How to calculate app sub licensing fee?

Solar2D General Questions/Discussion
#1

Hi,

 

I have an unusual situation and would like your input on the matter.

 

I have an app for kids that targets a specific language (French). It is designed for French kids with all audio, text and images in French. A few weeks ago, i was contacted by a customer who asked about the possibility of porting the app to another language, a variation of Tatar. I’ve done some research and found that it was not financially viable. So few people speak the language and most live in countries that tend not to pay for in-app-purchases. So, I said no.

 

A few weeks later, the same customer asks if it is possible to port the app but this time he will provide all the text and audio. I apologised and said no again. It was/is still not financially viable.

 

Last week he sends a new email. This time he asks if he could provide me with all the necessary files to port the app to the requested language and give him the resulting package/bundle which he would then offer under his own name on the various app stores.

 

Intrigued, I said it is possible provided he understands that: 1- I will never give him the source code, 2- It will cost him a lot of money to sub-license the app (basically, allowing him to use the app as a template), and 3- he will also have to pay for my work in porting the app. To my surprise, he said he understands all that and doesn’t mind the costs. He then asked me to prepare a more detailed proposal specifying all the costs involved including app maintenance and bug fixes.

 

So now I come to you asking for help in deciding the fees. I think they will be divided into the following categories:

1- licence fee

2- cost of porting

3- bug fixes related to the files he provides

4- bug fixes related to the core app (bugs that appear in my app too). I think this should be free.

5- app updates to support new OSes or to adhere to new app store rules.

6- app updates introducing new features

 

I really don’t know how much to ask for. Especially the license fee. I really would like your input on the matter.

 

Also, as a second note, ethically I feel I should warn him that if he is doing this for the money then he shouldn’t. From my experience, and from the research I have done regarding the target language, I believe he will never recoup the costs of porting the app. What do you think? Shouldn’t I dissuade him from this whole venture?

 

All your input and help on these points is much appreciated.

 

Many thanks,

Luay

#2

fwiw, $0.02

You have a two (really three) -part question.  First, imagine it as a “simple” scenario:  if you just simply licensed him the source, that’s part 1.  Then he’d have to hire a contractor to make the changes, that’s part 2.

Part 3 is your ethical question, to which the cavalier answer is:  it’s his money, let him spend it as he wishes.  He may be some mega-rich father who will pay anything just to port it for his own kids and be satisfied.  It would be kind to mention it to him, but not your responsibility to talk him out of it.

The only wrinkle is that you are to be the contractor too.  That simplifies the licensing agreement, in that you won’t need an NDA, but complicates your life, assuming you even WANT the job.  Ask yourself:  would you take that job if it were someone else’s code?  (though fair-practice would dictate that you discount your rate due to “familiarity” with the source)

License fee:  programmers typically over-value their own source code.  But the true “worth” of any random pile of code is nothing more than what revenue it is capable of generating.  There are so many other factors (fe marketing) that are far more important in determining revenue potential - the source code (ie, the app itself) represents only a portion of that potential.

In the “simple” scenario, let’s imagine for a moment that you instead somehow managed to agree upon a revenue-share as the fee.  To make the math easy, let’s say you agree on a 33% share, and determine the viable lifetime is 3 years.  You further determine that if he makes best efforts at marketing (equivalent to your own) that given the smaller market he has the potential to earn half what you earn for French.

Then to convert that to a licensing fee, apply some fair “profit margin” to cover your prior development efforts (this is his “acquisition cost”, your “development recoup”, a “luxury tax” so to speak, over and above potential revenue-share).  Let’s say you figure that as +100% (ie, total fee to be double your projected revenue-share - kind of steep, but you’ll see why I pick that number…).

So, take your annual revenue / 3 * 3 / 2 * 2.  Note how everything nicely cancels out in this made-up example, leaving just your annual revenue - which would be a fair licensing fee.

For contracting, charge whatever your market dictates.  Spec each step as separate milestones, estimate hours, each to require 50% in advance, each to have an overage clause to accept additional hours in writing if/as necessary to handle unforeseen difficulties in converting the assets, again with 50% advance on overages; all to have remaining 50% of that milestone’s payment due at end of each milestones completion.  No “future work” (ie, updates) to be included in THIS contract - treat separately when needed (if ever - again, imagine if once his “kids” get it then he’s done - you don’t know, or need to know, his motivations).

hth

#3

personal perspective, fwiw $0.02 (ie, what would i do if in your shoes) - it sounds like a pain-in-the-butt, and my markup for unnecessary pain-in-the-butt is 300%.  That is, derive your “fair” fee, then quote at times 3.  It’ll 1) perhaps act as your moral deterrent, and 2) better cover the pain if not deterred.

#4

Hi Dave,

Thanks for the taking the time to reply. I really appreciate your input.

