How Software Companies Grow Their Profits

Creating a successful software company isn't just about selling licenses and subscriptions. To grow their profits, a software company needs to know their market well and remain scalable long-term. It takes hard work, dedication, and most of all, unbeatable software.

Here's how they do it.

1. They acquire top talent

Talent is crucial for a software company, but there's a difference between talent and skill. You can teach anyone how to program in various languages, but you can't teach talent.

Talent is the difference between Gimp and Photoshop. Both facilitate image manipulation, but Photoshop is a pure work of art. Some people say Gimp is a great Photoshop alternative, but any graphic designer worth their salt knows there's no comparison, and you couldn't pay them to use Gimp.

Software companies can increase profits by creating a better application. Part of this requires continually developing their teams by acquiring top talent. Sometimes talent is acquired through mergers & acquisitions, where one software company acquires another and gains an entire team of highly skilled experts. This alone can exponentially increase the value of their products.

2. They sell using the subscription model

Software companies used to sell their applications for a one-time license fee, and sometimes users had the option of buying different license tiers that would give them more features. This is still the case for lightweight applications that don't get much regular use. However, if you want to be more profitable, you'll need to sell subscriptions.

Today, most software companies have moved to the subscription model where users pay a monthly fee to use their applications. Most applications today are cloud-based and have far more computing power than desktop apps of the past, so paying a monthly fee feels somewhat reasonable (to most consumers).

The subscription model helps companies increase products by unlocking more features for users who pay more. It's very simple. First, the company offers a free lite version or full access to every feature for the course of a trial. Once users get hooked on the software, they're willing to pay the monthly fee.

3. They create amazing applications

Nobody pays for software when a comparable free version is available. Software companies need to develop applications that render those free apps obsolete, and ensure that professionals won't have any desire to use them.

This is easy when a company knows their market, has a firm grasp on existing products, and can identify where existing solutions fall short in order to provide those missing features.

Software companies that go out of their way to make cream-of-the-crop applications are more likely to increase their profits.

4. They constantly update and patch

Cybersecurity threats are real, and it's imperative that software developers continually support users by releasing updates and patches as needed. Unsupported software quickly becomes a target for hackers looking for vulnerabilities to exploit.

The frequency of exploited vulnerabilities is always on the rise, and more end users are becoming aware of this issue. When developers stop supporting their applications, many users will find another solution to use, even if it's not as good, because security is a priority.

It's understandable when developers have to drop a project for financial reasons, but if the company is still in business, they should be updating their applications on a regular basis. This shows new potential users that they're dedicated to security and performance.

5. They listen to user feedback

Good software companies will have an official form of support where users can submit tickets regarding bugs and troubleshooting, and suggest new features. Troubleshooting is easy to manage, but not every company cares about feature requests. It's important for companies to listen to user feedback because it really is all about the customer.

If a company produces software that is missing a key feature that would make everyone's lives easier, they have no reason not to add it to a future release. When this happens, users are happy and won't jump ship to use some other application. They'll also tell other people about the application and how amazing the developers are for listening to user feedback. Word of mouth like this is worth its weight in gold.

Profits come from success and growth

No matter how good your application is, you'll need to grow to increase your profits. It all boils down to providing as much value as possible, while increasing that value over time.

Even the best software development companies continually search for ways to increase their profits because they know there's always something they can do to increase the value provided to their users.