Pricing bespoke adaptation of existing product

[krytonsheep]

I've seen good money made with this business model:

Software product X is given away for free (usually worth ££) with consumer product Y.
Creators of product X, get a few £ (or less) per product sold.

Obviously depends on the numbers / volumes. Might be worth testing the water with an offer like that instead of getting them to commission the work.

If they commission the changes (and pay for them) then the risk is theirs, but I'm beholden to them and it also introduces a whole world of contractual obligations, lawyers involved, meetings etc that generally aren't my cup of tea.

It's usually a lot easier than that. You just produce a quote for the work e.g. £40k 'supporting file format xyz in application.' note to say all IP will remain yours. They can then raise a Purchase Order (PO) you do the work and invoice for it. If you want to be totally safe, ask for 40% up front payment.

If they're a big player, even small software projects internally can cost half million, so don't be afraid to charge a good amount. It's a B2B relationship not a client->contractor relationship.

[BlueSharp]

Another option is to continue to do the work you planned to do and get someone in to do the changes and get them to pay for it.

[mattster]

If they have given you designs the first thing you need to do is ensure that they have no IP claim over the changes you make to your product under their guidance before you even discuss money. if they want an IP claim or a distribution/licence deal than that is an opening for a chat about revenue sharing.

OP are they proposing to distribute the product to their customers as some sort of white label agreement or will they direct their customers to you to download the product and it will retain your branding?

If you got the file formats without their help would you still have added them to your product? If not why not, would you have done something else instead (opportunity cost).

If you make the changes would future revenue cover the cost of the changes and make you a nice profit?

Would the hardware provider be willing to promote the new changes to their customer base and direct those customers to your software?

All good questions!

On the first point concerning IP, thanks for raising this and I will keep it in mind as things proceed.

As for whether this ends up being white labelled by them, or simply sold by me under my own branding, or indeed somewhere in between (my product, sold by them?), this is really the biggest outstanding question. I have emailed asking for some broad terms of reference, and what they are hoping for in this project, so hopefully I will have some more clarity on that soon.

If I had somehow got the file formats I might well have added them myself, yes. I might even have tried to reverse engineer them myself eventually, but having now studied them I am glad I didn't go down that route (they are awkward, to say the least). Before this came up, my plan was to continue adding functionality to my existing product and release a paid upgrade. That still is the plan, unless this company make me an offer I can't refuse.

Would changes to the one product they want me to adapt make me enough if I went it alone? I doubt it, actually. If they helped promote it, then quite possibly.

I think the nub of it is that if they want me to adapt, and sell under my own steam, them I carry the risk (3-4 months work, when all said and done, plus delaying my other work), and maybe, maybe don't make a reasonable return - the former more likely if they commit to help market it. If they commission the changes (and pay for them) then the risk is theirs, but I'm beholden to them and it also introduces a whole world of contractual obligations, lawyers involved, meetings etc that generally aren't my cup of tea.

Let's see what they come back with after my latest missive, hopefully things will be much clearer then.

[BlueSharp]

If they have given you designs the first thing you need to do is ensure that they have no IP claim over the changes you make to your product under their guidance before you even discuss money. if they want an IP claim or a distribution/licence deal than that is an opening for a chat about revenue sharing.

OP are they proposing to distribute the product to their customers as some sort of white label agreement or will they direct their customers to you to download the product and it will retain your branding?

If you got the file formats without their help would you still have added them to your product? If not why not, would you have done something else instead (opportunity cost).

If you make the changes would future revenue cover the cost of the changes and make you a nice profit?

Would the hardware provider be willing to promote the new changes to their customer base and direct those customers to your software?

[BigDataPro]

Rather than charging for the development, license your product for their hardware like Bill Gates did with IBM for MS-DOS. You may be loosing out some £££ in terms of development time but you/ your product/ your company positioning will take a huge leap forward.

Ensure that no clause stops you from licensing your product even to their competitors. This will give you a huge advantage.

[mattster]

So, OP: have you asked your contacts the hardware company what they actually want from you and any potential future relationship?

My assumption is that the hardware company has spoken to their clients about their needs, given/will give those to the OP as requirements, and expect the OP to build at their own cost for an increase in their own revenue. The slide deck might even have been from one of hardware company's own clients.

Personally, I'd find that out before spending too much more time on this. Big companies have lots of people with lots of (your) time to waste.

