I run a startup web app that is an informational resource as well as marketplace. The marketplace side has been slow to ramp up, so revenue is minimal.
Recently, I've been contacted by several Fortune 500 companies that would like to white label or co-brand my web app since the information it provides will help them gain new customers.
I've already viewed this question, and it's helpful from a legal perspective and the different factors to think about: Got an offer to white label one of my products. What do I do? However, I have no idea where to even begin with $ pricing. The companies contacting me are large multi-billion dollar enterprises in the retail category. Do I tell them $100k, $50k, $10k, $5k? What is reasonable?
I was thinking of charging them an upfront setup fee and then charging a percentage of sales generated through an affiliate code on the co-branded site. Any thoughts on that? What's a reasonable percentage of sales - 15, 10, 5%?
Thanks for your help!
What an exciting opportunnity! And what a great validation of the startup process which teaches to be prepared for the unexpected and be flexible enough to respond to the market's demands.
I would consider your core business in the context of the business inquiried. What are you selling? Where are the margins? Where is the long term growth potential?
Know thy business Being in the business of earning transactional revenue on a marketplace is a different business that developing and customizing a SaaS solution for Fortune 100 businesses. While these two options are certinally not mutually exclusive,
Understand the Cost In pricing the development of a "white label solution" is absolutly critical that the total true costs to your company are understood. These cost include the direct programming and design cost of course. They may also include dedicated hosting with Sarbanes–Oxley complient processes or specific data security compliance requirements. there may be significant integration costs that will be hard to estimate until knowledge of either their systems are known. It might be as easy as --
The sales cost are also different. the sales cycle of closing a Fortune 100 company is often signficantly longer than a small to mid-size vendor.
Often you will know the totatlity of these costs -- it is more likly that you will not, and will need some type of discovery process to discern them.
Choice to Charge After you know the cost you can make a strategic choice -- based on your own business capacity to carry certin costs -- to charge up front or not. there may be an advantage in your sales process of limiting the downstroke as much as possible and embedding it in the monthly or the ongoing costs. You may want to choose to provide the options to the customer based on what you learn about their purchasing culture.
*Sales Commission * The proposed model of charging them a percentage of sales generated through the affiliate code on the co-branded site is a solid approach. Especially if it works in the targeted industry you are working. In this model your fee would be included as part of the overall sales and marketing expense incurred by the company. The amount needs to fit their own business model. In some industries the value of a qualified lead can be as high as 40%, in others the value of the closed deal can't go above 20%, in low margin industries this may be seen as way too much or the commission is paid off a line item rather than gross revenue (like net for example)
My Experience In my experience, most of the white labeled option of products/services that I have worked on have made the strategic decision to keep their business model on the ongoing service and to pass on only the costs (with standard consulting fee market-up) associated with the deployment of a white labeled solution to the new customer.
Occassionally the costs associated with customization/deployment would be negotiated to be integrated into the ongoing service fees in exchange for a longer agreement with a clear "buy-out" exit that ensure the cost of the customization/deployment would be covered by the margin in the implementation of the agreement.
Reccomendation Work with the first couple white labeled customers. Position yourself in the consultative sale role that is interested in develop a win-0win for them. Have them co-develop the proposal for pricing/deployment with you by providing you the information you need to meet their specific needs.
Draft out a specifi pricing sheet that includes a downstroker of X and then an ongoing service fee of X% of sales. Try to match it off another product or service that the targeted prospective customer would have been purchasing. Present it as a "starting point" and make it clear that you are looking forward to discussing with them their unique needs so that you can put together a propsoal which will make sense for their business.
Assume the sale -- not of a product -- but of a partnership.
So? this post was a while ago... what did you sell for?
I would have suggested:
I would say How big is the problem you are solving for them? What is the value of solving that problem?
If it increased their sales by 10,000/year, @ £100/sale, with revenue increase of £1,000,000
If you work out your value matrix you're offering 10:1, 5:1 or even as low as 3:1 for startups & low volume or one off sale.
The higher the volume of sales you're making, the higher the Value matrix you can offer. 3:1 value you're offering - charge £333,000 for £1,000,000 revenue. They won't be able to say no!
Low volume sales - 3:1 value you're offering - charge £333,000 - if only selling to them..
Mid Volume sales - 5:1 value you're offering - charge £200,000 - if selling to others too..
High Volume sales - 10:1 value you're offering - charge £100,000 - if you have the luxury of being able to charge others