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Andy Brice
Successful Software

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Jonathan Matthews
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BreezeTree Software

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Patrick McKenzie
Bingo Card Creator

How would you sell this - preferences

I sell software I have developed (add-ins for MS Word) as a licensed product, but I also do custom development for clients where I bill just for development time.

I have a psychological aversion to someone else making money off my programming without my getting a cut.  Even if I am well paid for the time spent, if they are reselling what I created, I want a percentage of sales.

However, a few years ago I developed some features for a large organization that sells forms to their clients, and I let them hire me by the hour to do it.  The situation worked out great in that I've gotten repeat business from them and am working an unrelated joint venture with them (we share a market).

They told people at an organization very similar to theirs what I did for them, and that organization has approached me to do something very similar for them.  This is great.  But...  I have a new product that is already developed that I license that might be perfect for what the new organizations wants to do and my preference would be to let them resell it where I get paid for each sale they make.  BUT I know they know the first company just paid for my programming hours and keeps all profits and I am guessing they want to do the same. 

I don't want to be difficult because there is potential for possible joint ventures with this company too, where they may want to resell some of my other existing products, so developing any type of relationship with them *might* be very advantageous to me.

QUESTION: I'm just wondering how you as other software "business" owners feel philosophically about programming by the hour for another business.  I have no problem doing this for my clients who just use my software but I feel really resistant to knowing someone else is making endless profits.  Am I being greedy/stubborn to want a part of sales, or just true to my business model as a software vendor not a freelance programmer? 

I have lost business before when people wanted me to develop software for them to sell and I would not do it hourly, and I really did not care.  But this project could open other doors and they know I did do this hourly in the past.

Thoughts on how you would approach this?  Am I alone in being willing to work hourly for clients who use my software but not those who wish to resell it?
Emily Jones Send private email
Friday, October 24, 2014
 
 
Regarding the case at hand, the questions are:

- Are you being asked to create a standalone product, or merely a component/part of a larger commercial offering?

- Do you have the time, resources, knowledge, and willingness to sell the end product yourself?

If you answered these and still feel uncomfortable about working by the hour, don't say "No". Instead, quote a hourly rate that looks ridiculously high, but within reason - I've seen Oracle consultants with $500+/hour asking rate. Either the client decides they cannot afford you, or you get extra income sufficient for a nice vacation or a new car, or perhaps to hire someone to help you work on your own product:

http://blog.asmartbear.com/how-to-say-yes.html

In general, if a prospect asks you to develop a product within your domain, say you want an OEM deal structure, with them paying royalties up front for N copies, so that the total covers your projected development costs multiplied by 1.5-2x. In other words, try to make risk all theirs, and future profits, if any, partially yours.

For the record, we do custom s/w development all the time. Three of our current projects are about contributing to larger offerings sold by our clients, two of them are business SaaS systems and one is centered around a piece of hardware that emits gigabytes of data. But these projects are in domains that are not our specialty, so we really do not care how much money our clients make reselling our work as part of their offerings, as long as they make enough to pay our bills.

If however we were asked to create something similar to, or based upon, our own product that the customer would then resell, we would only do that as an OEM deal.
Dmitry Leskov Send private email
Friday, October 24, 2014
 
 
It's understandable to want to be able to profit from your work, that's for sure.

On the other hand...

Are you going to take any risks? The buyer is, but are you willing to go unpaid if the product doesn't sell?

How much of your money and time are you going to put into marketing this product?

If you're NOT going to take any of the risk, you ARE going to be paid for the hours you do put in but are NOT going to put any effort into marketing or selling this thing, then what makes you think you're entitled to anything, beyond the hours you do and do get paid for?

Many years ago I fully adopted the 'division of labor', concept, meaning I do one thing only and concentrate on being really good at that one thing - writing that sells, known as 'copywriting'. Some copywriters do indeed demand a percentage of any extra profits - and some have become extremely wealthy doing so - but in nearly all cases I just charge a flat fee.

So why don't I charge a percentage? If I can make some large company an extra 0.5% profit and that's worth $10,000 every year to them, why not a few thou for me?

