How Do Web Development Companies Make Money

Start a web development company by following these 10 steps:

You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your web development company. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Check out our How to Start a Business page.

STEP 1: Plan your business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

What are the startup and ongoing costs?
Who is your target market?
How much can you charge customers?
What will you name your business?

Luckily we have done a lot of this research for you.

What are the costs involved in opening a web development company?

Basic costs for starting a web development company are minimal. All that's needed is a computer and some office space. Total costs should not exceed $5,000. Most of the cost will be wrapped up into a good quality laptop or desktop, ample screen space (using multiple screens for design work), a business phone, a pro-grade text editor, and design reference books.

Marketing costs may run you between $2,000 and $5,000 in the first year. This is especially true if you plan on doing any type of direct mail.

What are the ongoing expenses for a web development company?

Ongoing expenses are minimal. Web development companies with offices pay utilities and rent like every other business, which makes up the majority of the ongoing costs. Other costs, like office supplies, tend to be minimal. Costs like cloud storage, time tracking software, and project management software, vary based on the needs of the developer.

Some developers find it helpful to include project management and "whiteboard" apps like Basecamp. These project management applications also make collaboration with clients easier and more streamlined. They work well when you primarily work with clients over the Internet.

Who is the target market?

Ideal clients are corporate clients that have a need for extensive coding and application deployment. Most web design companies try to avoid small projects or projects which have a high overhead and low profit margin.

How does a web development company make money?

Web development companies make money by charging clients an hourly or flat fee for coding websites.

How much can you charge customers?

Entry-level pricing for web developers is between $25 and $100 per hour for small projects. Average pricing is $100 – $200 per hour. Project costs are often calculated or estimated in advance. Any work that goes over this amount is then cleared with the client before more work is performed. This helps set budgets and expectations for the client.

Some web developers charge flat fees for projects. Usually, the flat-fee arrangement is appropriate when a project is similar to other past projects the developer has done and there is a template or guide the developer will use for the current project.

How much profit can a web development company make?

Profit potential is high for this type of business since costs are relatively low. A one-person web development company can clear $65,000 per year. If you have a team of developers, profit potential is much higher. For example, a 5 person company could clear $400,000 to over $1 million in revenue, depending on average project size and hourly rate.

How can you make your business more profitable?

To make your web development business more profitable, consider adding additional services like web hosting and storage. An integrated CMS platform will also help increase revenue. All these revenue sources are scalable so even if you cannot provide development services to clients, you can sell them hosting, storage, and content management platform services.

Some development companies also offer design services or partner with web designers and collect a "finder's fee."

What will you name your business?

Choosing the right name is important and challenging. If you don't already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Web Development Company Name Generator

If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.

When registering a business name, we recommend researching your business name by checking:

Your state's business records
Federal and state trademark records
Social media platforms
Web domain availability.

It's very important to secure your domain name before someone else does.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your web development company is sued.

Read our Guide to Form Your Own LLC

Have a Professional Service Form your LLC for You

Two such reliable services:

You can start an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

In order to register for taxes you will need to apply for an EIN. It's really easy and free!

You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.

Learn how to get an EIN in our What is an EIN guide or find your existing EIN using our EIN lookup guide.

Small Business Taxes

Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).

You can learn more about small business taxes in these guides:

LLC Taxes
Sole Proprietorship vs LLC
LLC vs Corporation
LLC vs S Corp
How to Start an S Corp

There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.

STEP 4: Open a business bank account & credit card

Using dedicated business banking and credit accounts is essential for personal asset protection.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.

Open a business bank account

This separates your personal assets from your company's assets, which is necessary for personal asset protection.
It also makes accounting and tax filing easier.

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Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.

Open net-30 accounts

When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term "net-30," which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.

Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.

Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.

Get a business credit card

This helps you separate personal and business expenses by putting your business' expenses all in one place.
It also builds your company's credit history, which can be useful to raise money and investment later on.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

State & Local Business Licensing Requirements

Certain state permits and licenses may be needed to operate a web development business. Learn more about licensing requirements in your state by visiting SBA's reference to state licenses and permits.

Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.

In addition, certain local licensing or regulatory requirements may apply. For more information about local licenses and permits:

Check with your town, city or county clerk's office
Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.

Services Contract

Web development businesses should require clients to sign a services agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, service level expectations, and intellectual property ownership (who will ultimately own the site's design). Here is an example of one such services agreement.

Recommended: Rocket Lawyer makes it easy to create a professional service agreement for your web development business when you sign up for their premium membership. For $39.95 per month, members receive access to hundreds of legal agreements and on call attorneys to get complimentary legal advice.

STEP 7: Get business insurance

Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company's financial wellbeing in the event of a covered loss.

There are several types of insurance policies created for different types of businesses with different risks. If you're unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it's a great place to start for your business.

Learn more about General Liability Insurance.

Another notable insurance policy that many businesses need is Workers' Compensation Insurance. If your business will have employees, it's a good chance that your state will require you to carry Workers' Compensation Coverage.

STEP 8: Define your brand

Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.

If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.

How to promote & market a web development company

Promoting your business is going to take work. Find a mailing list of business owners who have purchased design services in the last year and mail them your offer. These leads are most likely to want to buy design services from you. Alternatively, send out flyers to local businesses.

How to keep customers coming back

Differentiate yourself by specializing in certain industries. For example, if you become known as a web designer for restaurants, it will be easier for you to dominate that market. If you specialize in designing websites for consultants or doctors or financial planners, you it will decrease your competition. Clients want to work with specialists, not generalists.

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Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.

STEP 9: Create your business website

After defining your brand and creating your logo the next step is to create a website for your business.

While creating a website is an essential step, some may fear that it's out of their reach because they don't have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.

Here are the main reasons why you shouldn't delay building your website:

All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don't need to hire a web developer or designer to create a website that you can be proud of.

Using our website building guides, the process will be simple and painless and shouldn't take you any longer than 2-3 hours to complete.

Other popular website builders are: WordPress, WIX, Weebly, Squarespace, and Shopify.

STEP 10: Set up your business phone system

Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That's not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.

There are many services available to entrepreneurs who want to set up a business phone system. We've reviewed the top companies and rated them based on price, features, and ease of use.