We have a B2B product that sells for around $100/mth. We have a company that is looking to whitelabel and sell the software as part of their professional services they sell to the same industry (tattooist). They will perform sales (tradeshows) and first level support.
We are just considering various pricing models.
Something else??
Does anyone have real world experience with something like this?
A few years back, I was part of a startup that another company was keen to get whitelabelled. We planned a commission-based model. It didn’t end up happening as the development time for getting ready for whitelabelling would have taken us too far off our planned path.
It sounds like they need you more than you need them. Can’t you try to reach the audience directly?
Anyways, if you think it’s worth getting their help with marketing, I would offer a 10% discount and only for a year. If it goes well, they can then qualify for a higher discount.
In other words, don’t marry someone before dating them for a while first. 
Also, I would not make it a whitelabel deal, just a distribution deal. Invest in your own brand!
I did a small deal like this 15 years ago. It was a significant chunk of money when I needed it the most so I don’t regret it. But, since it was for a desktop software it had a significant drawback. Although it didn’t take much time to make product configurable for branding purposes (images, names, install locations, etc), we now had to build two different releases! Potentially forever. Luckily, this “forever” turned out to be “until next major release”. So even if it was a single code base it still made me think about long term consequences of such deal.
If this turn out to be a significant partnership, they might start demanding which features to build, what not, potentially they can start driving product development to suit their business goals, not yours. You could end up with a different product.
That said, I would do it again, but only if approached by a very big partner with customer base you had no realistic way of reaching yourself. In other words, it had to be a game-changing kind of deal, not something that would increase revenue by 10%. Could it be like that in your case? On the negative side it could quickly change your position to “you need them more than they need you”, but it might be worth it. It might even lead to acquisition in the future, if that’s your end-game idea.
I think you are looking at this the wrong way. Normally white label / OEM is 60-75% discount.
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.
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 skmurphy@skmurphy.com or 408-252-9676
You can schedule a no cost obligation office hours call at SKMurphy Office Hours For Startups: Set Your Own Agenda
One thing is this is an enterprisy saas app so I think it changes things a bit. We still need to provide second level support and host the application, so a 70% discount and we would lose money on every sale.
You have been in business for a number of years and understand your costs. I would suggest that normally the cost of customer acquisition and on boarding is a significant fraction of revenue but if in your situation your hosting and costs for non-standard service (second level support) are significant then the discount you can offer for white label should reflect that.
Same product, for the same market, even if they have access to customers you otherwise couldn’t reach, how they won’t be competing for your own customers as well? If they’re using same advertising channels, invest more in Adwords, SEO, they can effectively crush your own version. E.g. customer finds you first but still goes to the white label version because their brand is stronger.
I can see this working for physical products, where distribution is key and you have no access at all to end user. If it’s Saas sold online, this looks like giving up all control to the other company and hoping for the best.
You are not offering them exclusive distribution rights to your product but you are granting them the right to re-license your technology under a different name. Often it’s mixed with one or more components or services they have to make it unique. There is some risk of conflict but there is also guaranteed revenue.
It’s a strategy that is viable in many situations and can help a smaller firm access customers they might not reach for years (essentially pulling forward revenue). It also shifts a significant fraction of the cost (sales, marketing, and first level support) to the partner.
It resembles a master distribution agreement for a territory or market segment which is another strategy that can be used to reach adjacent markets where your firm lacks reputation and perhaps relevant expertise.