on paid apps and in-app purchases for developers under $1 million in prior-year proceeds; the standard rate applies above that, so the 20% leaves room.
- Each employee carries a 27% load for payroll taxes, health cover, workers' compensation and a retirement match. Wages are the plan's own figures and sit between $50,000 for support staff and $135,000 for the founders and senior engineers; they are not survey medians. Raises of 3% a year are charged on one separate line from Year 2.
- Rent is $30 a square foot a year on 2,000 square feet in Phoenix, or $60,000 in Year 1, with 3% annual steps until a move to about 2,900 square feet at roughly $32 in Year 4; both are planning figures to confirm with a local broker. Insurance covers cyber, technology errors and omissions, general liability and workers' compensation, and rises from $24,000 to $52,000, a planning figure to confirm with an insurer.
- Customers pay at checkout, but stores and distributors settle after the month ends, and the plan allows retail accounts up to 60 days. The blended receivable period is 24 days. Suppliers of printing, cloud storage and store payouts are paid in 30 days. Boxed stock is the $40,000 first run (8,000 boxes at $5) plus 3% of annual direct costs, which funds reorders and a reserve for returns.
- The model taxes Supple as a C corporation, 21% federal and 4.9% for Arizona, after carrying the early losses forward. Tax first appears in Year 5. The state rate may change and is not verified here; confirm it with the Arizona Department of Revenue. The model offsets losses against all taxable income, whereas federal rules may cap the offset for later-year losses at a share of taxable income, which could bring a small tax bill forward into Years 3 and 4. Confirm with a tax adviser. No dividends are paid in the five years.
Revenue by license type
| Revenue stream | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| New licenses (direct and app stores) | $620,000 | $940,000 | $1,250,000 | $1,450,000 | $1,650,000 |
| Annual upgrade passes and renewals | $240,000 | $500,000 | $830,000 | $1,090,000 | $1,380,000 |
| Retail and OEM bundle licenses | $150,000 | $400,000 | $620,000 | $760,000 | $880,000 |
| Priority support and cloud-backup plans | $60,000 | $160,000 | $300,000 | $450,000 | $580,000 |
| Total revenue | $1,070,000 | $2,000,000 | $3,000,000 | $3,750,000 | $4,490,000 |
| Growth on prior year | – | 87% | 50% | 25% | 20% |
New licenses bring in 58% of Year 1 revenue and 37% of Year 5. Upgrade passes grow from 22% to 31% as the installed base builds, which is the shift that makes a publisher's later years easier than its first. Retail and OEM sales grow fastest early and then settle near 20%. Support and backup plans are small at first and reach 13% of revenue.
Twelve months of releases
| Month | New licenses (direct and app stores) | Annual upgrade passes and renewals | Retail and OEM bundle licenses | Priority support and cloud-backup plans | Total revenue | EBITDA |
|---|---|---|---|---|---|---|
| Jan 2027 | $36,000 | $14,000 | $0 | $2,000 | $52,000 | ($57,454) |
| Feb 2027 | $38,000 | $14,000 | $0 | $2,000 | $54,000 | ($55,846) |
| Mar 2027 | $42,000 | $15,000 | $0 | $3,000 | $60,000 | ($51,022) |
| Apr 2027 | $66,000 | $26,000 | $0 | $4,000 | $96,000 | ($22,081) |
| May 2027 | $50,000 | $20,000 | $6,000 | $4,000 | $80,000 | ($34,944) |
| Jun 2027 | $45,000 | $18,000 | $8,000 | $5,000 | $76,000 | ($38,160) |
| Jul 2027 | $43,000 | $17,000 | $8,000 | $5,000 | $73,000 | ($40,571) |
| Aug 2027 | $47,000 | $18,000 | $10,000 | $5,000 | $80,000 | ($34,944) |
| Sep 2027 | $49,000 | $19,000 | $12,000 | $6,000 | $86,000 | ($30,120) |
| Oct 2027 | $80,000 | $32,000 | $26,000 | $7,000 | $145,000 | $17,311 |
| Nov 2027 | $60,000 | $22,000 | $34,000 | $8,000 | $124,000 | $429 |
| Dec 2027 | $64,000 | $25,000 | $46,000 | $9,000 | $144,000 | $16,507 |
Sales jump in April, when Photo 3.0 ships, and again in October with PDF 5.0, and the boxed sell-in lifts November and December. Monthly operating profit before interest, depreciation and tax (EBITDA) is below zero from January to September and turns positive in October and December; November is break-even. Within Year 1, cash net of receivables is lowest in Oct, at about $679,000; the year-end low comes later, in Year 2.
