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Margins and Commissions for overseas distributor

Hi all,

I have an application that is used by a select group, mainly printers. It is priced at $229 per license. The application is pretty mature but I still add features to it. There is competition both in freeware and shareware. I have modest sales worldwide and it's considered the best of class for what it does. The company is just me the developer/marketer/tech support and my business partner/financier who pays the taxes and figures out that stuff.

I accept orders through a shareware clearing house service that charges around $15 per order for collecting the money.
 
Recently, a customer who is a huge fan of the program contacted me wanting to be the distributor for France. He has got the idea to set up an online store that would be in French and promote the product to French people. He also plans to be going to various printers conventions in Europe and promote and sell the product.

I would still be shipping the product to the customers and handling all tech support - he would be doing some level of sales in France and possibly Germany and would accept money for the product and then, after deducting his share, forward me the aggragated proceeds on some periodic schedule.

His being knowledgable of the product and the industry is a big plus. Also a big plus is his accepting payment in Euros, so the customers don't have to take a hit converting to dollars. Of course, I would have to take the hit instead.

The question is how much to pay him. It would be per sale. His setup will not be as slick as the online store I have now at $15, but it would be a local business and may be more appealing to people in his market. So for handling the sale itself I am thinking $10-$15. But on top of that I think he should get some sort of commission as well. What are the appropriate ranges? 10-30% ? Perhaps do 10% if he sells less than 25 copies per quarter, but 20% if he sells 25-100 and 30% commission if he sells more than 100? Is this reasonable or too generous?

How to handle returns? I am thinking he should handle returns on sales that he has made through his website.

How to handle contracts? I assume any sort of contract from the US to Europe is from a practical standpoint unenforceable since if he decided not to send me the proceeds for a quarter, my only recourse would be to go to France and hire lawyers there and such which is simply not possible, but I suppose we should lay it all out in writing any way, right?

What other matters am I not thinking of?

Anyone have real experience in these sorts of situations?
Scott
Friday, September 03, 2004
 
 
Track down this book:

Guide to Software Export: A Handbook for International Software Sales, by Roger A. Philips.

It's hard to find but totally worth finding... it will answer a lot of your questions.
Joel Spolsky Send private email
Friday, September 03, 2004
 
 
Thanks, I ordered it.

Am I thinking the wrong way in terms of commision plus a transaction fee then? Is it because I need to avoid having him appear as an employee and foreign laws on are different? I have been thinking that he is an independent business who would be working as a sort of distributor. I wouldn't want the european authorities to get down on me for not paying insurance and taxes and stuff because they consider him my employee.

As it is currently, I ship a physical box and the recipient pays VAT tax at the post office. I'd like to keep that the extent of my foreign tax obligations and not have to fill out a bunch of forms for every country. I guess the book covers all this...
Scott
Friday, September 03, 2004
 
 
Commission sales are very common with the ISV handling fulfillment and support.  It is a similar model to the catalogs such as component source.

IMHO, it should be a straight percentage starting at 25% and going as high as 50% based on performance.  The main concern is with cannibalized sales.  Resellers such as component source try and force you to list them on your own site, charge you a fee and then take 40% or more selling product for below your retail rate.  In such a case you have a high risk of cannibalized sales (sales going to a reseller that would otherwise go to you).  For your scenario with a customer wanting to sell and promote the product in another country, visiting conferences and companies you would not normally have exposure to, you have very little risk.

People tend to overcomplicate agreements.  The simpler and clearer the terms, the better off you will be.  While it is great you are interested in really digging into the topic you best not delay what sounds like a great opportunity for additional sales you would otherwise not be exposed to.
Pete
Friday, September 03, 2004
 
 
You might want to check out the discussion forums at

http://www.softwareceo.com

for more information on Resellers, etc.
Roger Jack Send private email
Saturday, September 04, 2004
 
 
As Pete said, simple agreement is your best bet. I would say 20%-50% would be reasonable. Make sure that indeed reseller is selling in French only (so it does not cannibalize your sales) and agree on level of pre-sale or post-sale he/she is providing. Translating software to French including help file in this case might sound like a good idea to go hand in hand with localized distribution.

