Why Software Firms are More Profitable

If the economic scenario of the industrial world across the globe can be looked at, then it can be observed that IT and IT enabled services industries are proving out to be more profitable in developing nations. A significant percentage of the national income of any developing nation is fulfilled by the revenue earned via IT and IT enabled services industries, i.e. software industries. For any entrepreneur, this is such an industry, where market entry and exit is extremely easy, and the level of differentiation is also very high. This is proving out to be the most profitable industry among the portfolio of all the industries. There are certain reasons behind this aspect of rapidly growing profitability of this industry.

  • The major driving force of the software industry is the managed fixed exchange rate mechanism. Most of the projects, which are developed by software firms, are outsourced from developed nations. Therefore, the firms always enjoy the depreciated exchange rate, which nothing but enhance their revenue stream.
  • Firms always work on projects, which have several stages, namely requirement gathering, architecture designing, developing, testing, documenting, making live, and then maintenance. Out of all these stages, maintenance is the most crucial one from revenue stream perspective. Once the project is developed and handed over to the client, the service provider has to take care of the maintenance related issues, which actually is the cash cow stage of the project. Firms try to obtain the project y bidding very low, and they can easily achieve the breakeven point once the project enters the maintenance stage. Billing is done separately for this stage, and these projects can stay forever with the service providers as a consistent cash cow.
  • The major concern of any entrepreneur before starting any startup is the amount of capital to be employed for that initiative. From that perspective, establishment of a software firm calls for the minimum amount of capital at the beginning stage. Moreover, once the business starts running, the cost of debt can easily be minimized to zero by calling of the entire debt burden. The firms can be started, once a project is acquired by the entrepreneur and his colleagues. What are required are a few computers, based on the number of heads in that organization, a high-speed internet connection, and sometimes no office space literally (thanks to virtual platform).

For knowing about more reasons behind the profitability of software firms, kindly browse through the pages of www.learnwithmike.eu.

Leave a Reply

Your email address will not be published. Required fields are marked *