I think you might be spot on - this was my first understanding, after first contact a few months ago, but it was not stated explicitly. Nudge me into adding support for their hardware, so that they have something to point their customers towards, and let me reap the rewards. This might have been a perfectly acceptable deal to me, but there is a bit more nuance to the situation. I sell two products, one of which is higher cost (a few hundred $), one low ($50ish). The low cost product is a cut down version of the high cost one, with more appeal to casual users, and obviously missing a few key bits of functionality. The point being, that there are some users who want the basic functions, but have no interest in the other stuff anyway, so wouldn't pay a few hundred just to get it. The company that contacted me wants the basic product, but has also explicitly stated that they do not want me to implement support for their hardware in the premium product, because someone in the company hierarchy thinks this starts to tread into their territory. All well and good, but the premium product is my money spinner and the cheaper one has never really taken off (despite many requests from potential users for it). I initially thought that creating a specific version of this cheaper product for them would be a price worth paying if I could then add this support to the premium product, but with that off the table the numbers won't add up for me to do this under my own steam. Possibly there is a middle ground, where I create it and they either advertise it or sell it directly, but that might be hard to negotiate and the risk would all be mine. Also consider that if I stop what I am doing now (creating a new update to the premium product) and concentrate on this new project, that will put back a guaranteed revenue boost from a paid upgrade I plan on releasing at the end of this year. So, lots to consider.

[Paralytic]

Interesting thread, but no-one seems to have asked the OP to find out the ONLY thing that matters initially: what does the hardware company want/expect?

They are the giants, the OP is the minnow, so the OP will effectively have to do what they want or walk away.

I see nothing in anything written by the OP that makes me think this giant of a company would want to take any sort of ownership of this minnow piece of software that adds some (unquantified) value to their customers. Have things like legal, IP, support etc even been considered? As others have said, these add months to negotiations, and there are many gates to pass through in a big organisation before any deal can be made.

So, OP: have you asked your contacts the hardware company what they actually want from you and any potential future relationship?

My assumption is that the hardware company has spoken to their clients about their needs, given/will give those to the OP as requirements, and expect the OP to build at their own cost for an increase in their own revenue. The slide deck might even have been from one of hardware company's own clients.

Personally, I'd find that out before spending too much more time on this. Big companies have lots of people with lots of (your) time to waste.

[zonkkk]

Ok, next step. Get the calculator. Tot up the time you need to make the changes to their standards. Talk to them again about expectations on deliverables (not just code, documentation, changes, etc) to help your calculations. Then taking that calculation as your baseline. Add 20%. Multiply by normal contract hourly rate plus 20%. This is what you need in £ to deliver the job.

Based on your two posts I would go down the hybrid route. Make sure the SoW is tighter than the tightest thing. So a fee for development plus a revenue split on sales. This should bring in some close to upfront bunce + cost cover and recurring income to support the family and yourself going forward. Structure it as % advance and then % on delivery + recurring fees quarterly basis. Make sure the contract cannot sniff of IR35.

Can you support all these possible new users in terms of tech support, customer support etc?

Add 100% extra to the calculations above for contingency.

[mattster]

True. I agree with you too :-)

What I was trying to say is don't price it purely based on what it will take you to do. It should be priced on what it's worth to the end-customer.

This is a very tough question to answer - I'm not even sure that they know. As mentioned previously, I think they want my product to be available because it adds a certain amount of value to their hardware offerings, and gives them an answer to customers who are asking what happened to their old (discontinued) product that served a similar purpose. So they probably don't see it as a revenue raising exercise, although possibly they might make a bit of money on the overall project if they end up charging for it and sharing revenue with me - if that is a model the are considering - and perhaps it helps somewhat with hardware sales, but that is very hard to quanitfy. I'm fairly certain that they don't value having my product as highly as the cost of developing it themselves, or they would probably do that, or would have kept their own offering current over the last decade. Having said all that, they are a US based corporation with a market cap in the tens of billions, so they may not baulk at what would seem a fairly hefty price tag to me - I'm certainly thinking of pitching over the top end of any day contract rate I've had, if we end up going down that route.

I think now I'll tee up the next meeting, either this week or next, start probing gently about general terms of reference and then come back on here for some more advice when I have more info!
Thanks all for advice so far.

[tomtomagain]

I agree with your first line but as for your last line I would caution that the OP might price himself out of the market that way!

True. I agree with you too :-)

What I was trying to say is don't price it purely based on what it will take you to do. It should be priced on what it's worth to the end-customer.