AM: FW: Pricing suggestions
Mike Simon, President of LocalEyes <http://www.localeyes.com>
weighs in with the following input for Ann:
>> 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.
Define the type of customization. How much dollars are involved to
do the work? time?
What is the potential revenue on the upside? realistic vs. speculative.
What is the ramp period for the revenue?
>> 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.
What does property mean? A sponsorship model on html pages?
Initial costs are high of what? Placing the advertisers message
on your site or the development cost of your product? Customers do not
care about your costs.
>> How would you:
>> - learn how much cash they can advance, both to cover expenses
>> and to advance royalties
stop thinking about covering costs and start thinking about building
long lasting relationships that are mutually beneficial to both parties.
>> - decide the revenue splits]
decide the revenue splits based on contribution. If you are asking them
to pay you upfront, you are reducing your contribution and your risk.
What are the costs? Who is driving the traffic? Who owns the administration
functions which include billing, ad placement, and etc.?
The best way to define revenue splits is to lay out the contribution model
and determine a split in a way which will be defensible to all parties.
>> -determine the length of the contract
The issue is not the length of the contract but the deliverables and the
terms. If you are loosing money on the relationship, do you still want
to have a contract? Make sure that there are performance milestones which
measure the success of the contract and give you the ability to exit or
renegotiate the contract if the milestones are not met.
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