I'm learning how to make an app for that.
July 2, 2010 10:11 PM   Subscribe

Hey you fancy phone app developers... how do you usually charge when you're doing an app for a licensor? What's standard? What kinds of contracts and stipulations do you sign? What kinds of fee structure? And what are the things a SMART licensor should really know and pay attention to along the road while building a new app for the public? (I hope these questions make sense.)

Bear with me while I babble for a moment...

I've been approached with a really nice app idea for my website by an international developer. My instincts tell me it could be hugely successful, and very profitable for all people involved. Currently I'm a one person startup (without backing) so I've been given a variety of options for working together and I'm trying to figure out what to do. I've never done this before and I don't want that to hurt me later. I mean, although I don't have backing I could probably get it if I needed. I just am not sure how the business aspect of app development is normally handled. Right now we're working on a friendly handshake basis which makes me nervous but soon we need to start signing contracts which makes me even more nervous.

The two main options are paying for it in full or just licensing my brand and taking a percentage, and then there are gray areas in between as well. Giving them a small percentage of my company once I incorporate has also been suggested to me. My social media presence alone is worth a virtual 7 figures... so I'm very aware that if the app is successful and the site continues to grow, down the road that could be a lot of money for them, more than if I paid them just to develop the app.

I want to sound smart about this kind of business stuff, but I'm new to it. They want to talk to me next week about contracts and how we should work together to create this app. As I've never worked in app development before (especially for myself, and beyond the creative side), could someone educate me a bit on the process and what I should be sure I do and don't do? I want to make smart decisions for my brand and my future. This means a lot to me.

Thanks in advance!!!
posted by miss lynnster to Technology (8 answers total) 6 users marked this as a favorite
There are many possible scenarios. The best solution will depend on your specific circumstances. Based on my own entrepreneurial expertise I recommend seeking out capital to lay the proper foundation for your business. You should develop a careful budget of the actual costs for development of your product or service to the first customers. This should include realistic costs for product development, marketing and other business expenses. Once you have determined those costs and secured as much capital as you can, you should then try to work out the clever cost saving agreement where they do work at a reduced cost based on the potential upside of a future payout. Take care though because as the person responsible for sales, marketing and product vision if the product fails to earn out, they might demand payment. I've seen many projects fall apart because someone offering services at a reduced rate couldn't deliver and rest of the team lacked financial resources to get the project completed. Also I've seen great products that got built, but the person othe other end couldn't get the sales numbers to work.
Thus I recommend having the capital lined up even if you don't spend it. You can always pay someone else to finish the job. Then I would look to negotiate some kind of simple contract that included a capped earn out for them (such as $n dollars or 15% of the first year revenues). You should indicate that this entirely contingent on product sales and downloads which you will have limited ability to control and that this would not constitute a debt or obligation to pay in the event that the product doesn't meet it's sales goals.
If you've determined how much the thing should cost to get built, and you offer them something less, with the possibility of a greater payout should your business succeed, then I think you have reasonably good basis to move forward. You need to make sure the something less is enough for them to complete the project on time and support it after launch.
I would avoid licensing anything to them as that could really make things complicated down the road. By simply using them as a contracted vendor with no ownership over your brand or ip, but with a clearly defined reward for your initial success you will be in the best mutual position. It will also work better for then as they will be able to focus on their core expertise (making the app).
As a final piece of advise licensing only should be considered when someone else is taking on the sales and marketing risks. For example if someone wanted to market a line of action figure with your likeness, then a licensing agreement would be indicated as you will expect them to do all the work of making and selling, while you provide some general oversight, like color of the hair, etc.
posted by humanfont at 11:12 PM on July 2, 2010

I would be inclined to split sales. You bring the brand and the market, they bring the development time and the app. Without them, you don't have an app to sell; without you, they don't have a market for their app. You're both getting 50% of sales you otherwise wouldn't be getting.

Yes, there are vastly more complicated ways to do this and many other ways you can slice the pie. But that's a perfectly sound way to go about it and there's a lot to be said for a shared endeavour that really is shared.

Questions: what happens when you close your site or stop updating it? What happens when they close up shop or stop supporting the app? Who can pull the app from market? How are refunds handled against splits? Who carries the marketing costs and what is the budget for that?
posted by DarlingBri at 11:15 PM on July 2, 2010

This Stack Overflow question may help you.
posted by Blazecock Pileon at 11:20 PM on July 2, 2010

Some elements of your question raise potential red flags for me. What is an "International" developer? Coders in India? A large multinational corporation? Also wanting to 'talk contracts' at an early meeting seems way early. Now I may certainly not have an accurate picture but be very very careful.

Get a really good lawyer with expertise in this exact area of business and contract law.

Good luck, your site looks really interesting, something that could grow to other areas.

Do you read hacker news? There is a core expertise over there in just this area of site/app development.
posted by sammyo at 9:26 AM on July 3, 2010

Response by poster: It's not serious contract stuff yet like I said... but eventually it will be. That's why I'm trying to educate myself before things are in my lap.

Thank you all for your thoughts. It really helps!!! I'm handling a huge workload of a lot of things that are very out of my element right now.
posted by miss lynnster at 12:00 PM on July 3, 2010

Response by poster: BTW, I don't know when contracts and stuff usually enter the picture on this... understanding the standard timeline of these things would help me too. I don't. In my career, usually contracts are signed before the work is done so this is all new to me.
posted by miss lynnster at 12:02 PM on July 3, 2010

Response by poster: Oh and to answer another question... it's a company based in the US with backend development done in Pakistan. I was concerned about Pakistan at first, but the owners of the company are Pakistani so I realized it's not like they were just outsourcing to the cheapest place they could find. Upon meeting them it made sense.
posted by miss lynnster at 12:07 PM on July 3, 2010

2 cents
If you're going to take part in the app development, what you say needs to be communicated to the developer in a manner that crosses the english versus programming language barrier. else, you may just be frustrated.

Giving your company up is a big deal even if it's a part of it but because it's only an app development and unless that's what your company is going to be based on, it doesn't make sense to give away a part of your company no matter how small.

There are websites with companies in the US that you can hire programmers at as well, so maybe you can consider that option too.
posted by iNfo.Pump at 11:22 PM on August 20, 2010

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