Team by hire month
| Role | Annual wage | Starts | Year 1 end | Year 2 end | Year 3 end | Year 4 end | Year 5 end |
|---|---|---|---|---|---|---|---|
| Co-founder and chief executive | $135,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| Co-founder and chief technology officer | $135,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| Senior engineer | $125,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| Customer support specialist | $50,000 | Month 2 | 1 | 1 | 1 | 1 | 1 |
| Marketing and partnerships manager | $92,000 | Month 3 | 1 | 1 | 1 | 1 | 1 |
| Engineer, imaging and PDF | $108,000 | Month 4 | 1 | 1 | 1 | 1 | 1 |
| Release and QA engineer | $90,000 | Month 13 | – | 1 | 1 | 1 | 1 |
| Product designer | $95,000 | Month 16 | – | 1 | 1 | 1 | 1 |
| Second support specialist | $52,000 | Month 20 | – | 1 | 1 | 1 | 1 |
| Retail and OEM account manager | $85,000 | Month 22 | – | 1 | 1 | 1 | 1 |
| Engineer, backup and cloud | $115,000 | Month 26 | – | – | 1 | 1 | 1 |
| Finance and operations manager | $80,000 | Month 30 | – | – | 1 | 1 | 1 |
| Content and community marketer | $72,000 | Month 34 | – | – | 1 | 1 | 1 |
| Second senior engineer | $130,000 | Month 38 | – | – | – | 1 | 1 |
| Renewals and support specialist | $52,000 | Month 44 | – | – | – | 1 | 1 |
| Mobile and tablet engineer | $118,000 | Month 50 | – | – | – | – | 1 |
| Total payroll incl. on-costs | $760,095 | $1,078,442 | $1,444,096 | $1,746,038 | $1,935,692 |
Three people start in month 1: the two founders and a senior engineer. A support specialist joins in month 2, a marketing manager in month 3 and a second engineer in month 4 for the April release, which makes six. Four hires follow in Year 2, starting with release and QA in month 13 and the product designer in month 16. Year 3 adds backup and cloud engineering, an operations manager and a community marketer, and the second senior engineer arrives in month 38. The mobile engineer starts in month 50, after a third support hire in month 44. Headcount is 6, 10, 13, 15 and 16 at the end of the five years. The founders draw $135,000 each from month 1, inside the costs, so profit in the tables is what remains after they are paid.
Profit and loss
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $1,070,000 | $2,000,000 | $3,000,000 | $3,750,000 | $4,490,000 |
| Direct costs (store and payment fees, boxed production and freight, cloud storage) | ($209,800) | ($392,150) | ($588,224) | ($735,280) | ($880,376) |
| Gross profit | $860,200 | $1,607,850 | $2,411,776 | $3,014,720 | $3,609,624 |
| Payroll incl. on-costs | ($760,095) | ($1,078,442) | ($1,444,096) | ($1,746,038) | ($1,935,692) |
| Rent | ($60,000) | ($62,000) | ($64,000) | ($94,000) | ($97,000) |
| Utilities | ($9,000) | ($10,000) | ($11,000) | ($14,000) | ($15,000) |
| Marketing | ($190,000) | ($270,000) | ($330,000) | ($400,000) | ($440,000) |
| Insurance | ($24,000) | ($30,000) | ($38,000) | ($46,000) | ($52,000) |
| Professional fees | ($45,000) | ($48,000) | ($52,000) | ($56,000) | ($60,000) |
| Software subscriptions | ($48,000) | ($70,000) | ($100,000) | ($125,000) | ($145,000) |
| Contract QA, localization and accessibility testing | ($30,000) | ($50,000) | ($60,000) | ($60,000) | ($60,000) |
| Retail co-op and trade-show costs | ($20,000) | ($40,000) | ($55,000) | ($60,000) | ($65,000) |
| Equipment replacement and new-hire kit | $0 | ($18,000) | ($14,000) | ($25,000) | ($20,000) |
| Bad debt allowance | ($5,000) | ($12,000) | ($18,000) | ($22,000) | ($26,000) |
| Annual pay raises (3% a year) | $0 | ($32,353) | ($87,945) | ($161,905) | ($242,946) |
| EBITDA | ($330,895) | ($112,944) | $137,735 | $204,776 | $450,987 |
| Depreciation | ($13,500) | ($13,500) | ($13,500) | ($13,500) | ($2,000) |
| Interest | ($18,642) | ($15,588) | ($11,697) | ($7,420) | ($2,718) |
| Income tax | $0 | $0 | $0 | $0 | ($59,092) |
| Net income before start-up costs | ($363,037) | ($142,032) | $112,538 | $183,856 | $387,176 |
| Start-up costs expensed at opening (legal, licensing, launch marketing) | ($129,000) | $0 | $0 | $0 | $0 |
| Net income after start-up costs | ($492,037) | ($142,032) | $112,538 | $183,856 | $387,176 |
Year 1 loses $363,037 before start-up costs and $492,037 after the $129,000 of legal, licensing and launch spending is expensed. Year 2 loses $142,032, as four hires land before the upgrade base has grown. Profit arrives in Year 3 at $112,538 and rises to $183,856 and then $387,176, a net margin of 8.6% in Year 5. Net margin is thin in Years 3 and 4, at 3.8% and 4.9%, because hiring continues and the larger office arrives in Year 4. The early losses shelter profit from income tax until Year 5.
