Software Sales & Marketing Deal Structures? 23
Entrepreneurs asks: "My business partner and I run a small but growing software company. For approximately the past two years, we have been collaborating with some outstanding overseas developers, have established a strong relationship with this group, and plan on continuing our collaboration with them in the future. As a means of jump-starting our business, we have entered into discussions with this same group regarding some would-be sales and marketing deals in which they would develop and support some products while we would be solely responsible for sales, marketing and would bear all costs associated with these activities. Both parties are in essentially in agreement as to the overarching roles that would be played, but we are as yet far apart in regards to our respective perception as to what represents a fair deal structure (% revenues) for the developer as opposed to the sales/marketing partner. What wisdom can Slashdot readers offer regarding the typical structure of software sales and marketing agreements?"
"Previous experience in the biotechnology industry (an industry that I argue shares several similarities to the software industry) tells me that sales/marketing partners typically get anywhere from 60 to 75% of topline revenues, with the remainder going to the development company. Our overseas partners are essentially arguing for the exact opposite, something to which we would never agree, as we believe it would represent an abandonment of our fiduciary responsibilities. Having never negotiated a deal such as this, we are somewhat at a loss as to what the industry standard terms are for situations such as this and have had a difficult time obtaining quality information that addresses our situation."
sales is VERY important (Score:3, Insightful)
On the other hand, without the manufacturer (in your case, the software author), the product you're selling wouldn't even exist, and you need to give them enough income to make it worth their while to improve the product and give you new products to sell.
I would recommend some sort of performance-based arrangement, where your percentage goes up if you sell additional packages. This should satisfy both requirements.
Hoo boy (Score:2)
You can:
A - flip for who gets the larger percentage
B - meet in the middle
C - company officers meet, lay all the cards on the table (by which I mean expose operational costs) and let that form the basis
Whatever you do, assume that the product will take off and that you'll both grow to several hundred times current size. Be sure that the numbers will still work at that point as economies of scale will tweak things a
SCORE (Score:3, Insightful)
This is just one of the resources available to entrepreneurs. You need to reach out to business people with experience, not just broadcast to the /. crowd. I strongly suggest you search out mentors in your local business community.
With the given data, all answers will be wrong (Score:3, Insightful)
My next interest would be in the costs to both parties. The developers certainly deserve a nice share beyond production costs, but if the products they create are trying to find a home in a mature, saturated market, then initial promotional costs could be huge. Without hard numbers, I can't even guess who's screwing who here - and I certainly couldn't predict who would profit most from the relationship in a year or two.
For now, put the negotiators on both sides to work on establishing real measures of production and marketing costs that all parties can agree upon... then split every dollar above that 50-50.
-Tim, 10 Minute MBA
Re:With the given data, all answers will be wrong (Score:4, Insightful)
The software development house is taking all the risks. Frankly - any interesting development is going to take 1-2 years to go from idea into a fully coded and tested product. They will have to purchase capital, pay developers, QA, product management, etc.
When they are close to being "Done" the risk goes down that the whole shebang will go up into shambles (ie - you are pretty sure you will get a final product out the door and be able to sell it) you bring marketting on board to start priming the channel, creating contacts, paying advertising, etc.
Yes you need marketting to determine what to build, get some product requirements, do some user studies - but that is far from a full time job in the early stages of a true startup company.
Downloadable computer game data (Score:2)
Consider a sliding scale (Score:1)
Re:Consider a sliding scale (Score:2)
Of course, this causes employee turnover to be high as new employees realize after a month or two
Re:Consider a sliding scale (Score:1)
One other thing, when you group sales and marketing in this kind of situation, you are really setting yourself up for failure. Marketing is a notorious money sink and if you subtract all the costs involved (dev+sales+marketing) from total revenue, frugal developers could get
Re:Consider a sliding scale (Score:2)
The amount should be based on the relative contribution. If anybody could sell it, then don't expect to get a fat deal for the sales side. If its a few weeks to develop, don't expect to get a year's salary out of it for the developers.
What type of work is this? (Score:4, Informative)
My dad has a similar set-up. Basically the real question is were are the risks. Are you paying them from sales, contract or an hourly rate.
