HN Explorer

Ask HN: An early client wants to pay for our SaaS offering using revenue share

4 points by mhashim ↗ HN
We were able to land another early client for our SaaS offering and in negotiating the price I was surprised that he proposed that I lower the monthly fee in exchange for a revenue share payment model. His reasoning behind that is to give us a stake in the success of his business. That way we have an incentive to continuously look for ways to optimize his business process through our offering. The problem we are facing is defining the metric that reflects our software's impact on his business from which we will have a % of; is it the difference in net profit before and after using our software, or something else. If any of you faced a similar situation before, I would appreciate it if you could share that experience.

12 comments

[ 3.1 ms ] story [ 43.5 ms ] thread
noodle
the only way i would even consider this is if you could strongly and cleanly define some very clear-cut metrics and compensation levels based on them. ensure that you're getting compensated extra for what is effectively guaranteeing different levels of results.
mhashim
Exactly. We are only contemplating this offer because we believe we can help his business grow by using our software. Our struggle is in pin pointing those clear cut metrics that ensure we are properly compensated based on the impact of our software.
noodle
righto. if you're looking for input on what metric should be used, i'm afraid you'd have to pony up more information. target the least subjective and least manipulatable metrics possible. hopefully things you can also access and objectively measure on your own.
medianama
Based on my experience - Revenue share deal with a bigger partner never works out. Unless they invest upfront and their skin is in the game, they'll not too be worried about monetizing your efforts.

My suggestion - Ask for minimum guarantee before you invest your time & effort doing it.

cheriot
I'd be wary of any metric that can be manipulated by creative accounting.
pierrefar
Whether your offering helps or hinders their business is irrelevant to you. You are a provider of software and they pay you to use that. Whether they succeed or not is not your problem. Don't get entangled with their business success.
mhashim
In the future after we meet certain milestones I'd never contemplate such and offer. However, for an early stage startup that is ramping up sales to internally finance its growth I think its necessary to consider such offers.
anamax
> His reasoning behind that is to give us a stake in the success of his business.

He's figured out how to shift his costs to you during an economic down-turn.

He's probably projecting a down year. If your software hits a home run, he has an even year. Unless he does a lot better than that, he's going to come back to you next year and say "we used your stuff for a year and didn't even break even."

mhashim
Actually he's doing quite well and growing, which is why I was surprised and am still considering that deal. As long as I place a minimum amount on that rev share dollars expected then the deal would have great upside.
jellicle
You're investing in his business. You're putting up cash (the monthly fee of your software) in exchange for an ill-defined share of his future profits. It's the same as buying shares in his company.

Why would you invest in his business? Don't you have your own business to run?

Say this: "I've thought about your offer, and it just seems too complicated to get into. I think it's best to stay with a straight monthly fee. The best I can offer you is [5% off of whatever you offered him before]."

CyberFonic
I have actually done a similar deal in my early days. Turned out the management were pathological liars. I would have needed to pay for an auditor to suss out the truth in the accounts they "revealed" to me. They also were too caught up in internal politics which actually lead to their eventual demise. From my very painful data point of one -- never again!
mhashim
Thanks for sharing. Thats my greatest fear and the only way to avoid falling into that pitfall is to have a deal that you can measure too without relying on their data.