Cash movements
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Cash from operations | ($577,943) | ($180,166) | $70,518 | $155,716 | $348,092 |
| Workstations, test devices and office fit-out | ($60,000) | $0 | $0 | $0 | $0 |
| Funding received | $1,400,000 | $0 | $0 | $0 | $0 |
| Loan principal repaid | ($18,254) | ($39,204) | ($43,095) | ($47,372) | ($52,074) |
| Owner distributions | $0 | $0 | $0 | $0 | $0 |
| Net change in cash | $743,803 | ($219,370) | $27,423 | $108,344 | $296,018 |
| Closing cash | $743,803 | $524,432 | $551,855 | $660,199 | $956,217 |
Cash stays positive throughout and is lowest at the end of Year 2, at $524,432. The term line is repaid in full by the end of Year 5. Nothing is paid to owners in this period.
Balance sheet
| At year end | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Cash | $743,803 | $524,432 | $551,855 | $660,199 | $956,217 |
| Accounts receivable | $70,356 | $131,507 | $197,260 | $246,575 | $295,233 |
| Boxed product and packaging stock | $46,294 | $51,764 | $57,647 | $62,058 | $66,411 |
| Workstations, test devices and office fit-out (net) | $46,500 | $33,000 | $19,500 | $6,000 | $4,000 |
| Total assets | $906,953 | $740,704 | $826,262 | $974,833 | $1,321,861 |
| Accounts payable (printers, distributors, cloud and store payouts) | $17,244 | $32,231 | $48,347 | $60,434 | $72,360 |
| Bank term line | $181,746 | $142,542 | $99,446 | $52,074 | $0 |
| Paid-in capital | $1,200,000 | $1,200,000 | $1,200,000 | $1,200,000 | $1,200,000 |
| Retained earnings | ($492,037) | ($634,069) | ($521,531) | ($337,675) | $49,501 |
| Total liabilities and equity | $906,953 | $740,704 | $826,262 | $974,833 | $1,321,861 |
Break-even and payroll load
| Measure | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| EBITDA margin | -30.9% | -5.7% | 4.6% | 5.5% | 10.0% |
| Net margin (before start-up costs) | -33.9% | -7.1% | 3.8% | 4.9% | 8.6% |
| Payroll incl. pay raises as share of revenue | 71% | 56% | 51% | 51% | 49% |
| Revenue per full-time equivalent at year end | $178,333 | $200,000 | $230,769 | $250,000 | $280,625 |
| Average monthly revenue | $89,167 | $166,667 | $250,000 | $312,500 | $374,167 |
| Monthly revenue needed to cover operating costs | $123,467 | $178,374 | $235,723 | $291,273 | $327,418 |
| Debt service cover (EBITDA / interest + principal) | -9.0x | -2.1x | 2.5x | 3.7x | 8.2x |
Average monthly revenue is $89,167 in Year 1 against $123,467 needed to cover operating costs, and $166,667 against $178,374 in Year 2. Year 3 clears the bar, with $250,000 against $235,723. Payroll takes 71% of revenue in Year 1 and 49% in Year 5, as upgrade revenue builds without a matching rise in headcount. Debt service cover is negative until Year 3, then 2.5x, 3.7x and 8.2x.
If every release sells 20% short
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $856,000 | $1,600,000 | $2,400,000 | $3,000,000 | $3,592,000 |
| Net income before start-up costs | ($462,787) | ($197,145) | ($77,351) | ($53,115) | $156,389 |
| Net income after start-up costs | ($591,787) | ($197,145) | ($77,351) | ($53,115) | $156,389 |
| Closing cash | $655,934 | $391,778 | $240,415 | $120,115 | $193,562 |
Every revenue line comes in 20% under plan in all five years. Elena's response has five parts: hires from month 13 start six months late, the second senior engineer is never hired, marketing falls 20%, her own pay falls 20% and the office stays at its original size. Year-end cash does not drop below $120,115, reached in Year 4, and the company turns profitable in Year 5 at $156,389, against $387,176 in the base case. It loses money in every year before that, and each year is worse than the base. Year 1 closes with equity of $608,213, so the balance sheet stays solvent. Paid search takes the marketing cut and upgrade email is protected. The model does not shrink boxed reorders, which would be a further lever.
Sources
- Apple, App Store Small Business Program: a 15% commission on paid apps and in-app purchases for developers with up to $1 million in prior-year proceeds, with the standard rate above that threshold.
- Arizona Department of Revenue, corporate income tax: the 4.9% state rate in the model is not verified against the Department's page, so confirm the current rate before relying on it.
- Bureau of Labor Statistics, software developer wage data: not used. The wages in the personnel table are the plan's own figures, not survey medians.
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