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AM: FW: Pricing Suggestions

To:     "'ad-market@netpreneur.org'" <ad-market@netpreneur.org>
Subject:     AM: FW: Pricing Suggestions
From:     Mitch Arnowitz <marnowitz@morino.org>
Date:     Wed, 11 Jun 1997 16:09:12 -0400



Raj writes:

> Glad to help.  My comments are below...
> > The situation:  our company develops surface transportation 
> > software. We have a site on the web---www.freetrip.com/ 
> > which draws a lot of usage. A prospective client wishes to 
> > have us customize a version of our software and make it 
> > available for their members. Revenue will be generated in two
> > ways: (1) through adds on the site; and (2) by sharing revenue 
> > with a third party who develops destination database information.
> 
> > Problem:  our advertising model is a fixed cost per property per 
> > year. Initial costs are high, so we would like to get as much cash 
> > up front as possible. 
> 
> > How would you: 
> > - learn how much cash they can advance, both to cover expenses 
> > and to advance royalties 

That's the magic question.  We run a couple of advertising-based sites
also (http://www.govcon.com and http://www.morebusiness.com).  We found
that one month's payment is a comfortable advance for the buyer and gives
us ground to get started.  We bill monthly based on a fixed duration for
the rate (e.g., $750/month for 12 months or $900/mo. for six months,
etc.).  For a  situation like yours, I'd first determine what it's going
to cost you and how much below your expenses you can go.  If you can't get
that much in advance, then you should rethink whether you should do the
deal at all since you might go under trying.  Be sure to include a clause
in your agreement that gives you the right to audit any records for
royalty payments, unless you have some kind of recordkeeping built in.

> > - decide the revenue splits

I've seen splits ranging from 30-65% for either party.  It sometimes boils
down to how well you can negotiate.  There are some industry standards out
there but each situation can vary greatly.

> > -determine the length of the contract

Rather than focus on setting a contract length, if it's possible, try
setting up different rates for different lenghts of time and let them pick
which one they want -- this is important for initial advertisers and new
contracts so you can establish a track record.  The longer the contract,
the smaller the payments.  This is how print publications also price their
ads.

Hope this helps.  Good luck with your business.

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Raj Khera                           FREE Commerce Business Daily, FAR, etc.
Khera Communications, Inc.          http://www.govcon.com
raj@kciLink.com                     
(301) 548-4363 (direct)             FREE Help for Small Businesses
(301) 258-8292 (main) x4363         http://www.MoreBusiness.com
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