3 reasons:

1. I work for a month, I get paid for a month. Seems rather fair?

2. Suppose my copy bombs and they lose $10,000? Should I pay them? How much? A "few thou" perhaps?

3. This, the 3rd reason, is the most important - because my work/life/karma/fun-factor/time balance is far more important than more money, if that money comes with stress, nastiness, suspicion, hassle, resentment and other negative things that I can afford to NOT have in my life, simply by charging a month's fee for a month's work.

This goes double if, by your own estimation, there's a reasonable chance of further goodness from this relationship. So possible upside, and the only downside is you get paid for the work you've done, at the rate you charged?

Not much of a downside, is it, really?

So if you just want validation from another freelancer, yes, sure, enjoy it. A client lands in your lap, with possible upsides and no downsides, what's not to like?

Go for it and be happy :o)

Life is too short to go chasing after clients, demanding they prove their sales figures to you and give you money, on the basis you did some work for them months or years ago.

If you ARE willing to research their field and/or market, produce the software for free, chip in with the costs, which is everything from the voice talent to the logo design, and do all this purely in the hope it sells well, then by all means offer them a partnership?

Or take all the risks and keep all the profits - or loses - by creating the product and selling it yourself...

Is there something holding you back?



 
AC
Reluctantlyregistered Send private email
Friday, October 24, 2014
 
 
Thanks for the replies so far!

>- Do you have the time, resources, knowledge, and willingness to sell the end product yourself?<

Dmitry, This was a really good question.  Yes I could, and do, sell the product myself.  But on a very small scale.  They are a large organization with contacts already with probably about 100,000 in the market (where I have just a few hundred clients).

So yes I *can* sell the product but not the way they can.  I guess that's why I liked the profit sharing model better - I see them as a way to reach people I can't, and I can program/develop what they can't.  OF course they could find another programmer easier than I could find another organization with their market reach.

AC - I would not expect them to pay me to develop the software AND also give me royalties.  It would be one or the other -- either I take all the risk that it will bomb and I get nothing but I have the potential for unlimited sales if it does well, or they pay me hourly and I have no risk but potentially less reward too. 

I just prefer to take the risk and hope for a larger payoff.

The one thing I don't understand in your response AC, and maybe I misunderstood you, but I see this kind of philosophy in a lot of people's comments in some business forums I frequent on the internet.  It seems you are saying you don't think it is *fair* for the programmer to make a profit that in excess of what he or she would make if paid hourly.  But that is exactly what any company who pays a programmer hourly is trying to do - leverage that work into much greater profits.  Why would it be fair for them to do that and not for the programmer to do that?

I think one reason I feel ownership in the final product is because even though the client initially asks me to do something specific, they don't start out with an understanding of what is possible and really even how their clients work.  Invariably I have all kinds of ideas that improve the product they have to offer.  So I feel like I created it.

ANYHOW - I spoke with them and they will consider whatever pricing I come up with.  Much of what they want I've already developed so I'm going to really analyze it to consider the time/money in development and probably give them two options, hourly that's a large up front cost for them, vs. profit sharing that's a low up front cost but probably more money over time.

I'm still interested to hear any other opinions on how your feel about this and what your approach is.

Thanks!
Emily Jones Send private email
Friday, October 24, 2014
 
 
>BUT I know they know the first company just paid for my programming hours and keeps all profits and I am guessing they want to do the same. 

That was then. You have more reputation and track record now. You don't have to be bound by past deals.

>I feel really resistant to knowing someone else is making endless profits.

So name a price where it is worth your while? Or try to negotiate a percentage. No harm in asking. Also it shows you have faith in the venture.

Also I wouldn't get hung up on how much they are making. A lot of that will presumably be due to contacts, reputation etc that they have built up over the years. That stuff is hard. So you are only contributing part of the value.
Andy Brice Send private email
Friday, October 24, 2014
 
 
>I would not expect them to pay me to develop the software AND also give me royalties.

Why not? If you have confidence in the product you could offer to do it for below market rates _plus_ royalties. The downside it that you will probably spend time and money drawing up agreements and getting them checked by lawyers.
Andy Brice Send private email
Friday, October 24, 2014
 
 
The "fair" part of my argument mostly concerns how their offer is fair.

You are of course welcome to negotiate any terms you like.

