So I made a program for this guy for an upfront amount of money. This program is now in the top 10 most popular list in its category on download.com and is in the number one spot in its subcategory.

Recently, I've made a much more advanced version of the same program and am currently in talks with the same guy to sell the new program, but this time I want a percentage of the profits. He's offered me 20% of gross income (20% of about $5-10k/week) that is generated with the new program. His company/website is sort of known as the place to go for this type of software and he has a large customer base. While I'll make more with this payment scheme than I did with the upfront payment on the first program, 20% just seems too low. He says he has large expenses with tech support, marketing, and hosting, but the old version of this program is his top money maker by far, and I think the new program will probably sell itself on his site.

Fifty percent each seems like a fair deal to me, but I'm fresh out of school and new to this business so really I have no idea. So does anyone with more experience with this type of thing care to comment? Would I be better off just trying to sell it myself and build my own customer base? Or is 20% of the pie a fair share for a software developer in this situation? Is his asset really that valuable and are his expenses really that costly?

Since you haven't said what the program is, it's impossible to offer you any concrete advice on how your should proceed. As a general rule, the surest way to figure out what something is worth is to find multiple suitors and bid them against one another.

I don't really think you can expect 50/50 if he has to provide the sales and support but maybe you should get more than 20.

How about some payment up front and a smaller percent of the sales ?

Now to try and guess what the program is

You didn't give any information regarding the original contract nor the nature of the business relationship. If this is his program, that you developed per his design and specifications, then 20% seems more than fair. I'd say in fact it's too high.

If this is your own program that he's just reselling on your behalf, then 20% doesn't seem fair at all.

Unfortunately, it's all the missing information that ends up being the most important in this case. If the situation is closer to the first example, then you really shouldn't be taking this thing on the road yourself. That would be a conflict and likely some sort of breach of contract.

The fact that you're asking this however leads me to believe that a well-defined contract doesn't exist at this point, nor did it exist when this program was started. That's likely the biggest mistake both of you made.

But what do I know... I'm just paying my contractors wage, salary and fixed figures. Only future permanent employees, partners and investors get a piece of the "action."

Bruno

As everyone else has said, it really depends on the actual program, and what your agreement was before. What rights does he have? Does he have the right to the code? To distribute a binary? Who owns the copyright of what you've already written?

If you own the code, and he's distributing, then you've got a let to stand on. If you're the only one who's every going to be able to make the program, you've got a leg to stand on. If if you own the code but he owns the concept, and he could hire a contract programmer to reimpliment the program, you've got to negotiate some figure under what he could pay someone to redo all your work.

Matthew

You might also want to think about a rising share. Certain parts of your partner's costs will be fixed, and some will be variable. For electronic software distribution it's usually heavily skewed to the fixed costs. So a schedule where you get a rising percentage on increasing sales might work.

This only pays you more if your new version is as good as you think it is, so you're incented to write good code, and your partner gets his fixed costs covered quickly so he's incented to put effort into selling it.

Regards

Mark

I've been on management teams of software companies are am somewhat familiar with compensation of contract developers.

The most important question is who owns the rights of this advanced version? If he does, then I believe that 20% is more than fair and you should jump at it.

If you are the clear owner of the IP rights to the advanced version, which would probably depend on whether it uses source from the version written under contract, and also the specifics of your original contract with him, then 20% is too low.

If it is not clear who owns the IP, then you can open yourself to a nasty legal battle with him if you try to sell it yourself.

IMHO, you need to have a good understanding of who owns what. That probably means consulting a good intellectual property lawyer and a good contract lawyer (2 different lawyers). Then you'll know where you stand.

I know from my experience that if you used *any* source code or documentation from the version you wrote under contract, then it's almost certainly tainted unless you have a clause in your original contract where you retain some ownership (which, let's face it, he probably would never agreed to so you probably don't have this). That means he wouldn't need to give you *anything* most likely, and you want to come to an agreement -- in writing -- quickly and before he consults a lawyer that tells him he doesn't need to give you anything.

FWIW,

Jim

I just wanted to post another few bits of info to give you some perspective into what it costs to sell software. Take for example something as simple (ha!) as getting paid.

