Questions

Hi, We are a start-up company that licenses software and gets a percentage of net sales. To make sure we get the percentage of the sales, we ask for a copy of the contracts. However, one client told us that the licensing fees of their clients is confidential, so we have to trust them. What can be done in these cases? In revenue based deals, how can I make sure I got the right revenue and we are not taken advantage of?

The question that pops up for me from your question is, "Why would you trust someone who isn't behaving like a partner?"

How common is this situation, where a licensee declines to share buyer contract info with you? I'm guessing very infrequent from your description of "one" licensee behaving this way. If that is so, and the far more common situation is a licensee agreeing to share the end user contract data with you to have fully accurate revenue data, then I would simply screen out those potential licensees who won't cooperate and not work with them.

If, however, your marketplace sees the resistance to sharing data as being more commonplace, I would review the structure of how your software is being delivered. The software licensing program could capture this revenue data so you wouldn't have to worry about trusting licensees. An example of a third party licensing program I've seen (to which I am not in any way affiliated) is https://www.licensecloud.com/

As another option, you could also dispense entirely with the idea of following licensees around and making sure they're telling you the truth about revenue. Restructure your billing system so you charge a profitable flat fee per end user, and leave it up to your licensees to sell the services for whatever they are able. This keeps you out of the business of looking over your licensees' shoulders and in my opinion is healthier in many ways over the medium and long term.

Revenue models are tricky to calculate and many intelligent people will miss expensive cost factors on the road to developing a price that truly makes them money.

I help businesses who have any kind of problem on the path of competently delivering a product or service to their customer. If you'd like to discuss this further, reply here and send me a message because I don't always check previous threads.

Thanks,

Jason


Answered 4 years ago

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