How much commission is appropriate when selling on a software marketplace?

Question

I'm a part of a software market startup, building an upscale version of hotscripts / code-canyon and its ilk that allows developers to sell components / complete applications for web development (mostly framework oriented). We have some varying opinions on how much commission to charge developers for a sale, and we would very much appreciate any input from the stackoverflow community.

Code canyon, for example, starts off at 50% commission (they changed it from 60% recently) and tails off at 30% commission for high selling developers.

Keep in mind what this kind of service provides -

• A marketable showcase for your application / components (if done right)
• A large source of traffic with intent to buy
• Handling of all legal aspects (including software license generation)

What are your thoughts?

Answer 1

Both the iPhone application shop and the Android application shop have a 30% commission. That seems to be a good number.

Answer 2

ComponentSource, your main competitor, is charging a montly fee, then a negociated % that can be up to 40% if you are very small. I know that the more you sell, the less you will pay in commissions.

So don't set a fixed commission rate, take in consideration all the differences you will have.

Answer 3

As others have already mentioned, looking at your competitors is definitely a good idea. What are the differences between them and your product?

Authors interested in publishing their products on this kind of website will surely compare the offers. I think the iPhone shop is not a good example, because it's only them on the iPhone market. There's no competition really.

CodeCanyon says "... we review complexity, quality, and overall appeal when determining the specific value to assign to an item".

Are you doing the same? Do you define the value of a product or is it up the the author? Some authors may like this, others don't. What should be my motivation to sell my product on your platform and not theirs?

Keep in mind that at least in the beginning, your platform has less products and less viewers.

• Your platform gives me more $$ per item sold.
  • The selling price is higher
  • The commission is lower
• Your platform helps me sell more items
  • Helps me with the product placement
  • Helps me with catchy product description
  • Helps me with fancy icons / images, because I can't draw :-(
• Your platform helps me sell my stuff in less time with less hazzle
  • Do I need to sell stuff for 150$ before I can get my check?
  • Does it help me with the payments? I want the money on my bank account.
  • Can get things done quicker / easier than on CodeCanyon?

If some of the points can't be fulfilled, you have to make up for them. One of them is the commission. It's easy to compare between platforms. The other aspects require more time. I don't know about my recommended selling price on other platforms.

Especially if you are new in the market, you want to attract lots of viewers/authors quickly. Start lower than the competition and see how it goes later on. 30% - 40% is probably a good deal.

Answer 4

No simple answer. Do market analysis.

It is a tradeoff you have to make between comission height and number of attracted devlopers per time with the goal of a "as-fast-as-possible" break-even.

• What can you offer other services can not?
• What costs does your business have and what is the latest acceptable point in time for break-even?
• How are your reserves and chances of further investors commitment?

You have to be the better marketplace if you want to go up against the original androidmarket wile also taking 30% for comission. You have to be better than androidpit if you want your comission to be at their level. If you can not compete in features you must do so in price and hope your costs are low enough to stand it through.

This is all general advice because in the end what input you are asking for can only "reliably" be given by someone who does a a thorough market research. I doubt it anyone on stackoverflow will do that for free. Plus it will require alot more insight into your business idea.

Do not fail this step. It is one out of two biggest mistakes commonly seen with tech startups: "Underestimating the effort required for marketing & sales" and "Not doing a proper market analysis".

I wish you luck.

C.