I think you are looking at this the wrong way. Normally white label / OEM is 60-75% discount.
- They give the product a new name and it’s marketed as their product.
- They price it as they see fit (it’s their product and does not compete directly with yours)
- They agree to a minimum royalty structure that they pay regardless of how few they sell, once they exceed their forecast they pay for incrementally for each license over.
- You agree to allow for a certain number of demo and trial licenses as part of their forecast payment so that they can equip their sales force and allow for prospects to evaluate the product.
- You retain control of provisioning or work with a license scheme that allows you to monitor how many they are provisioning.
- They provide first level support, you provide second level support: you support their team who is supporting the product.
For the purposes of your example Let’s take a 70% discount and a 2,000 unit forecast for year 1, year 2 and year 3.
- At the start of Q1 they would pay you 500 x (1-0.7) x $100 x 3 months = $45,000
- Start of Q2 they would pay $90,000
- Start of Q3 $135,000
- Q4 $180,000 (increasing each quarter thereafter to match the forecast).
These deals work because they bring significant revenue without any associated. sales, marketing, or first level support costs. There will be sales training, sales support, and and second level support but that is normally much less than the other expenses you would incur to close the revenue.
Your 20% offer is more in line with what you would offer a rep or first tier reseller who was selling your product as is without a committed forecast.
Obviously your numbers may vary considerably but the key question is: what i the total number they can sell over 2-3 years? What customers are they already in contact with or can reasonably foresee closing. If 30% of that revenue plus or minus, changes your firm’s current revenue trajectory then it’s worth engaging in a real negotiation. There are other options to consider depending upon their capabilities and goals and your capabilities and goals: volume purchase, reference selling, reseller, master distributor, ingredient branding, etc…
Happy to walk through this in more detail with real numbers, we help firms with these kinds of negotiations on a regular basis. You can reach me at email@example.com or 408-252-9676
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