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

https://news.ycombinator.com/item?id=4482934

by DrorY • 14 years ago

12 12 14 years ago

news.ycombinator.com

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.

I've been approached by a big company (fortune 500 ) and am now setting a skype call with their social media department.

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.

Thanks!

kayhi2• 14 years ago

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.

Travis4• 14 years ago

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).

DrorY2• 14 years ago

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?

Travis4• 14 years ago

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.

DrorY2• 14 years ago

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?

Travis4• 14 years ago

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...)

dirtyaura2• 14 years ago

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!

dirtyaura2• 14 years ago

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• 14 years ago

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.

nhangen• 14 years ago

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.

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

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