Trust me, as an anarcho-Austrian-libertarian who made/makes much of his income from software and ebooks written once and paid often, I have absolutely nothing against the general concept. I was more quizzical why you seemed positively offended that they should offer you such a thing?

You reached out and asked if we get upset too? My response is yes, until you realise it's not worth it.

I've come to the conclusion that unless it's your own business or partnership it's rarely worth chasing people up and demanding to know the ins and outs of their business sales. It's far more pleasant and way less stress to charge high, just the once, and be happy.

Regarding them leveraging your work, again they were open and fair about doing that. No trickery or deception involved, and as they are the ones doing the actual marketing and the generally difficult stuff I'm not sure why you'd feel entitled to their profits?

If you can negotiate that then sure, I guess, but my advice is to not bother.

OK, let me ask you this - have you ever actually had such an arrangement? Because I have, with a few companies, and it *always* deteriorates over time into a resentful, miserable affair of penny-pinching and suspicion. Yes, some companies will seem upfront and honest, just sending money every month - but then you start wondering..  Are they really not making any more sales lately, with all that advertising? Hey, sales have gone down now? Really? What happened? Hey, down again!?

After awhile you realise the stress isn't worth it. Stick to large affiliate programs; don't create grubby little arrangements that make your life more miserable than the money.

Sooner or later you get sick to death of chasing people and they get sick to death of you chasing them, and well, you both get sick.

For example when they hire another company to create version 2.0, are you still going to chase them for money? How are you going to force them to show you their source code to show how much is yours, if any at all, and how much is the new people's? What about when they drop that product and come out with a new product, that seems pretty much the same?

What about when that site closes down and another appears, looking rather similar and selling the same kind of product?

Right now they may seem keen and happy to give you some percentage, but give it a couple or three years and they'll hate your guts and just want you to die already... And you'll probably feel the same about them.

Throw your everything into being their partner, or just help as best you can for now and leave them in peace.

You'll thank me in the long run.



AC
Reluctantlyregistered Send private email
Saturday, October 25, 2014
 
 
AC Said:
Right now they may seem keen and happy to give you some percentage, but give it a couple or three years and they'll hate your guts and just want you to die already... And you'll probably feel the same about them.

Emily says: That was so depressing it made me laugh out loud.  You should be a motivational speaker! ;-)

I see your point - I have not had an extended relationship with someone like this but I have heard a LOT of stories with sales reps for companies that work on commission and the ones who do GREAT - they are the STARS at first, the company LOVES them.  But over time, the company sees how much they are paying them and finds a way to change the commission structure that screws them.  I've heard this story tons of times.
Emily Jones Send private email
Saturday, October 25, 2014
 
 
@Dmitry - that article you linked was really good/helpful.
Emily Jones Send private email
Saturday, October 25, 2014
 
 
Yeps.

Before becoming a salesman with text I was a "star" at a few companies, every one of which found inventive ways to screw me and others over.

Heck, as an assistant sales manager at one place my primary role was screwing the normals sales reps ("sweeping", they call it). It's one of the reasons I moved towards online stuff.




AC
Reluctantlyregistered Send private email
Sunday, October 26, 2014
 
 
Forgive the tyoesm biow keyvioardm ut;s druvubg ne craxy,
Reluctantlyregistered Send private email
Sunday, October 26, 2014
 
 
Noted! I didn't even notice typos 'till I got to your above message.
Emily Jones Send private email
Sunday, October 26, 2014
 
 
"Are you going to take any risks? The buyer is, but are you willing to go unpaid if the product doesn't sell? "

Above quote by AC. AC makes a LOT of pro-investor, anti-inventor comments here. His latest post convinced me 100% the dude is a total fake who is here as a PR rep for VC interests. Believe this dude if you are a naive fool. The wise will realize his alias is running a campaign and he's not really a developer.

Sorry AC, but you are 100% a fake.
Scott Send private email
Sunday, October 26, 2014
 
 
FWIW, I've used AC's copy writing services in the past.  I don't think he pretends to be a developer...?
Doug Send private email
Monday, October 27, 2014
 
 
Scott, when have I ever claimed to be a developer?

I write words, not software,.