I agree with you that it seems a pain-in-the-butt situation. And to be honest, I’m still not 100% sure i wanna do the job. At the same time, if we do actually agree, i don’t mind at all the extra income.

I take the following from your input:

  1. no need for a NDA

  2. mention but don’t push the issue of lack of revenue

  3. license fee: annual revenue x 3 (since it’s a pain-in-… situation)

  4. price the work to port the app according to market

  5. leave the issue of future work or updates to a later stage if the there is a need for them

  6. always ask for 50% up front and the rest upon delivery

  7. always include overage clause in case it becomes necessary

Do you think that i should have a lawyer do the contract? Or just write everything down on a document and both sign it?

Thanks

#5

Sounds like you could do a lot of unpaid work so ensure you get at least 50% upfront as part of your “contract” (whatever that may be).

I personally feel walking away is preferable to a nightmare…

#6

@sphere games: It does sound like it doesn’t it? I guess I better save myself the headache…

#7

fwiw, $0.02

You have a two (really three) -part question.  First, imagine it as a “simple” scenario:  if you just simply licensed him the source, that’s part 1.  Then he’d have to hire a contractor to make the changes, that’s part 2.

Part 3 is your ethical question, to which the cavalier answer is:  it’s his money, let him spend it as he wishes.  He may be some mega-rich father who will pay anything just to port it for his own kids and be satisfied.  It would be kind to mention it to him, but not your responsibility to talk him out of it.

The only wrinkle is that you are to be the contractor too.  That simplifies the licensing agreement, in that you won’t need an NDA, but complicates your life, assuming you even WANT the job.  Ask yourself:  would you take that job if it were someone else’s code?  (though fair-practice would dictate that you discount your rate due to “familiarity” with the source)

License fee:  programmers typically over-value their own source code.  But the true “worth” of any random pile of code is nothing more than what revenue it is capable of generating.  There are so many other factors (fe marketing) that are far more important in determining revenue potential - the source code (ie, the app itself) represents only a portion of that potential.

In the “simple” scenario, let’s imagine for a moment that you instead somehow managed to agree upon a revenue-share as the fee.  To make the math easy, let’s say you agree on a 33% share, and determine the viable lifetime is 3 years.  You further determine that if he makes best efforts at marketing (equivalent to your own) that given the smaller market he has the potential to earn half what you earn for French.

Then to convert that to a licensing fee, apply some fair “profit margin” to cover your prior development efforts (this is his “acquisition cost”, your “development recoup”, a “luxury tax” so to speak, over and above potential revenue-share).  Let’s say you figure that as +100% (ie, total fee to be double your projected revenue-share - kind of steep, but you’ll see why I pick that number…).

So, take your annual revenue / 3 * 3 / 2 * 2.  Note how everything nicely cancels out in this made-up example, leaving just your annual revenue - which would be a fair licensing fee.

For contracting, charge whatever your market dictates.  Spec each step as separate milestones, estimate hours, each to require 50% in advance, each to have an overage clause to accept additional hours in writing if/as necessary to handle unforeseen difficulties in converting the assets, again with 50% advance on overages; all to have remaining 50% of that milestone’s payment due at end of each milestones completion.  No “future work” (ie, updates) to be included in THIS contract - treat separately when needed (if ever - again, imagine if once his “kids” get it then he’s done - you don’t know, or need to know, his motivations).

hth

#8

personal perspective, fwiw $0.02 (ie, what would i do if in your shoes) - it sounds like a pain-in-the-butt, and my markup for unnecessary pain-in-the-butt is 300%.  That is, derive your “fair” fee, then quote at times 3.  It’ll 1) perhaps act as your moral deterrent, and 2) better cover the pain if not deterred.

#9

Hi Dave,

Thanks for the taking the time to reply. I really appreciate your input.

I agree with you that it seems a pain-in-the-butt situation. And to be honest, I’m still not 100% sure i wanna do the job. At the same time, if we do actually agree, i don’t mind at all the extra income.

I take the following from your input:

  1. no need for a NDA

  2. mention but don’t push the issue of lack of revenue

  3. license fee: annual revenue x 3 (since it’s a pain-in-… situation)

  4. price the work to port the app according to market

  5. leave the issue of future work or updates to a later stage if the there is a need for them

  6. always ask for 50% up front and the rest upon delivery

  7. always include overage clause in case it becomes necessary

Do you think that i should have a lawyer do the contract? Or just write everything down on a document and both sign it?

Thanks

#10

Sounds like you could do a lot of unpaid work so ensure you get at least 50% upfront as part of your “contract” (whatever that may be).

I personally feel walking away is preferable to a nightmare…

#11

@sphere games: It does sound like it doesn’t it? I guess I better save myself the headache…