pspafford Posted July 8, 2001 Share Posted July 8, 2001 Hey kids. I have an opportunity to partner with a marketing firm on creating a solution for a niche market. They would make the sale - I would customize the template I've created (little things like inserting the logo and company name - maybe a few functions). We haven't talked money yet. I think that we could sell a lot of these things, so I'm considering not charging for the initial design, and taking a percent of sales instead (if they'll go for that). I don't even know what they will charge their clients for this database My question: What is an appropriate percent of sales? Of course, I would like to receive the highest rate possible, but I don't want to insult them or scare them away. Travel costs MAY be an issue as well. Naturally, I have NO investment capital to play with. Thanks in advance. Link to comment Share on other sites More sharing options...
LiveOak Posted July 8, 2001 Share Posted July 8, 2001 Let's see. What's to prevent them from selling, say, 400 hours of customization which you have to perform for 20% of a $5,000 sale? I think it would be smarter to get a percentage of the base product price plus a rate per hour for every hour of customization. If it costs them nothing to speak of, sales people are prone to promise the world in the way of customization to the the customer to get the sale. Also remember that customization must be redone every time you release an upgrade. -bd Link to comment Share on other sites More sharing options...
LiveOak Posted July 8, 2001 Share Posted July 8, 2001 FM consulting rates vary widely by area, experience of the consultant, and number of hours purchased by a customer. The range for full time consultants in the USA is probably between $45 and $125 per hour, although I'm sure Chris Moyer and a few may charge more. Some part time consultants charge a little as $25 - $30 per hour, but it's hard to live on this amount. It's business income, not to be confused with a paycheck. The self employed pay a lot more taxes, plus medical insurance, unpaid vacations, etc. -bd Link to comment Share on other sites More sharing options...
pspafford Posted July 9, 2001 Author Share Posted July 9, 2001 You see, now. THIS is why I ask these questions. That is a very important consideration, LiveOak. I will definitely write that in. Any ideas on the rate? Link to comment Share on other sites More sharing options...
pspafford Posted July 9, 2001 Author Share Posted July 9, 2001 Sorry LiveOak. I should have been more specific. What I meant was what rate as a percentage of sales should I charge? I honestly have no clue. But thanks for the hints on hourly rates. I'm doing this part-time, but I still charge more than $30/hour. People seem willing to pay it (maybe that means it's time for a raise) Thanks. Paul Link to comment Share on other sites More sharing options...
LiveOak Posted July 9, 2001 Share Posted July 9, 2001 A lot of what your percentage should be depends upon your exact relationship with the marketing company. Will they have any rights to your product? Will they have rights to produce derivative works? What controls will you have to be able to determine exactly how many copies they have sold? When will your percentage be payable? What is the selling price? Percentage can be very different for a $ 39.95 package and a $ 90,000 package? Is this a general market program (rolodex) or a niche market application (tracking success of interoccular implants)? Is your percentage of the gross or net price? Will they have an exclusive to market your product? In general, the higher your risk and the more rights they get, the higher the percentage. If they prohibit you from marketing the product via other channels, the higher your percentage, etc. Cost of sale for the marketing company is a big issue. If they just add it to their web site, their cost is low. If they print and mail catalogs, their cost is higher. If they use commissioned sales reps and it takes 6 months to sell your $ 90,000 package, they will get a still bigger cut. -bd Link to comment Share on other sites More sharing options...
Kurt Knippel Posted July 9, 2001 Share Posted July 9, 2001 quote: Originally posted by LiveOak: A lot of what your percentage should be depends upon your exact relationship with the marketing company. Will they have any rights to your product? Will they have rights to produce derivative works? What controls will you have to be able to determine exactly how many copies they have sold? When will your percentage be payable? What is the selling price? Percentage can be very different for a $ 39.95 package and a $ 90,000 package? Is this a general market program (rolodex) or a niche market application (tracking success of interoccular implants)? Is your percentage of the gross or net price? Will they have an exclusive to market your product? All great points which need to be considered. Although many of them are difficult to consider without a whole bunch of information, but you should be able to get a pretty good idea of this from the marketing company themselves. Having been in this situation before, I would advise that you make sure to get a percentage of the gross. It is amazing how quickly a good marketing firm will whittle down the net, sometimes justifying a loss. Sorry then, no check for you. You might want to consider offering them a percentage of the gross from you consulting. This will encourage them to help sell that service for you, plus it'll foster a bit of goodwill and increase the partnership between you. quote: In general, the higher your risk and the more rights they get, the higher the percentage. If they prohibit you from marketing the product via other channels, the higher your percentage, etc. Cost of sale for the marketing company is a big issue. If they just add it to their web site, their cost is low. If they print and mail catalogs, their cost is higher. If they use commissioned sales reps and it takes 6 months to sell your $ 90,000 package, they will get a still bigger cut. This is an issue that you might have a hard time with. Most companies want exclusive rights, be it to the code, the sale, competition, or whatever. Make sure that you can make a living with the agreement, and make sure that you can make a living outside of the agreement as well, both as an adjunct as well as a saftey net. Ohh ya and make SURE that you keep ALL intellectual property rights to the solutions that you create, and only let the marketing company sell and use licenses. Now these licences can be pretty broad, and to all intents and purpose can be used the same as actually owning the rights, but just make sure that you retain them. Other can advise you better than I on this legal stuff, but this is really where you can get screwed by thier lawyers. Link to comment Share on other sites More sharing options...