Compare the following popular payment service providers:

Kagi: 5% +$1.25 per registration

eSellerate: 15% per registration (10% if you make under 15k or over 5 Million per year - whacky sliding scale in the middle) They will serve (upload) sold registrations at no charge (this probably has file limits)

SWREG: 6% + $1 (plus 2% for AMEX and JCB) per registration, plus $20 monthly fee. Or flat 15% (plus 2% for AMEX and JCB). If you want them to file serve, it's 1 cent per 100k.

Customer refunds: All these guys either keep all commissions, charge extra or both.

None of this affects the considerations I brought up in my other post nor what others have posted. It's just a small peek into some of the costs of doing business. There are, unfortunately, many more.

Bruno

We didn't have a well defined contract. I made the first program to his specifications, but I added a few of my own specs and features for him while I was at it. He has the source code to the first program, but there originally was no discussion over who owns it. It's really a young niche that this program fills, so there was a lot of room for improvement on the first program.

It was a type of program that was in demand, so over time I made this program for several different people (all for personal use and without souce code, except for the first guy) as a custom program built to their specifications. Each time, I added features and redesigned sections of code, and almost every line has been rewritten since the first program was built. Probably less than 5% of the current code matches the original.

I don't think there's any disagreement over who owns the current code of the new version, which should be me. Although he has mentioned he has filed patents on certain aspects of the original program (I don't know which aspects or even if these patents have been approved). There are several other programs on the net that do basically the same as this one though. This one just does it better and easier.

Really I didn't anticipate the popularity of this program, or else I would have made a better deal to begin with to share in the action. He says he will personally profit about 15% of the income on the new version of the program. But like Mark said, many expenses are fixed and I'm sure their cost will go down over time. He doesn't seem to want to budge over 20%, and he knows I was seriously considering selling it on my own or somewhere else. He says the most profitable strategy is to keep the percents low and the sales high. He's been a good guy to work with, and I think he's honest, plus his site will generate more sales than any other site that caters to this niche.

I just wanted to make sure I'm not getting ripped off. I think for now, I'll take the offer with the option of discontinuing the deal at any time in the future, so if the expenses start going down without my share going up then I can take it elsewhere.

Also, I don't want to say the name of the program until concrete deals have been made. Thanks for all the advice so far, guys.

Make sure you make a contract for the current deal. And spell out very clearly that you own the rights to the code. In fact document the ownership of any and every aspect you can think of.

A lot of costs won't go down. The payent processing fees go down if you find another service provider and/or manage to negotiate a better deal (probably not possible if he's with one of the three places I recently mentioned). Hosting and bandwidth costs are not likely to fall either. Certainly dealing with support issues and paying other people won't be falling in costs either.

Just remember too, that since it was his idea, he could have gone to anyone to write the initial code. I gather it's all becoming a bit of a commodity as I understand your explanation, but if you do place value on his distribution powers, it sounds to me like you're coming out of this ok.

You may also find there's room for a greater stake later on by expanding the software again or perhaps working together on other projects. As long as both of you know if advance what you want (and it seems now you do).

Bruno

Quote:
Make sure you make a contract for the current deal.

Yeah, that's good advice. That's something I'm definitely going to do from now on.

Quote:
if you do place value on his distribution powers, it sounds to me like you're coming out of this ok.

I do think his site and customer base is a very valuable asset right now, but still I think we're both supplying two pieces of the puzzle. At first I thought I was getting ripped off, but if he's spending 50-70% of the income on expenses to generate more income like he says, then I have no problem getting 20%, and after talking to you guys it sounds like that could very well be the case. He's been an honest guy so far, so I can give him the benefit of the doubt.

If you are even slightly doubting his honesty it is worth just getting a bit of legal advice. A former colleague had a programmer work on a site for a 50/50 share of the income, after it had made a lot of money (like enough to buy a house, SEO on loans/mortgages pays well!) he just hired some people on salaries, built a few more sites and discontinued work on the old one.

Gareth

Along those lines. Business wars can be so nasty.

One of the local coffee shops has bumped against Starbucks.

Here's my take on what's happening.

The local guy is located in a nearby shopping center.

There is a new shopping center being built about 2mi away. Right next to an interchange on I-5. (Centeral California) The local guy started to negotiate for a second shop there. S$ wanted the same. The local guy, at his current location has a no compete clause in his lease. No other coffee shops in the shopping center. S$ found a way around it. They offered to buy the shopping center's remaining unbuilt location outright.

