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Q: Exclusive Rights To Sell To A Vertical Market - What's the cost? ( No Answer,   3 Comments )
Question  
Subject: Exclusive Rights To Sell To A Vertical Market - What's the cost?
Category: Business and Money
Asked by: mr4698-ga
List Price: $20.00
Posted: 22 Oct 2003 17:06 PDT
Expires: 21 Nov 2003 16:06 PST
Question ID: 268821
I have a software product.  A company is very interested in partnering
with me as a reseller of my product.  They are asking for an exclusive
rights contract - they want to know what we want for this.  I have
been told that we should ask them for upfront money and a guarantee of
monthly sales and give them only 6 months to prove they can do this. 
I am very new at this - the product is very new - it has been used but
not extensively therefore I have no history on which to guage its
value however I have been told that it is revolutionary in its field
and has "enormous potential".  Is there any criteria I can use to
determine a fair price and a fair upfront price for exclusive rights
to resell this product to a vertical market.  I need to know ASAP or
sooner!!!!  I have to go back to the potential reseller on Friday of
this week.  Thank you very very much for your help!
Answer  
There is no answer at this time.

Comments  
Subject: Re: Exclusive Rights To Sell To A Vertical Market - What's the cost?
From: googqs-ga on 22 Oct 2003 19:22 PDT
 
Interesting position to be in, like any good business opportunities
you must do your homework (the math), analyse your options and then go
with your gutt feel.

In this case without knowing the product we could classify it into two
categories.

1. Commodity software: In this case all you need to do to price it is
to figure out what something similar, e.g. MS Word, MS Encarta, McAfee
Anti-Virus,.... are selling for and sell it at a similar price.

2. Value Add Software: Here you can actually do your pricing based on
how much value your software brings to a company.  The value can be
calculated based on how much money it manages (e.g. Computers,
Buildings, Transactions) or how much money it actually saves the
company by introducing better productivity. So if your software saves
a company a full time equivalent that is 60k/year which includes
salary and benefits. You could charge 10-25% of that which is $6k-$15k
for it.


Now in terms of business Arrangements.

The company which approached you might be thinking that they are doing
you a favor in selling your product and you might not have much
bargaining power in what you can ask for.  However if they see this as
a potential differentiator for themselves you will have a bit more
leverage.

One of the criteria you should consider is 'can anyone sell this'. If
your software is specialized in GIS then only certain vendor can carry
it and this again reduces your leverage.

However if Walmart could sell your package, and this company wants
exclusive rights that is worth money to you.

Assuming average on all cases and a willingful participant in the
company that is interested in the partnering I would suggest the
following. (and have done something similar at one of the companies I
worked for as CIO).

First ask them for a sales projection for your software. How much do
they think they will sell every month? Once they come back with that,
ask them for 25% down of the first 3 months they are forecasting and
put them on probation (legal paperwork to properly define this will be
required) that if they achieve 80% of their targets (as long as your
like the numbers they show you) that they will maintain an exclusive
arrangement with you.

You might also want to consider selling them the software for 8-10
times the value of annual sales right up front :) e.g. If they say
they can sell $100,000's worth of software in one year. Sell them the
whole thing for $1,000,000 + some royalty payments (5%...?) and go
start something else.

Having gone through this stuff, I'd be happy to help out with any
other questions you have on this one. :) (For a fee of course! :>)
Subject: Re: Exclusive Rights To Sell To A Vertical Market - What's the cost?
From: mr4698-ga on 22 Oct 2003 20:28 PDT
 
googqs-ga Thanks for your comments.  My product is a value added
software.  It's value is derived from the ability to get inside your
customers heads and find out which of your products they find most
interesting, least interesting, etc.  It enables sales people to
collect data, names, phone numbers etc.  The leads are literally
self-qualifying.

While it is true that my product can not be sold in a Wal-Mart, the
proposed reseller was very excited about what he termed our product's
enormous potential for his customers.  He believes it will add a
tremendous value -- a very unique value to his products/services. He
knows that we are talking to his competitors who would also find great
value in having and reselling this software.   He wanted to know what
we wanted in exchange for his company having exclusive rights to sell
to his vertical market.  I have no clue!  I have put everything I own
into this product - At this juncture, I can't afford much more and I
can't afford to make a mistake - the old rock and a hard place.

Owww, I thought I had paid the fee to Google researchers for this
answer but I would be interested in hearing what type of "fee" you are
looking for.

Thanks for all your comments -
Subject: Re: Exclusive Rights To Sell To A Vertical Market - What's the cost?
From: googqs-ga on 22 Oct 2003 21:43 PDT
 
Yeah you did pay a listing fee to yahoo, now where's my 20 bucks ? :P

Now we need to know what kind of business this guy is and his
competitor are in? How much do they make in sales/revenues per year.
And what portion of that revenue is your software applicable to :)


Would also need to know how much you have invested in this, what
intelligence you have put in the software (Your qualifications), and
what you would consider a good, fair and poor return on this.

Now what I'm proposing for further help is if you need help beyond
this question in dealing with this other firm :)

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