Your ignorant, acidic and positively rude attitude is undoubtedly a major reason for this forum's decline over the years. People post and never come back after you've strutted around declaring how super-successful you are and what numpties they must be if they're not earning as much as you claim.

My writing website is linked, full with real testimonials - where's your site Scott?

You're such a big shot, so super successful, so show us Scott?

Because right now the only one screaming "fake" around here is you.

Reveal yourself in all your glory? Or STFU.



AC
Reluctantlyregistered Send private email
Monday, October 27, 2014
 
 
Definitely leverage your work by making a deal. You have proven that it is wanted by at least 2 (big) organisations. It sounds like there is potential.  A royalty on sales they make makes sense. A sliding scale for volume perhaps or at least minimum targets after year 1,2,34 etc.

Eventually they will be paying you a significant amount of money and will want to cut you out.

@AC is correct. The deal will sour after a few years because they think you are getting a good deal (they forget or ignore the "sunk costs" for development, so don't waste your time trying to explain it) . So a watertight written agreement is absolutely necessary. Trust me on this.  We are currently paying 20% to a company and we may have a problem if we want to end the agreement because it was verbal.  One simple termination clause would have solved this problem.  We are trying to renegotiate it now as we have a new product that they want to distribute, and I won't make that mistake again.
Richard J Send private email
Wednesday, October 29, 2014
 
 
>he's not really a developer.

No he isn't. But then he had never claimed to be.
Andy Brice Send private email
Wednesday, October 29, 2014
 
 
Richard: >>>We are currently paying 20% to a company and we may have a problem if we want to end the agreement because it was verbal.  One simple termination clause would have solved this problem.  We are trying to renegotiate it now as we have a new product that they want to distribute, and I won't make that mistake again.<<<<

Are you paying them 20% to sell your software?  Is the problem they think they should get more?  Are yo thinking a different percent for the new product?

I've been going back and forth on this in my mind -- I want a percentage but I am concerned about complicating things and possibly having their memory slip over time. 

I do have software I've developed that integrators sometime sell their clients and when the do I pay 20%.  But those sales come out of convenience - they stumble upon these clients in their normal course of business.  They aren't actively looking for clients for my software.

I'm toying with the idea of maybe starting at a low percentage and giving a higher amount as sales mount up.  Also considering how much of this is what I've already developed or planning to develop for my other clients vs. what is specifically programmed for them.  In my mind I'm more inclined to want to just license pre-developed software vs. sell outright that which I make specifically per their request.

I need to balance the fact that I do have competition and I don't want to give stuff away but also don't want to deluded and think something is worth a lot more than it is and lose the opportunity.

If people were to be redirected to my website to buy the software, with FastSpring they can automatically get a percentage without having to do paperwork or worry about anyone cheating anyone. 

Anyhow thanks for all the input, you guys have given me a lot to think about...
Emily Jones Send private email
Wednesday, October 29, 2014
 
 
@Emily:

>Are you paying them 20% to sell your software? 
Yes. It is sold via subscription.  But we could easily sell it as we have access to the same channel partners.

>Is the problem they think they should get more? 
No. They don't do much for that amount and they are more interested in selling their own stuff.

>Are you thinking a different percent for the new product?
We have decided to do it ourselves because we have access to the same channel partners and would prefer a more direct route to the customers.  Currently the model is too complex and frankly old fashioned:

US (50%) >> DISTRIBUTOR (20%) >> DEALER (30%) >> END USER

Customers do rely on the dealer / consultant  a lot so we would like to respect and use this relationship to sell our product.

>I want a percentage but I am concerned about complicating things and possibly having their memory slip over time.

I definitely think that paying a % is worthwhile but you need to be clear what they get for this and have a signed agreement moving forward with a clear termination / expiry clause for renegotiation. Make sure it is non-exclusive as well.  Even if they stumbles across clients and only sell once, the agreement should be signed. 

While some people clearly think it is a hassle, relationships with distributors / resellers can make you a lot more money.  Just accept that these relationships have an expiry date and will sour and be ready for it. Don't let it get top you. It's just business. Bank the money and enjoy it while it lasts. The agreement will save you  in the end.
Richard J Send private email
Friday, October 31, 2014
 
 

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