4 ms·
How do I sell a high value software when I was able to build it by myself?
Hello,
I have a new software product. I am about to onboard the first customer. We have not spoken about price.
The customer is large. Market cap ~ $12bn, publicly traded.
The problem I am solving is big. Over the past year we have documented at least $15m in direct cost prevention, with about an $8m increase in associated revenue.
The solution also prevents substantial liability. $100m+ at a minimum, sometimes more. This might occur once or twice a year – or more.
They have been trying to solve this problem in-house with no success for several years, at a direct cost of over $2m a year, plus a few (8ish) salaries.
My solution is simple, but it works. And they are asking about it with increased interest. We are nearing the first real demonstration – one that incorporates their own data. I expect to be asked about pricing.
Q: How do I sell a solution that has such a high value when I was able to build it almost entirely by myself in a few months?
…after years of industry learning, research, and experience, but still – it is a fairly simple solution.
I am concerned that I am not the best person to make this deal. I have never done anything like this before.
A price-deal based on a % of saved cost doesn’t really work for this service, and I need revenue to continue to grow the company and improve the software, so that option is pretty much out as far as I can tell.
Even with the past 18 months of specific examples, and over 10 years of their data to back up even more examples, I am still up against the fact that they know me and my team. They know we are small, and I feel like I will lose the deal if I ask for $45,000 per month. I feel like I will get the deal if I ask for ~$12,000 per month.
We have a technical roadmap with increased value add offerings but so much value to the customer is available in the current product.
What should I do? How do I go about handling this? Has anyone experienced a similar situation?
Thank you,
An0n
- verdverm 5y agoOne thing, you may want to talk about years rather than months. If you are saving them x0 million, ask for x million per year for 3 years. 10 mil for 3 years seems like a good ball park to me. Note, I do not have experience negotiating at this level Consider getting someone with some experience in such negotiations on retainer
- spatialdata 5y agoThank you, verdverm. That was sort of my calculus on $45k/month. It is an interesting point though - these companies will hem and haw over $20k but will not blink an eye at $2m. Thanks again.
- verdverm 5y agoYou have an NDA in place so they don't take the core of your idea through demos, having people with know how to reverse engineer? Not sure how much of a concern this is. Depends on your relationship and such
- spatialdata 5y agoGood point. I don't, but the relationship is pretty good. Might be good to put in place before we give them access to the demo with their own data.
- gtvwill 5y agoThey must have competitors. Make contact, get some names. If they try low ball you just go elsewhere. If they try game you. Go elsewhere. You set the standard your willing to accept not them. Edit: Oi don't undersell yourself re your own confidence/ability, if you have solved a problem they have been trying to for years and with a fat budget your obviously doing something right. Hire a negotiator, might cost you some pennies now but if confidence and pushing a deal in your favours not your strong point hire someone for it. Good luck!
- spatialdata 5y agoThank you, gtvwill, looking at competitors is a good idea. Perhaps I can capitalize on the benefit we could have for their reputation as leaders in this space. Any suggestions on how I find this type of negotiator? I am confident in solving technical problems, semi confident in writing code, and I have generated about $3m in sales over the past 2 years in this space, but now that I have the product dialed enough it is laterally scaleableI really don't want to mess up something that could set the standard for the next 5 years or more. Thank you again for the thoughts. I appreciate it.
- gtvwill 5y agoAs one commenter mentioned above, make sure you enter all these communication processes with correct NDA's and Legal prevention to stop them just making your product. Go find yourself a small company decent legal team, they will be integral in setting terms of contracts anyways so might as well start the relationship early. TBH you don't actually need a negotiator. You need a legal team to define your terms of business your willing to operate/sell under (multi year contract, fixed or variable price and so on). How do you want your business to work? do you want long haul big contracts to a singular or few clients? or do you want short term in bulk to many? (these are the polar ends maybe you want in the middle?). Do you want to be repeating this process soon or not for a few years? You also would do well to hire an analyst to value your business/services product to the market your selling to. AKA get someone to data crunch what your price ranges are for sale and how well it allows for growth and all that. Basically an accountant. Then you take the numbers from that. Slap 10-20% on it and thats what you take to your market as offer. If they dont just pay it and want to haggle, you got 10-20% to play with. Thats when you negotiate. But not by much and mostly via your legal team. What are they compensating you with for the reduction in your price? Why do they deserve it? Will their competitor kick up the same fuss? If you make bank you can buy a pc off me someday I turnover like 30k a year atm as a one man band MSP. Maybe I should switch to consulting?
- marc__1 5y agoThis sounds like a good startup concept for a SaaS: 1-low cogs (80%+ gross margins) 2- predictable and long term renewal contracts; low customer churn 3- if this is a problem for a 10b+ company then nearly every other company should also be your potential customer Price your product in a similar way that others do (there is always competition). Remember that the price for your first customer will not be the price for every other customer. You can and will iterate just like you do with your code. There is plenty of discussions around ACV, ARR and product-led growth out there. For example https://www.lightercapital.com/blog/what-is-acv-in-sales/ https://www.lightercapital.com/blog/what-is-acv-in-sales/
- spatialdata 5y agoThank you, marc_1, This is a good point. Perhaps there is some logic to finding a price that lets us hit the next milestones and get customers two and three onboard. Even if it is less than what the material value might be for customer one. That is a good link, I appreciate the reference. My primary takeaway is that according to the survey on SaaS ACV we would be on the very high end even at $120k/year. I think this is part of the challenge I face - the customer is not used to seeing SaaS billed this way.
- GianFabien 5y agoOk, so you have documented $15m+$8m =$23m value. They have spent $2m p.a. over how many years? An equitable price for your solution should be in the 15%-30% range of those savings. Hope you haven't said too much. Effective negotiation involves managing information and expectations very well. An experienced negotiator could be expected to extract a $3+m lump sum payment. So even if you paid the negotiator 30% for their services you'd walk away with at least $2m. My recommendation would be to quickly find a lawyer/negotiator who is interested in making a cool $1m for professional services rendered on a contingency basis.
- spatialdata 5y agoThank you, GianFabien, I have not said anything, managing expectations is definitely a hard lesson learned early. This is the second reference for a negotiator at the 30% range, thank you for that data point. I had no reference to this before yesterday. Thank you for the recommendation. Any suggestions on how to find this kind of negotiator?