I am not big on resellers since I think in most cases they do not add any value, rather just cannibalize your sales. Most people are just fine buying directly from you and language is not a barrier in most cases. Your millage will vary depending on the end-user profile of course.
Denis Basaric Send private email
Saturday, September 04, 2004
 
 
Given what I was offered by self-announcing spruikers was a deal involving 40% commission, a free copy of the kit, legal indemnification and various other guarantees, I'd say earlier posters' suggestions are reasonable discounts.

Tie it to performance, The first 5 are say 15% discount, next 10 @ 20% ... Cash upfront of course.
-or- investigate associate selling where sales are vectored through your website from their website and proceeds are split on an agreed basis by a card accreditation service.
trollop
Saturday, September 04, 2004
 
 
---"I'd like to keep that the extent of my foreign tax obligations and not have to fill out a bunch of forms for every country."-----

As far as the EU goes if you sell online you may be required to register if your sales go above the VAT limit. You need however only register in one country in the EU, and that registration would hold good for the other 24.

If you run a cafe in the UK you are entitled to have $100,000 gross earnings before you are eligible for VAT, so I doubt very much if you have anything to be worried about.
Stephen Jones Send private email
Saturday, September 04, 2004
 
 
In the four years Fog Creek has been in business I've gotten dozens of requests from people to be distributors. But I've also discovered that 95% of these requests are not serious, in the sense that the people making them think they're being serious at the time but they completely lose interest very quickly. If I persued every partnership/distributorship offer that comes my way I would do nothing else, and it would generate at most a tiny amount of new business.

In one case we actually spent a huge amount of effort negotiating what we thought was a partnership agreement, only to discover at the last minute that we were talking to an ad salesman working on commission. We got suspicious when he kept returning our proposed contracts and requesting that we just sign their "standard insertion order."

In another case we did a deal in which a major programmer's software catalog retailer was going to promote and sell our software, which generated a miniscule number of incremental sales which they generally took 90 days to pay for... all in all a total waste of time.

Anyway since then I've noticed that we make a lot more money by adding new features to our products than we make by wasting time thinking about "parternerships" that don't really result in anything.

The trick is figuring out who the serious partners are and not wasting time on everyone else.

To avoid wasting time negotiating with "partners" who are never going to drive any sales my way, my current policy is to ask for an up-front deposit or a hard commitment from resellers/distributors as a part of the contract. For example... if you want to resell my software, fine, go ahead. Oh, you want a discount? OK.... send me a check for $20,000 and I'll give you $25,000% worth of stuff you can resell. What, you're not going to sell $20,000 worth of my software? OK, bubby, why am I wasting time negotiating with you?
Joel Spolsky Send private email
Saturday, September 04, 2004
 
 
My experiences are quite similar. I'm involved in two different software markets and have been contacted many times by people/companies that want to resell. In the beginning I wasted a lot of time. It made me wiser, but not a lot richer.

Most think they can get rich fast on the Internet by reselling our product. I even sometimes try to cautiously warn the good willing, but overly enthusiastic ones.

What I did do is setup an account with regnow.com. The main reason not being the money but the fact that I can point potential resellers that way and not waste my time on them.

I never worried about resellers cannibalizing our sales though. The effect is probably more significant the other way around. Customers notified by the reseller will often buy directly from the original company that creates the product.
Jan Derk
Saturday, September 04, 2004
 
 
"In another case we did a deal in which a major programmer's software catalog retailer was going to promote and sell our software, which generated a miniscule number of incremental sales which they generally took 90 days to pay for... all in all a total waste of time."

Don't mean to say "I told you so", but hey, my advice in this matter pertaining to this reseller goes back at least 2 years here.
Mitch & Murray (from Downtown)
Saturday, September 04, 2004
 
 
Joel's comments are right on, and we don't waste more than a second or three on any reseller requests, but we do just the opposite: we give anyone who asks a reseller discount coupon code on our online store and forget about them, unless we notice them selling a lot.

Then we talk to them about higher discounts.

We've made quite a bit of money from these smaller resellers over the years.

"Let a thousand flowers bloom" (to quote one of the most murderous thugs in man's history).
Chris Ryland Send private email
Monday, September 06, 2004
 
 
I have had significant success with resellers only if they were already successfully selling products to my target market.
Dan Brown Send private email
Thursday, September 09, 2004
 
 

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