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Software Sales & Marketing Deal Structures?
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."
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.
"This mission is too important to allow you to jeopardize it." -- HAL
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.
I have mod points and I am not afraid to use them
Hi,
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?