rogermax Posted July 11, 2001 Share Posted July 11, 2001 I agree with what has been offered on this already. I also think that if the marketing group gets exclusive rights for distribution, you should receive a license fee for that right up front and in addition to any other royalties and developement. If they think it good enough to market then it is good enough for a signing bonus. Also maintain the master password for yourself, and give them a lessor password for access, unless of course you want them (anyone and everyone) to make changes. This has upside and downside. But the point of maintaining updates etc. for solutions that have been customized becomes unwieldy at best. I especially like the idea of revenue sharing on the developement or customizing of solutions. Gives both sides incentive to sell and make money. Just a few thoughts from a guy early in the same gig. Link to comment Share on other sites More sharing options...
danjacoby Posted July 11, 2001 Share Posted July 11, 2001 Been there, done that. One thing I now put into every agreement of this type -- I charge full price for developing the solution, and agree on a license fee (either a dollar amount or a percentage) on every copy they sell. Then I add a rebate for the first x number of copies they sell. That way, I'm guaranteed to get paid for my work, and they have an incentive to sell copies. Link to comment Share on other sites More sharing options...
DykstrL Posted July 11, 2001 Share Posted July 11, 2001 Another issue I didn't see mentioned, but you should consider technical support for the product. Who is going to provide support? Will they provide level 1 support. Will you provide level 2 or 3 support? Will you provide all of the support? If so, then your price/percentage should be higher. Although resolving technical issues with FileMaker is relatively easy for the most part, it can involve a lot of time. This should be very clearly spelled out in your agreement with the firm - don't assume anything. Link to comment Share on other sites More sharing options...
pspafford Posted July 16, 2001 Author Share Posted July 16, 2001 Great answers! Thanks for all of your input. I hadn't considered most of this stuff. But my original problem still exists - I have absolutely no idea what is a fair rate. Here is some more information: - the firm doing the sales is very small (two guys) - one of them is a relative of a relative (yeah ... I know) - they talked to me about it because they don't know anybody else, or if anybody else even does what I do (that seems to me like a good thing - a perceived monopoly?) - this is just in the talk stages - no money details have been discussed (but I'm pretty sure they can and will make it happen) - if they weren't planning on charging a respectable price, they wouldn't consider doing it (a few thousand? I really don't know) - it would be a fairly simple text-based database, but needs user-friendly functionality up the ying-yang (50 to 60 hours development) - I have no idea what their ideas of support would be, but would not consider doing it for less than my hourly rate Please give me an example of a reasonable percentage range that I could bring to the table (with room for negotiation). If I had any idea at all I wouldn't keep harping on the subject. Thanks again. Link to comment Share on other sites More sharing options...
LiveOak Posted July 16, 2001 Share Posted July 16, 2001 3% to 50%. It really does vary that much, perhaps more. You sometimes find out more about the deal if you let them suggest the percentage. In reality, percentages can be pretty meaningless. A better way to look at each sale is in terms of the absolute dollars per sale vs. the amount of service/work you have to provide. If each sale nets you $300, but costs you 20 hours of support... Also consider how many sales you wish to wait for your initial development to be paid off. I'd probably ask for some sales projections. Situations of this sort are never going to have pat answers. You either have to decide on a position, ask for more information, or back away. If you wait long enough, the situation will resolve itself. I don't think anyone is going to give you the "It's 14.8756468389%" answer, because it doesn't exist! -bd Link to comment Share on other sites More sharing options...
pspafford Posted July 19, 2001 Author Share Posted July 19, 2001 Hmm. That's a shame. Thanks anyhow kids. You've given me a lot of other ammunition for the negotiations. Link to comment Share on other sites More sharing options...
Ocean West Posted July 19, 2001 Share Posted July 19, 2001 Here is some food for thought... Managing the Professional Service Firm By: David H Maister Free Press Paperbacks ISBN: 0-684-83431-6 Portions of this book were used at the past DevCon in the class taught by Gary Dotzlaw of MetroTechnologies Copyright Your Software Second Edition By: Attorney Stephen Fishman Nolo Press ISBN: 0-87337-494-0 Getting Permission How to License & Clear Copyrighted Materials Online and Off (With Disk of Forms) By: Attorney Richard Stim Nolo Press ISBN: 0-87337-536-X Link to comment Share on other sites More sharing options...
Kurt Knippel Posted July 19, 2001 Share Posted July 19, 2001 quote: Originally posted by pspafford: Please give me an example of a reasonable percentage range that I could bring to the table (with room for negotiation). If I had any idea at all I wouldn't keep harping on the subject. Ok in this situation (2 small and inexperienced groups coming together) I would start with a 50% split. Neither group seems to be able to offer something so significient that the other should give up more than this. Another solution would be join forces and form some kind of company. There are so few of you that pooling your resources would probably be more productive than jumping through all kinds of hoops to keep thing seperate. Link to comment Share on other sites More sharing options...
pspafford Posted July 21, 2001 Author Share Posted July 21, 2001 Thanks, Kurt. That makes sense. Link to comment Share on other sites More sharing options...
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