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Doug Nebeker ("Doug")
Long time reader first time poster here. We are a software company building own products. We have been approached by a large US company that wants to preinstall our application and distribute it to their current users. They would like to have a white label solution with many changes to interact with their own software.
They are now asking a figure for price, and I am not sure what is the correct number here. If they did build the application themselves it would probably take at least five man-years, it is technically very complex product. Also the changes they require will take months to implement. They are in a hurry to ship the product ASAP.
Google did not help me much on this one. Any advice from the community? What is the correct price here? Should I give one all-inclusive number or split it to a technology license and modification work? Thanks.
We've done something similar in the past. Our challenge was not actually pricing up the customisation but was providing the on-going support and maintenance. The fee did help our short-term cash flow at the time though.
This one customer ended up being our only customer who didn't want to upgrade from our v2.x line of software to our v3.x line. They didn't want to pay again for the additional development and testing required, and neither did we since they dropped from 30 licenses to 5.
A few years down the line they realised we were not providing regular updates to our v2.x software and hence stopped paying maintenance on their 5 licenses. That was about 5 years ago. I don't know if they still use the software or not.
A big thing to understand with this is that the cost is not just the hours to implement this, you also are going to be rearchitecting your solution to support the sorts of changes they want, some of which will be different from the changes others want, and incompatible with the natural progression of the product. Yet you will be stuck maintaining either two versions forever, merging changes and bug fixes, etc, or you'll build a version that is scriptable and configurable and skinnable in ways that support their changes and is incompatible with others. In any case you are buying for yourself additional work that will continue throughout the life of the product, perhaps for the next 30 years, and will also limit or complexify things you want to change that will be incompatible with the changes they wanted.
So you may charge lets say $200/hr for 10 hrs work and bill $2000. But over time making this change may end up costing you $50,000 in labor, plus constricting the path of your product in ways you didn't choose.
You have to account for all this when deciding what to bill, and should be OK should the customer then decide they don't want to pay that cost.
I all depends on volume and commitment really. If your annual sales are X copies and that large company agrees to pay up front for 10X copies and cover all customization and maintenance costs at a decent hourly rate, that's a pretty good opportunity. If they are looking to *maybe* get Y licenses over the course of the year, with Y < X, paying as they go, that's a totally different story.
Wednesday, August 26, 2015
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