How much are IT services worth?
Discussion
I've just launched a letting portal ( www.lettingpages.com ) and have offered the IT/web design company a percentage of eventual income and value in return for their continuing services, to which they've agreed. What we haven't agreed (or even discussed) is what that percentage should be. So what I'd like opinions on is what %age it would be fair to offer them?
selmahoos said:
Surely SOMEONE can offer a guideline?
They could, but it would be about as useful as you telling me how much string I need...At the end of the day, they will either need paying up front, or up back, or a mixture of the two.
If its up front and the site doesnt take off, they get paid, you lose out. If they built the site for nothing, they will want a big percentage, which means if it works well you have signed away a big chunk of money forever.
How much is 'big'? If you agree, then statistically it will usually be halfway between the percentage you want and halfway between the percentage they want. If you dont agree, either one of you walks away.
However, if you want me to pick a number from 1 to 100, without possibly knowing any of the variables such as how much money is at stake if it works, how long the work will take, whether your idea is protectable, whether it is already done, how much you want, how much they want, how good a negotiator you are....... how good a negotiator they are.......... how desperate they are for work.................
...and so on, I will be picking a number at random whilst ignoring all of the variables. That is just as useful as you choosing a random length for my 'string' advice needed above.
selmahoos said:
The early indicators are that the site is going to be successful. What I had in mind was 20% of any net income or profit. It has two usp's and has attracted 13 users in its first week, two of whom are relatively large local players. (and thanks for your replies)
This is where you need to be very careful and get your dealing formally put in contract.Lets say the site took of and you get maybe a few hundred lettings a month. At 20% you might be giving out £20,000 or more for the web services. Of course, you could get your own full time employee to do that for you full time and save yourself £200,000 a year!
Also, how with the 'profit' be ratified? Is it simply on the turnover less direct costs, or is it with the rest of your costs involved as well? At 20% if your business grows and you need staff and premises your costs will spiral and your net percentage will decrease - maybe even to 20% whilst theirs stays the same - you will be left with nothing.
Also with informally arranging this and 'going live' without contracts in place, if they want do they could pull the plug. If you dont agree to what they want, they could pull the plug. Later on, when they see the money come through they can demand what they want, or pull the plug. Indeed with a profit share arrangement they may even be able to argue later that they actually have a partnership should they want to dig their heels in.
They are probably IT people rather than business people. What would suit your purposes is to pay them a set rate for their work. £30 per house advertised, or whatever is fair. That way they will still be rubbing their hands if you make it big as they will have loads of work coming their way rather than a load of your profit for doing very basic IT work you could get a single agency temp to do.
Up the Iron: Everything to do with the site....design,maintenance and development.
Plotloss: lol..think you may have lost the plot...the 20% is for the IT people not a management fee from a letting agent, and the site is free for agents/landlords to use (and make letting commissions from)
Plotloss: lol..think you may have lost the plot...the 20% is for the IT people not a management fee from a letting agent, and the site is free for agents/landlords to use (and make letting commissions from)
my tuppence: I have been involved in a similar concept with another business (not in lettings, mind) and we demanded a 50% share in the business - and got it.
But again it depended on how much we would have charged an ordinary client and then taking a view on how successful (or not) we thought the end product would be. As a developer you know what you need on a project and so just have to figure out the way to get there by another means.
That site as it stands now has not cost thousands and thousands even at retail rates and so I would hold out for offering them a reasonably small amount... but don't stiff them on hosting - my servers are several thousand pounds each a year and still some clients moan about having to pay £20 a month to host a complex database site.
But again it depended on how much we would have charged an ordinary client and then taking a view on how successful (or not) we thought the end product would be. As a developer you know what you need on a project and so just have to figure out the way to get there by another means.
That site as it stands now has not cost thousands and thousands even at retail rates and so I would hold out for offering them a reasonably small amount... but don't stiff them on hosting - my servers are several thousand pounds each a year and still some clients moan about having to pay £20 a month to host a complex database site.
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