Hi guys,

I'm not sure where else to post this, I'm working with a client and have started on an application (not game) for them. The terms of the deal between us was that I'd receive 15% from the sale of the software, I had to negotiate up from 10%. We have not signed anything yet, will be doing that soon, however I already started on the project and frankly had to see if I could even do what they wanted and yes I can, after testing and working on it.

I'm now hesitant doing business with these guys anymore, I'm sure they mean well, but I think they are now expecting me to do a lot of work, in multiple phases and I no longer see 15% being enough. Considering, this is their only software line for their company.

I feel like I'm getting the short end of the stick. I have to write the entire first phase product which won't include all the features, but still need to finish it before they can sell it. I'll have to deal with the bugs and deal with them adding features (feature creep).

They want to own the code as well, give me 15% of the sales and have me deal with any financial costs for development that I cannot do.

What do you guys think? They are bringing to the table an existing customer base that they want to push to upgrade to this product. I don't know exact numbers and frankly, I have a concern with some customers moving to an all software solution, their current product has a VERY old software and small device.

Frankly, I could finish and sell this product myself. Not that I would, but just pointing to the fact that they are not bringing much to the table other than their existing customer base which may or may not upgrade (probably will).

One last thing, their last developer which they are moving away from gets a fixed amount per sale (not %) and they do not like that, I feel the % is to save them money and again, I feel like it's not enough.

What do you guys think? I know it's hard to say one way or the other; anyone have a gut feeling?

My fear is that I'll be doing a lot of work, for very little money in the end.

Thanks

What do you guys think?

Sounds like a bad deal.

Sounds to me like you're the one taking all the risk here. If the product doesn't sell, they don't lose anything. Meanwhile, you've lost all your time and any financial costs you've incurred.

Personally, I would never take any deal where the only offer was a % of sales.

Thanks for the feedback guys!

I probably painted a slightly grimmer picture than it is, but the facts are facts. I do feel bad because they have been nice to me (relatively speaking).

To be honest, the contract we are working on isn't something that would hold up in court, since it's just a document of bullet points. I think it's more of a gentlemen's agreement that I would honor if I sign and would expect the same, but I certainly will not sign unless I'm satisfied.

Although, I did verbally agree to some of the terms, in specifically the % split. To which now I do not agree with, glad I didn't sign anything! However, I think they will be upset :(. Life isn't fair I suppose. Problem is, they will probably want to know what I want and I'll probably have to say at least 40% to 50%.

Thanks

Although, I did verbally agree to some of the terms, in specifically the % split. To which now I do not agree with, glad I didn't sign anything! However, I think they will be upset . Life isn't fair I suppose. Problem is, they will probably want to know what I want and I'll probably have to say at least 40% to 50%.

Don't think of that as a problem, think of it as an opportunity to have them turn you down. ;)

In fact, I'd do just that when I used to freelance. If there was ever a contract I didn't feel right about, I'd simply make 'em an offer they were bound to refuse.

Thanks again for your feedback, VERY helpful!

I recommend avoiding % split at all times unless you're publishing a game on a storefront. Negotiate $ values and deadlines (milestones), provisions for scope changes, etc.

I was actually seeking % based projects because I wanted to start looking for more passive income. I'm tired of the straight cash for contract work gigs :(.

If there was ever a contract I didn't feel right about, I'd simply make 'em an offer they were bound to refuse.

Interestingly, at the time I didn't think it was a bad % ... well, I kinda did, but I convinced myself that 15% of something is better than 100% of nothing ya know. The part I didn't really factor in, was the part that I'm really doing 100% of the work, haha.

To be honest, the contract we are working on isn't something that would hold up in court, since it's just a document of bullet points. I think it's more of a gentlemen's agreement

Actually, agreements like that are very frequently accepted by courts. Email exchanges and online posts are increasingly common as they usually clearly state the intent of the agreement, can show consensus to the agreement, and are written documents.

