---
title: How to assess profitability as a software publisher?
description: Here is a useful article to guide any software solution publisher or editor in their profitability assessment.
---

[Akuiteo - Blog ](https://www.akuiteo.com/en/blog)

# [How to assess profitability as a software publisher?](https://www.akuiteo.com/en/blog/how-to-assess-profitability-as-a-software-publisher)

 Written by [Jean-Baptiste Sachot](https://www.akuiteo.com/en/blog/author/jean-baptiste-sachot) | 9:00 AM on June 2, 2020

**Profitability can be defined as the difference between a company’s turnover and the amount of money invested to achieve this result. But that is theory… In the real world, there are a thousand ways to assess it! Turnover, R&D investment, integrations or even your business model… Here are ways to help find out more about profitability as a software publisher!**

## Focusing on the recurring aspect in your turnover

Generally speaking, the older a company is, the easier it becomes for it to rely on a specific recurring turnover coming from SaaS subscriptions and maintenance services. Hence, depending on the **amount of that recurring turnover** it will be possible to estimate the age of a software publisher and thus, its profitability and ability to **generate profit**.

Upon its launch, a publisher will sell numerous subscriptions at a rather low cost. After 9 years of activity, Akuiteo itself has, for instance, more than 50% of recurring turnover. On average a software publisher with 30 years of activity gets 80% of recurring turnover. They are **presumably** already profitable but can better **anticipate and monitor their activity**.

## Focusing on the R&D investment aspect

R&D generally accounts for 33% of investments for software publishers. Is there a secret to investing in R&D while remaining profitable?

**R&D investment must be concentrated** as soon as possible in order to be profitable later. The **research tax credit system** is relatively flexible, since it allows R&D to be amortised over the year or spread over time.

## The issue of the integrating aspect for profitability assessment

When it comes to integration, profitability is calculated as the ratio between the **cost of the employees who worked on the project** (salary + structure costs) and the project's **sale price**. To be profitable, this ratio should ideally be close to 2 - but 1.8 is already an excellent performance!

## Focusing on the profitability of maintenance contracts

To calculate the profitability of a **maintenance contract**, the **contract amount** must be related to the **time spent** on the project.

The most important thing is to have rules. Depending on the market situation, it should not be sold below a minimum amount -this goes beyond simply covering expenses!- For instance, in the ERP or HR software market maintenance rarely costs below €12,000 a year: this is the amount needed to cover costs and generate profitability.

## Choosing a business model: on-premise licensing vs. SaaS

To ensure profitability, **long-term customer commitment** is essential. But it is a challenging goal! Sometimes it is needed to adapt indicators, change in the **reporting** method or the type of support provided to customers.

Using the **on-premise** method, a software is paid once, then remains permanently accessible, with additional costs of scheduled maintenance. On the opposite, the price of a SaaS software license can be spread out over 5 years and may include other services such as maintenance or hosting. This enables to engage customers over time while being more profitable, especially after reaching that 5-year term!

## What are the bundle advantages?

When developing a business in a mature market, committing to a fixed-price contract is an excellent way to preserve margin, for 3 main reasons:

1. **Saving time**: no need for micro-justification of actions taken.
2. **Better forecast of invoicing**: invoicing is sequenced upstream and the rules are clear from the start – even if a delay or postponement remains possible.
3. **Monitoring the budget to the full extent instead of in days**: no more endless debates about possible invoicing! With this fixed price bundle, everybody can focus on the production run.

## Focusing on the relation between turnover and employees

If we look at the top 100 software publishers, the average turnover generated per employee ranges from €100 to €110k. If a publisher reaches €150k this may be due to a trading share in his business strategy. If it is around €80k, its **business model** is closer to one of a digital services company and its ability to invest is more limited.

This relationship, although not representative as a single figure, can be an indicator for a company: the **more cash a company generates, the more room to invest in R&D** there is… which **benefits its profitability** on the long run!

## Focusing on per project profitability

Choosing a project-approach to profitability can be very relevant to **better manage the overall profitability** of a company. This gives a clear view on which project a company makes money – and sometimes, on which projects it may lose money as well!

But to do so, it is necessary to ask some essential questions:

- Is it possible to measure the profitability of each maintenance contract?
- Can identifying phases of projects which generate margin be easily done?
- How about phases that deprive the margin?
- Can the profitability of each product, module, or version there is be clearly assessed?

**The type of service offered, R&D investments, recurrence and project organization... as many factors as there are ends to take the question of profitability as a software publisher! It's not just a question of covering expenses and preserving margins: it is also necessary to keep in mind the balance between the short, medium and long term and make the right decisions... at the right time!**

[View full post](https://www.akuiteo.com/en/blog/how-to-assess-profitability-as-a-software-publisher)

```json
{
  "@context" : "http://schema.org",
  "@type" : "BlogPosting",
  "author" : {
    "@type" : "Person",
    "name" : "Jean-Baptiste Sachot"
  },
  "dateModified" : "2020-07-22T12:11:56.418Z",
  "datePublished" : "2020-06-02T09:00:00Z",
  "headline" : "How to assess profitability as a software publisher?",
  "image" : {
    "@type" : "ImageObject",
    "height" : 410,
    "url" : "https://www.akuiteo.com/hubfs/social-suggested-images/www.akuiteo.comhubfscalculer-rentabilite-editeurs-logiciels.jpg",
    "width" : 820
  },
  "mainEntityOfPage" : "https://www.akuiteo.com/en/blog/how-to-assess-profitability-as-a-software-publisher",
  "publisher" : {
    "@type" : "Organization",
    "logo" : {
      "@type" : "ImageObject",
      "height" : 60,
      "url" : "/hs/hsstatic/content_shared_assets/static-1.4092/img/default-amp-logo.png",
      "width" : 60
    },
    "name" : "Akuiteo - Blog"
  }
}
```