In Software Industry, Size and Profitability Go Hand & Hand

Results of SPA 1992 Software Industry Financial Survey

September 21, 1992 (Washington, DC) - The Software Publishers Association
today announced the results of its annual Software Industry Financial
Survey, which provides participating members with a detailed picture of
software firms' typical financial operations. The survey, conducted among
SPA members in the spring and summer of 1992, collected financial
operating information covering the last four fiscal quarters ending March,
1992.

Highlights of the survey's findings include the following:

* There are strong economies of scale in software firms' ability to
generate revenues. The smallest firms (under $5 million in annual sales)
had a median revenue per employee of $103,000. Among the largest firms
(over $30 million annual sales), the median was $180,000. (Figure 1)

* There were substantial differences in both the average spending patterns
and profitability among classes of firms of different size. As a
percentage of sales, the smallest companies spent the most on research and
development, and G&A expenses, and reported an average operating loss. As
a percentage of sales, the largest companies spent the least on R&D and
G&A. Their operating income as a percentage of sales was the highest.
(Figure 2 and Table 1)

* As a percentage of sales, sales and marketing expense and cost of goods
sold were about the same among small, medium and large companies. Sales
and marketing expense was, on average, the largest expense category, while
cost-of-goods-sold was second largest. Since these costs were fairly
consistent across the size categories, the differences in operating profit
are driven by differences in R&D and particularly in G&A expenses. (Table
1)

"While size alone doesn't determine profitability, this study shows that
larger software companies have a decided advantage in their financial
operations," commented David Tremblay, Research Director of the SPA.
"Larger companies tend to generate more revenue per employee than do
smaller ones. They devote a lower percentage of their revenues to G&A and
R&D expenses, leading to better operating profit margins. This does not
mean that small companies are not profitable; the majority of the small
companies in our survey were. But it does illustrate one of the challenges
small software companies have in getting started."

The Software Publishers Association is the principal trade association of
the PC software industry. Its 950 members represent the leading publishers
in the business, consumer, and education markets. The SPA has offices in
Washington, DC, and Paris, France.

Software publishers Association
1730 M St, Northwest, Suite 700, Washington, D.C. 20036
202-452-1600,  Fax: 202-223-8756

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