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ownership question

ChetChet subscriber Posts: 2
edited September 2006 in Business Planning
I`ve got a few product ideas for a small niche market b2b software company. I have a non-existant software product that I want to launch the company with and to save myself the development costs involved, I want to give up some percentage of the product`s net sales to the software developer. I`ve got freinds interested with the software programming skills required, so that isn`t the problem.
As I see it, I have marketing, sales, ongoing support, and other business expenses that need to be figured into the costs.  My question is, what is the correct % of profit to give up? I want to compensate fairly, but don`t want to give up more that I should. If I flat out hired someone to build this, I would guess it around 15 to 30K.
I don`t know what the ROI is yet, but obviously feel that it could be quite lucrative. chet2006-9-8 0:28:36


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    amacgi1amacgi1 subscriber Posts: 2
    Hi Chet,
    I`m not sure if there`s a specific percentage that would be best. It seems to me that were you to go the profit route it would be best to offer a software developer the market rate of their work (15 - 30k like you said) + an incentive for taking risk on your behalf. The amount that risk is worth depends a lot on how risky the software developer percieves the project to be and how risk adverse of a person they are.
    I hope that helps some.
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    ChetChet subscriber Posts: 2
    Thanks for the response. If I look at my competition`s product, I estimate that it is making around the 500K per year average gross sales. If I am sucessful with this, and my programmer wants to split 50% net sales, I`ve way over paid him for his time and his risk. 
    I`m really having trouble creating a fair and equitable partnership that would work for the both of us. Plus, I want an escape clause, if things don`t work out between us or I if I decide to go with another development partner from the start instead of my friend, I need to setup the arrangement the same given either scenario.
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    ChetChet subscriber Posts: 2
    Any other responses to this? I appreciate Andrews response, but could use other opinions and anyones advise that has done this.
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