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January 15, 2012 07:10 PM
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anthonyhsiao

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Joined: 01/15/2012

Hi there, 

I was wondering what typical margins for Software Services Companies (web developers, software developers, etc) are. What comes to mind is a structure as follows:

revenue: 100%

cost of services sold (incl salaries of devs, project managers, testers, etc): 55%

cost of sales: 5%

cost of marketing: 5%

general & administrative: 10%

----------

ebitda: 25%

are there any 'industry benchmarks' out there?

Infosys - one of India's largest IT Companies does 42% gross profict (revenue - cost of services sold), has expenses of around 13% or revenue and a profit of around 25%, which is quite impressive.

Discussion:    Add a Comment | Comments 1-4 of 4 | Latest Comment

January 19, 2012 5:47 PM

Depends on the market and price point, but 15% to 30% is pretty common -- assuming they are mostly product as opposed to services. (Services tends to narrow margins.) For the publicly-traded firms, you can get this info from their SEC filings.

January 23, 2012 9:17 AM

Hey - did I get you right - you say 15%-30% edbitda for product companies, service would be much lower (narrow => single digit?)

So Infosys is a publicly traded firm, and I think the majority of their work is services, and they do around 25% as I mentioned.

January 23, 2012 12:21 PM updated: January 23, 2012 12:28 PM

Yes, you got me right, but I probably should not have made such a sweeping statement. Services firms' margins are really all over the map, and I've not really studied them for about 7 years. Much of the problem here is with size of company and accounting methods. E.g., lots of small (< 10pp) services companies pay founders/principals big salaries and big distributions (because they're S-corps or LLCs), and "official" profit margins thus suffer. They don't have shareholders other than themselves, so don't care about keeping anyone (other than the IRS) happy with annual reports. Big, public services companies (at least the healthy ones) report realistic and larger margins; IBM, for example, is (I think) around 24%. I was basing my knee-jerk response on the many surveys we did of SoftwareCEO readers some years back -- and that demographic is small (under $50 million) companies that might tell me their profit is only 5%, when, under more apples-to-apples accounting, profit might actually be 5 times that. Also, keep in mind that margins for product companies vary wildly by age/maturity. I.e., in early years a ton is invested in R&D and other startup costs, cramping margins; as they get traction and easy repeat customers, margins go way up. This is all to say, the word "typical" is a very dangerous concept. :-)

January 24, 2012 5:40 AM

Yeah, I think you are 100% right, though I do find it interesting to hear that 5% after 'large salaries' is not uncommon (if I may freely interpret it that way).

Should I come agross some survey, I should surely let you know

Discussion:    Add a Comment | Comments 1-4 of 4 | Latest Comment

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