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February 2, 2012 05:15 AM

Categories: Sales and Distribution

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Tom Duncan

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Joined: 02/01/2012

We have a new educational software product in a niche area where there isn't really any competition (small market, 2000 potential customers in the UK, but also exportable). Price point is high 100s GBP, very positive reaction at a recent trade show.

There has been some interest from overseas distributers, which is something we would like to pursue. Where do you start in deciding how much commission to offer? Not asking for a figure, just how to go about deciding.

We are a startup, so we would be looking for a distributer to do everything needed within their region (translation, producing marketing materials, exhibiting, selling, customer support etc) so of course they would need a decent commision.

OTOH, it is a downloadable product so there is no physical product to import or handle. They don't need to purchase stock in advance (we can supply on demand, after a sale has been confirmed). It is an annual licence so a good chance of repeat sales without too much extra effort. There are also some related products in the pipeline for next year.

It's a negotiaition of course, but we need a sensible starting point. Any advice?

Discussion:    Add a Comment | Comments 1-3 of 3 | Latest Comment

February 5, 2012 10:09 PM

If they do everything you describe, 50%.

February 6, 2012 5:19 AM

Bruce, that seems higher than I would have expected (I was thinking 30-40%). In some ways it doesn't matter, if they are selling in countries which we are never going to sell to ourselves, it is the closest thing to a free lunch we are going to get (we don't have to physically make anything, we will have to put a certain amount of time into supporting it).

I just wondered, what aspects of what we are asking for would you say were the biggest cost to the distributor?

Also do the advantages of a digital product count for anything? In particular, if schools are using the product it would almost be an automatic resale every year as the annual licence expires. Is it usual to apply the same commission?

February 6, 2012 6:46 PM updated: February 6, 2012 6:52 PM

The devil is in the details.

You gave a very ambitious laundry list, and I told you what I was used to paying foreign distribs who fulfilled those kinds of lists. If you really expect them to create their own marketing materials, buy their own trade show booth and man it without your help, handle all support on their nickel without falling back on you, etc. then I stick to my 50%. I am sure that you can find someone who will agree to less, but then you have to be very very careful about how well they are doing all the things you describe.

Remember, in the customers' eyes, that distributor is YOU.

One way you can shave points (sometimes) is to grant a bigger area. E.g., if I'm in the UK and you give me only England, I want 50%. But if you promise me (in writing) exclusivity to also include France, Germany, and Benelux, I'll do 40%. Of course, from your perspective, you'd better be damn sure that I'm the right guy if you're going to give me that much territory.

Their biggest costs will be, of course, marketing and sales. Having a digital product is nigh-on irrelevant. (However, you do need to create controls that are both loose enough to let them do their job, and tight enough to prevent piracy. This can be tough.)

Generally speaking, renewals earn the same commission, but there's a real split in the industry as to when they are paid. I'd do everything possible to set it up so that commissions are paid when you're paid, not when the contract is signed. They will fight this, of course.

As you said (or alluded), 50% of something is better than 70% of nothing. I think you -- and a zillion other startup CEOs out there -- need to learn to get over the grief of writing commission checks. :-)

Discussion:    Add a Comment | Comments 1-3 of 3 | Latest Comment

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