If it is just from sales then it is generally 50/50 (equal risk). If you don't get a sale then they don't get money and if you don't have a product you can't make money.
If they are getting an hourly rate or a contract payment then they should get less after all they are risking a lot less.
It also depends on your marketing strategy are you the only suppliers or do you have affiliates? If you have affiliates then you generally split the wholesale price and you keep the commission. The main reason being that if the programmer think it is unfair there is nothing that stops him/her from being an affiliate and getting the same commission if they think it is that easy (Exactly the same deal for you and them).
Just remember that you could get other developers and they could get other marketers but together it is better for both of you.
The main thing to keep in mind is that you are talking about risk not skill. You could be amazing or they could be amazing but the commission isn't based on that as it hasn't happened yet. I don't care if you're both pathetic or great at your jobs, if the product doesn't ship you both get nothing. If one group is risking less because they are getting paid something even if a product doesn't ship then they are risking less and should get paid less. That is why sales people can earn more because it is a lot easier for them to earn less.
If you aren't fair why should they put in effort to make it a good product and why should you bother trying to sell it?
hold your ground (Score:3, Insightful)
You have to ask some questions about your product and the total value of each component of the process. Who is responsible for:
- determining the market
- setting the price
- paying for sales and marketing expenses
- acquiring and negotiating with customers/clients
- determining the products feature set
- establishing what the product will do, who will buy it, how much they'll pay etc.
I can continue, but the sad reality for developers like your partners is that while their code is of value, they haven't created the "product" just the code to execute it. If you've done all the other work, then they deserve about 10-20%. If you've actually done the other work, you can take your development specs to another developer. If they came to you with a finished product and all you had to do was sell it, then things reverse, but the percentages are highly variable depending upon the product and your market. If you're selling to small niche that requires special relationships just to get customer attention you get 30-60%. If you're selling a "me too" product with broad appeal you become the commodity as they can replace you quite easily with another sales partner.
Some simple questions to frame this are:
If you walked away could they:
- replace you quickly
- continue to develop the product with features it's customer base wants
- acquire new clients and or expand reach within existing clients
I've had the opportunity to watch scenarios like this play out over the years. Companies that don't reward the sales channel properly fail. It's that simple. Developers usually have little concept of how hard that process actually is. It's somewhat of an ignorance-based arrogance.
Of course at the end of the day all negitations boil down to how much each party needs the other. My guess is that these guys would have no means for selling the product without you and that you could find another means for developing it.
After writing this, I'm beginning to realize that the 20% I offered my developer is actually too high. Simply put, he would have no product without me, just the untapped, unfocused ability to write code.
Straight Answers on Pricing (Score:2)
Business SW
Developer 35-60%
Outsource Support Org 15-25% (you may not need)
Reseller/Distributor - 10-40%
MDF: 1-10% (ammount rebated for advertising costs)
Retail SW
Developer - 40-60%
Distributor - 5-30%
Retailer - 10-30%
MDF:1-5% (ammount rebated for advertising costs)
In the r
All About Who Has What? (Score:2, Informative)
My situation is similar (Score:1)
I've just recently finished a project with a good friend of mine. He was brought up on a farm but I met him when we studied engineering together.
2 years ago he left his job and started up his own technology company selling RFID soltuons to farmers. In Australia all cattle moving from one property to another HAVE to be registered on a national database.
He won a few projects and needed a coder to come in and deliver them
Sounds like publishing (Score:2)
Publishing works something like this -
Scenario 1.
Someone comes to the publisher with an idea. If they have proven ability at understanding and delivering a product, then they get a better royalty deal than if they walk off the street.
Scenario 2.
The publisher understands the market that they operate in, and commissions some software. The royalty depends on the ability of the publisher to specify the work; there's more skill
They're a job shop, right? (Score:2)
If you are the US company and you have the customers, you are the one dictating the terms. They need you, or they would just be another offshore job shop working for $2.45 an hour, which is great pay in the third world.
If they had the ability to sell into the US market without you they wouldn't need you at all. They can't make any money at all unless they sell into the U
Who are these outstanding overseas developers? (Score:1)