To me S$ movement on the local guy seems to be in way of a warning shot. I've no doubt they have made a serious offer to buy into the local shopping center, but I suspect it's contengent on a request that's been made to the local planning dept. S$ wants to close one of the entries to the center as part of a plan to install a drive thru. I don't see how that will ever happen, so it gives them an easy out on the purchase agreement. Even so they could still build without the drive thru.

To me it seems they have the guy boxed. If he persues the new store, they move in on his current location.

I'm picturing many closed coffee shops if this over priced coffee fad ends. In Minnetonka where my apartment was there was five within two miles that I noted and I don't even drink coffee.

I doubt a price collapse will happen in the coffee shop world.

My bet would be on a price stagnation with a slow strangulation.

That local guy I was talking about, He used to have a line out the door every morning, now it's 4-5 at a time and not continously. I put it down to a slippage in the level of service. Used to be they would get the orders in and deliver to the table. Now they can't seem to fill more than one mug at a time, and you wait in line till you are served.

Starbucks price isn't what keeps me away, it's the coffee. The over-roasted "Charbucks" flavor just doesn't do it for me. I like strong coffee, but strong doesn't mean the beans should be roasted to a crisp, removing any natural flavor they may have had.

I do like their caramel apple cider, but I fail to see how they've managed to build an empire on such crappy coffee. (Oh wait, it's marketing... nevermind.)

For more affordable everyday coffee, Dunkin Donuts is the way to go.

Oh yeah, I'd be remiss if I didn't link to this little nugget while we're on the subject. (NSFW)

I'm going to chime in with my typical rant of "all coffee tastes like ass", continue to wonder why people pay $5 or more for a cup of burnt water (or the probably more likely scenario of $9 for a cup of hot milk with a little burnt water stirred in), and leave it at that.

Hm, in my tiny neighbourhood mall (a decent supermarket, a bank and perhaps ten other small establishments) there are three coffee shops. One features a range of "gourmet" coffees, another twenty or so flavors of hot chocolate, the third just good old espressos and cappuccinos, but all are doing brisk business. Perhaps we drink more coffee....

As long as we're giving our opinion on coffee, I have to say I don't see why Dunkin Donuts coffee is so highly acclaimed. Every time I give it a chance, the same issue disappoints me. It’s watery as hell. I drink my coffee black with nothing added, so it could be less noticeable if you add milk or sugar.

Also, I do see how some may say Starbucks coffee taste burnt. I don’t find it offensive though. I actually prefer that style. It’s not their marketing that’s getting to me either. I couldn’t tell you where the nearest Starbucks is to my house or my office. It’s very rare that I am able to go to Starbucks to get some coffee.

In my general area, if you want coffee made for you, you need to go to a diner, McDonalds, Dunkin Donuts, etc. I don’t think there are any stand-alone coffee shops ‘round these parts.

I don't 'get' coffee. I tried it once and it was one of the most foul things I've ever put in my mouth.

I don't 'get' coffee. I tried it once and it was one of the most foul things I've ever put in my mouth.

Ummmm... yeah. What he said.

tanstaafl.

You didn't try it and it was still one of the most foul things you've ever put in your mouth? How did that happen?

Yeah, I meant the whole trying it sentence.

The only difference between roasts is the degree to which they have been converted to charcoal. Mild > Dark > French. So basically all coffee is going to taste burnt.

I still remember the process of acquiring the taste for coffee. On those occasions, it was a matter of either drink the coffee or drink the horrible water that was available. Believe it or not the coffee tasted better. At least the coffee was supposed to taste that way.

I've liked the taste of coffee (specifically "coffee flavour") since I was a little kid. I'd eat biscuits (Maria variety available widely in Europe and also imported at least to Canada) dipped in coffee and or coffee and milk. Mmmmm.

I quite like coffee as an adult as well. Though I can't drink it without at least sugar. An American coffee generallly has to go with milk or cream, an espresso or moka with just some raw sugar. I also love ice coffee (Chinese/Vietnamese style with condensed milk - no extra suger needed after that).

Wow, this thread has gone way off topic.

Bruno