What is a fair commission to pay a software development creative team?

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What is a fair commission to pay a software development creative team?

We are a start up and have a team in mind to develop our site, who will lease to us their software, and evolve with us for a percentage. They are asking for what we feel is a high percentage, and off the top prior to the company, company expenses, taxes, employees, etc being paid; but do not expect to profit until the company makes money.

We do realize the importance of a good team that has the capabilities to progress and build what we need, but what is fair in the industry?

Thank you all in advance for your advice, suggestions and answers!

Desperation can make a big difference, but that aside...I wouldn't make a deal like this without professional legal advice.

A percentage of gross profit? -- implying that you'll pay them even if your other expenses (salaries, taxes, etc.) put you in the hole? There's no higher percentage one you can't pay. I hope you're (at least) incorporated. This sounds like a lawsuit waiting to happen, if your company doesn't perform as well as you hope it does.

If you do a percentage (yikes), then do it on profit (net), carefully defined, and cap it at a reasonable level. If you expect them to do $100,000 worth of work, try to model for that -- even a little bit more as an enticement and acknowledgement of the risk they are taking (that you won't make any profit). And make sure you're explicit about your right to review / terminate the contract at any time.

2-cents -- not worth much, but there you go.

dave 2010-08-13 20:45:25

Thank you so much for your feedback. To me it is extremely unrealistic to pay anyone off the gross, but I needed to ask. I have worked with website designers in the past where I pay for a site to be built, 50% up front, and the balance on completion. This though is completely different and foreign to me as far as fair and appropriate compensation. Yes, I do have a legal consultant.Yes, we are incorporated.Thank you very much for your 2 cents...every 2 cents adds up! ;-)

MKelley 2010-08-13 20:59:20

It partly depends on what you want the software development group to do. If they're supposed to be involved and work like this was a startup, they'll need a big upside just like you. If the software is a critical part of your startup, you should have a good software person as a full partner. If your startup's innovation has little to do with software, but you need a standard website, then remember they want to be paid, with something of a risk premium. You can always ask around. If you can't get a deal you like, maybe you're undervaluing the software part.

David Thornley 2010-08-13 21:39:46

Thank you, Dave, And that's exactly what I don't want to do, is devalue the software end, which is why I presented my original question. Another option I have considered is offering stock options in the deal, since interest in stock has already been displayed.

MKelley 2010-08-13 21:59:02

Concept and execution are two critical things to a company. It seems like you have confidence in your concept, and that may have an intrinsic value that you want to protect.

In a similar manner, the creative folks have something they want to protect: development sweat and elbow greese. That is easier to account for (via a hourly wage) than a concept that hasn't seen the light of day.

I think the best thing you can do to lower the product delivery cost is to prove your ability to execute (market, get customers). Part of this is to offer your design team crisp, clear directions that don't require many revisions and corresponding wasted work. Of course this requires technical skill and may not be up your alley... then again, maybe it is.

Depending on your skill, and time you can devote to development, the development team may become more of a "commodity" from a business perspective. Telling them this verbatim may make them lower their price or may injure thier pride and make them walk away from the deal. Use this angle judiciously.

EnduroUSATour 2010-08-13 21:27:36

Not only do we have confidence in our concept, but so does our perspective software development team.My skill is in the industry our project is geared toward, my partner is the business head and legalese, and the development and maintenance team is separate. Although I am versed somewhat here and there, at the moment composing excel lists, and doing what I know to contribute, my skill level is more than some, but much less than most!Thank you so much for your comment. It is really appreciated!

MKelley 2010-08-13 21:52:58

ansaurus

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What is a fair commission to pay a software development creative team?

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