The Old Joel on Software Forum: Part 3 (of 5) - Sofware reseller asking for too much?

Sofware reseller asking for too much?

I have a fairly succesful shareware application. I am pretty happy with the programming part, and not so happy with the marketing one. Like many engineers, I don't enjoy marketing and I don't have much experience with it either.

Recently I received an email from a reseller offering to resell my app. Over the phone he presented himself as very experienced, with many connections and many years in the field.

He estimated some impressive sale numbers. But he asked for 50% of everything a customers he brings in spends on my app (registration, future updates, future cross-sell apps, etc.)

I don't know what to say. Is this a fair offer? On one hand what he promices seems to good to be true. On the other hand 50% of everything he brings in seems like a lot!

Anybody has experience with this? Any places on the net I can learn more about this? How about the contract? How to do it, what to write in it? Is there any way he could screw me over? After all, I don't even know this guy.

Thanks for any pointers,
R.

RNC
Wednesday, November 19, 2003

Providing he isn't asking for any kind of esclusitivity, why not? It's free extra sales for you.

Mr Jack
Wednesday, November 19, 2003

How much time you already invested in your software?
How much time you plan to invest in the future support, bug fixes, new features, etc. ?
Do you need to provide customer support?
Do you need to provide maintenence (for example, hosting your web services)?
How much you priced your software?

These are some questions you need to evaluate. Take into account that your investment in software may increase when you sell more and more copies.

Suppose you can offer a discount which allows your partner to sell enough copies to return = "all your expenses" x 3 (times) or similar.

Evgeny Gesin /Javadesk/
Wednesday, November 19, 2003

50% is a very common starting point for things like this, others start at 40%. Don't hesitate to try and negotiate a better figure. If the reseller is not moving actual physical boxes so no inventory is required 50% seems high.

ComponentSource is a very popular reseller of tools for software developers and they get 40% plus $1000 a year to carry your stuff. We have an agreement with one of the larger resellers for our development tools and we much, much better with them than the ComponentSource deal.

While it is one way to look at it and say "these are all free extra sales" the problem comes when the reseller undercuts your price and all your direct business goes to the reseller instead of you, cutting your overall take by half, sometimes with no real increase in volume. You gotta watch that.

Mitch & Murray (from downtown)
Wednesday, November 19, 2003

"It's free extra sales for you."

Except that you are cannabalizing your own sales.

ted
Wednesday, November 19, 2003

I've met a few too many resellers with big sales estimates. Most of them are get rich quick wannabes. Make sure, you have a standard resellers/affiliates programs setup. 20 to 30% is most common for standard software applications if they just sell and pass on customers to you. Don't ever give any exclusivity or parts of future sales you generate yourself.

If they still insist on a larger percentage, because they will sell such an enormous amount: Make the reseller discount dependent on the amount of sales per year:

$0 - $10,000: 20% of all sales (standard resellers program)
> $10,000: 30%
> $100,000: 40%
> $500,000: 50%
> $5,000,000: 50% + Aston Martin DB7

Of course, things are entirely different if a reseller has a proven track record and is willing to invest.

Jan Derk
Wednesday, November 19, 2003

50% is too much unless they are proposing to handle all of the administration that goes along with each new customer over the lifetime of the sale (can work, but can also be a bad idea). Or unless the work required to make a sale is particularly heavy for some reason (eg usually requires multiple face-to-face meetings) and/or the price of the application is low.

Before making any kind of commitment, you should figure out how much each new customer is going to cost *you* in terms of administration, support/documentation requirements etc, and factor that in along with your initial and ongoing development costs.

I like the suggestion to provide a sliding scale percentage based on the number of sales per month.

Also, it is usually desirable to gain control over your own customer. In other words, if you have the option to sell to the customer directly, or through the reseller, it is best to sell directly. Or at the least so that the customer knows your name and you know theirs! Direct sales mean that you are not as dependent on the reseller if they have tight cash flow and don't pass on your portion in a timely manner (been there). Or if the reseller abruptly disappears, you don't lose all your customers through them (been there too, matters mainly if you have ongoing contracts or possibility for repeat sales)

I also agree that it is a bad idea to get into a situation where reseller sells something to a customer, and then wants a cut of everything for the rest of eternity. You can find yourself in a situation where the reseller did all the work to find and woo the customer at the beginning, but then does nothing else (been there too). Obviously there is a fine line here - we've had pretty good success with arrangements that are based on the amount of sales work provided by the reseller, and that are time limited (usually six months).

Phibian
Wednesday, November 19, 2003

Say there Ted, you wouldn't be the Fastgraph Ted, would you?

Mitch & Murray (from downtown)
Wednesday, November 19, 2003

You also need to be careful that, in outsourcing your marketing, you're crippling your future growth.

To you, your product is important, and you will learn from marketing it, and gather useful feedback and customer lists and so on. To a bulk reseller, it's just one of 50 or 100, and it doesn't really matter to him whether it sells a lot.

Strange as it may seem, I would recommend that, if you don't know what to do in this situation, you should not outsource the marketing. You'll never grow if you do.

JM
Thursday, November 20, 2003