diff --git a/cli/compose/template/template.go b/cli/compose/template/template.go
index 1762ab11a9d8..b958bde4015c 100644
--- a/cli/compose/template/template.go
+++ b/cli/compose/template/template.go
@@ -176,15 +176,21 @@ func extractVariable(value interface{}, pattern *regexp.Regexp) ([]extractedValu
 
 // Soft default (fall back if unset or empty)
 func softDefault(substitution string, mapping Mapping) (string, bool, error) {
-	return withDefault(substitution, mapping, "-:")
+	sep := ":-"
+	if !strings.Contains(substitution, sep) {
+		return "", false, nil
+	}
+	name, defaultValue := partition(substitution, sep)
+	value, ok := mapping(name)
+	if !ok || value == "" {
+		return defaultValue, true, nil
+	}
+	return value, true, nil
 }
 
 // Hard default (fall back if-and-only-if empty)
 func hardDefault(substitution string, mapping Mapping) (string, bool, error) {
-	return withDefault(substitution, mapping, "-")
-}
-
-func withDefault(substitution string, mapping Mapping, sep string) (string, bool, error) {
+	sep := "-"
 	if !strings.Contains(substitution, sep) {
 		return "", false, nil
 	}
diff --git a/cli/compose/template/template_test.go b/cli/compose/template/template_test.go
index 672a7e75d95b..ce3690410ffb 100644
--- a/cli/compose/template/template_test.go
+++ b/cli/compose/template/template_test.go
@@ -78,6 +78,12 @@ func TestEmptyValueWithSoftDefault(t *testing.T) {
 	assert.Check(t, is.Equal("ok def", result))
 }
 
+func TestValueWithSoftDefault(t *testing.T) {
+	result, err := Substitute("ok ${FOO:-def}", defaultMapping)
+	assert.NilError(t, err)
+	assert.Check(t, is.Equal("ok first", result))
+}
+
 func TestEmptyValueWithHardDefault(t *testing.T) {
 	result, err := Substitute("ok ${BAR-def}", defaultMapping)
 	assert.NilError(t, err)