

Ask: I've been approached by a fortune 500 company. How much should I charge? - DrorY

Quick consultation here, I need your help guys.
I've developed a Facebook application for pages.
It's been seeing some success. I've got a white label version that charges 19.99 yearly.<p>I've been approached by a big company (fortune 500 ) and am now setting a skype call with their social media department.<p>I am not sure what I should offer them, and what budget I should be aiming for. Should I offer them a white \ gray label solution? How much should I be charging.<p>Thanks!
======
dirtyaura
First, I don't know what your application does, but based on the small yearly
price, I assume it isn't super-complicated. BUT regardless of how simple your
application is, you should negotiate a deal that will bring you thousands or
tens of thousands over a period of time. They have likely spend some time
finding out about possible solution. Thus, they can easily pay a few thousand
dollars immediately if it solves their need and more over a period of time.

However, don't just negotiate on a single price, but strike a deal where
support work will bring you recurring revenue on monthly basis.

Try to have several dimensions on which you negotiate, not just the price. You
already had a great idea for a negotiation dimension: do you offer it as a
white or gray label solution. If they are willing to pay too little, require
that your product brand is clearly visible for end users, thus bringing more
customers for you in the future. You can negotiate on many things besides the
price: the scope of your support, your availability, the response time to
support queries, your scalability promise to them, future improvements to
product, etc.

Good luck!

~~~
dirtyaura
By the way, you should probably raise the yearly price of your product for new
customers, small or large, anyway. I find it hard to imagine a product that is
both so valuable to businesses that they start to use it but so invaluable
that a small business owner wouldn't be willing to pay more than 20$/year for
it. If they spend a few hours to install and familiarizing themselves with
your product, they have already spend more than 20$/year of their own time for
it.

------
porlw
Your white label product is a mass market thing. F500 companies expect a more
hands service.

Here's what I would do: Offer an initial consultation period (say 2-4 weeks),
at a suitable rate ($100 - $200 per hour)

Spend the time meeting with all people involved. The consultation period will
probably be extended, because everyone will have different opinions and more
folks will get dragged in and it will be hard to schedule time with the
important decision makers.

During this time you need to establish what value the client attaches to the
project (how much money will it make or save them?) This is the infamous
"value proposition".

You need to capture as much of this as possible - this is the budget you
should be aiming for. How much of this you can capture will depend on how much
any alternatives you identify would cost (competitors and/or internal
development).

An important part of your final offering will be support. It's probably best
to price the final deliverable lower and charge more for support, since that
will be a recurring income.

------
kayhi
Try very hard to have them put out a range of what they are expecting to pay.
If they approached you then you should have some leverage in the situation.

~~~
Travis
I agree with this. The "price shock" reaction that causes consumers to recoil
and not listen to your value prop is significantly less likely in a corporate
situation. They're spending the company's money, not theirs; your price will
not offend them (like it would if it were their money).

~~~
DrorY
Good points. I am not a native English speaker myself. I am afraid that I will
be too upfront. Can you think of any terms or phrases I can use here?

~~~
Travis
No easy answers, but if it's a big enough deal ($100k US or higher...) it may
be worth finding someone who can negotiate for you. Or sell for you.

If you focus on the value delivered, know your market (what people are paying
your competition), and you can justify your higher-than-competition cost, you
should be OK. Then double that, in your mind, because you're probably
underselling yourself, and underestimating the cost of an employees time to
even research these options [ie even the worst product delivers more value to
the corp. than a continued search for a product.]

------
Travis
I can't offer any absolutes, but I would recommend that you continue a
conversation with them before quoting a price.

Try to determine (estimate) their budget. You'd be surprised at how easily
corporate employees will reveal budget.

Then charge a percentage of that budget.

Alternatively, try to figure out their internal cost estimates/budget for your
component. Then double that.

You have a ton of negotiating room, but always do it as a percentage of what
they were expecting to spend on the project/your component.

In my (light) experience, I've always at least doubled the amount of money
coming in. Working with a corporation is a different beast than directly
estimating value delivered / standard consumer stuff.

~~~
DrorY
Good ideas. I was thinking of charging per success rate. My application
increases exposure over several social channels. If my application is
successful in providing them what they're looking for I am sure they'll be
willing to pay for that value. I am not sure that on first glance they'll
trust my app enough to pay a straight on high sum. What is your take on this?

~~~
Travis
In my experience, a corporate employee needs to be able to relate a fixed cost
(or fixed cost estimate) to their superior. This mostly holds when the project
is a line item, and they need a signature on a purchase form (instead of a
comparatively expensive exec buy-in).

If your app is unique (or offers them a unique and important-to-them value
prop), they have to trust you. If your product isn't unique, it must have some
unique value props. Emphasize those! Strut your stuff, so to speak.

The attitude of many F500 purchasers is this: does it meet my criteria? Does
it meet my budget? Then purchase. (Often, it's not the end-user [e.g.
engineer, product manager, etc.] who makes the decision, but the purchasing
agent.)

My only caveat is that corporate sales are tough. You may get a "yes, yes yes"
all the way along from your POC, but they may not be the decision maker. It's
easy to spend months purchasing a sale that you never had a chance at, but
didn't know that. You have to judge by the conversation tone these things.

I wouldn't worry too much about the "do they trust my product" process. They
trust you enough to ask for a price -- that means they're sizing you up for
their budget. It's tough to think like a corporate buyer if you've never been
one... but they have different incentives than consumer purchasers (who, after
all, have to live with their purchases...)

------
nhangen
Keep in mind that even at Fortune 500 companies, budgets are limited to the
department, and within that department, the presumed impact of said project.

Every time I have negotiated with a company of this type, I have come away
thinking that they had unrealistic pricing expectations. That said, you must
price higher because of the bureaucracy you will be dealing with.