Additionally, verbal agreements have a long history of being accepted by courts, especially when they are for (relative to the organizations) small amounts. Some things are not legal to do by verbal agreement, such as sale of real estate, but many other transactions -- including multi-billion-dollar business deals -- start to become legally binding with a few phone calls and a verbal agreement.

As long as you keep making counter-offers to each other, back and forth, even if only one person in the group is still making counter-offers and adjustments, then it is still negotiation. But the moment all the key parties agree to a single revision of the deal, that is binding enough for courts.

If all parties agreed to it, that's all it takes to be binding.


More about the deal itself. For me, this is the deal breaker:

I have to write the entire first phase product which won't include all the features, but still need to finish it before they can sell it. I'll have to deal with the bugs and deal with them adding features (feature creep). They want to own the code as well, give me 15% of the sales and have me deal with any financial costs for development that I cannot do.

It means that you are entirely dependent on their actions before you see anything at all. You could invest your heart and soul and they could drop the project after your part is complete, never look back, and never pay you a cent.

While it is nice that they want a certain amount, I would demand a minimum royalty payment up front.

The typical statement for that is to have a recoupable, non-refundable advance at each milestone.

An advance, as you probably know, is a royalty payment made up front rather than after the product is done. The "recoupable" part means that they can make that as a claim against later royalties. So if the agreement had a 10% or 15% royalty rate like you are talking, that means that they have prepaid the first portion of it, and can recoup the costs from the royalties when they arrive. If they paid you $1000 already, when the first $1000 of royalties arrive they just write you a statement that the advance is being recouped. The non-refundable part means that if they never earn that much money they cannot come back to you and demand the money back. Note that it is not a debt to be repaid, it is a royalty paid in advance; some devious companies will try to trick unsuspecting contractors into repaying their advances by treating them as refundable or as debts.

For one recent contract of mine, that was $4000 at each milestone. It means that when the milestone is met, they pay me $4000. If something happens after that, if the deal goes bad, if it gets cancelled for some reason, if they go out of business, if everyone on their team goes to a lunch and they all die of food poisoning, I still get paid. It also means that when money starts flowing in to them, they don't need to pay for that first $4000 of payments, they've already paid me. It will be quite some time before they reach the advance payment line, but the contract says they need to keep sending me statements, and assuming they hit the mark in a year or two I'll start seeing additional royalties from that project. If they never hit that mark, I'll be a little sad because I made less on the project than I feel my time is worth, but I'll be okay with that since I still got paid. And if they (or any other project) takes off in the marketplace, I'll be able to retire years earlier.

This works well as a compromise if you feel the percentage is low, and is an extremely common negotiation tactic in many industries, including games and studio/producer advances.

The big organization will typically allow a balance of the two: more up front means a lower percent. If you feel it won't make much money in the long run, ask for more up front and a lower royalty payment. If you feel it is likely to be a big success with your help, ask for a bigger percent of royalty and let them reduce the advance.

Now that you have already talked with them at the 15% number, you might be able to swing that around sharply in discussion. "I know we were talking 15%, but I'm worried about the time between when I'm finished and you are still getting ready for the market. How about I take a smaller number, like the 10% discussed earlier, and I get an advance (recoverable, non-refundable) of $x per milestone. Since the product is likely going to be a success it means more money in the long run for you, but it means I don't need to subsist off ramen when my job is done but I wait for your product to be complete."

And as always, get your lawyer involved. Since you have started talking contract terms, that is a great time to bring them in to the discussion. They'll bring up details you haven't discussed yet like various termination clauses and remedies, which are sadly necessary in real life.

There will also need to be some details to prevent feature creep that a good lawyer will include. Some minor adjustment and bug-fixing is necessary, but larger changes will need to be treated as a new milestone or separate contract. So get with your lawyer and talk it out. Yes it will cost a few hundred bucks, but hopefully you included that in the cost of being a contractor.