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I have a potential customer who has an idea for an ipad application but is unable to find sufficient fundings for this.

One idea that came up is that I do the work either for free or for a minor fee and then receive a percentage of the income from appstore.

How do I decide what percentage is realistic?
How is this affected by the price in appstore and how do I protect myself from the scenario where the customer suddenly decides to offer the app for free?

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23  
What exactly is the "Customer" contributing to this "Partnership"? –  Morons Jul 13 '11 at 16:58
7  
Your customer certainly is not taking any risks, they are all on your side. Take that into respect when calculating your cut. There is still the chance that your App never makes any money. –  sebastiangeiger Jul 13 '11 at 17:39
    
Considering the amount of your investment versus his, this guy is treating you like an angel investor. Angels are usually very rich, because all the ventures are risky they need to be running quite a few at once and they don't depend on any of them for their living expenses. –  Jeremy Jul 13 '11 at 20:33

9 Answers 9

up vote 32 down vote accepted

Ideas are cheap. It's implementation that really matters. If he's not commissioning you to create the app for him and paying you what your time is worth, I would give him a very meager cut of the profits. Certainly less than 50%.

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7  
I would say the developer should take anywhere from a 60-80% cut depending on how involved the person with the idea will be. –  maple_shaft Jul 13 '11 at 17:08
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@maple: Agreed. For 50% I would expect the other person to have done just an extraordinary job of planning the app, and also to have some non-technical skill to contribute (art or writing or sound or something) –  Satanicpuppy Jul 13 '11 at 19:21

How do I decide what percentage is realistic?

No %. At best he gets a free copy. (Also, You post it on the App store.. NOT him)


EDIT

IT'S NOT STEALING! The Customer has NO interest in this Business, he is just trying to get free work. This is one of the oldest Scams in the book.

You know what i used to tell My customers who suggested this? "Great Idea! Write up the Business Spec, feature list, and get back to me with the some market research. Then i get right on Coding"

They never bring up there idea again, Why? Because I asked them to do some real work.

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3  
It is unethical to steal someones idea and then implement it on your own crowding that person out. The Winklevoss vs. Zuckerberg lawsuit kindly demonstrates the potential implications of such unethical behavior. –  maple_shaft Jul 13 '11 at 17:07
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@maple_shaft - It also demonstrates the economic feasibility of such unethical behaviour :) –  Rook Jul 13 '11 at 17:13
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@maple_shaft - Not sure ending up like Zuckerberg is enough to keep people from stealing an idea. Maybe an incentive to cover your butt and hire a lawyer sooner. –  JeffO Jul 13 '11 at 17:19
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What about just striving to be ethical for the sake of being ethical? Is there a more noble goal? –  maple_shaft Jul 13 '11 at 17:25
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+1 for "Great Idea! Write up the Business Spec, feature list, and get back to me with the some market research. Then i get right on Coding" If they're really serious about their 'million dollar idea', they'll do this (most will find some other sucker to work for free) –  thedaian Jul 13 '11 at 18:36

Are you willing to take the risk that if you work for free/almost-free, and the product does not sell, you will make nothing? Do you have enough saved to pay the bills if this happens? Is the idea so amazingly revolutionary that you will make a small fortune on it?

...Avoid this if you can. The customer should pay as much as they can, but never nothing. Assuming you can get > 75% of your development costs covered by this customer/partner, then you could consider taking a percentage of sales - take as much as you can for as long as you can and get everything in writing.

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+1, especially for making it clear if the app doesnt sell you make nearly nothing. –  Jim Jul 13 '11 at 20:00

How much is your time worth? If you are into charity and want to spend the time to learn and help out a friend, then go ahead and do it for a percentage. However, if you expect to get any return for your time ($$), then either get paid for your time via a real contract or implement it yourself and get the rewards.

Your time is not cheap or free my friend - only YOU can decide how to spend it.

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I would do the percentages in tiers. The quality of the idea will be reflected in sales alolng with the amount of support, sales and marketing. If you are going to do the upfront work, you're taking more of a risk and should be compensated early. Figure out what you would get just for your time. If you feel you built an app worth 10K, take 70-90 of the first 10K. Maybe you get 50-80% of the next and so forth. At some point, you need to determine your level of involvment in the support and upgrades. The sales and marketing efforts (especially if your partner is paying for those) may exceed your early efforts, so the percentage may shift to his/her favor.

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Do it like a record contract. He gets 90% of the profit, but first you get to recoup the development costs. Simple.

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1  
plus some amount for the risk maybe? –  James Khoury Jul 14 '11 at 3:22
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Since the odds might be 10 to 1 against recouping development costs, you should ask to recoup at least 10x your dev costs ( including the full going rate for the value of all your time) before he gets a cent. Maybe more if you want better than a break even average. –  hotpaw2 Jul 14 '11 at 6:10
    
@hotpaw2 That's not recouping costs then. If the OP wants to get more money out of the "client", they could just structure the contract more like a record contract than I even mentioned. For example, they could take their 10% profit before taking the client's money to recoup the development costs. They could also force the client to pay any advertising or promotion they perform without requiring the consent of the client. Then you also string the client into having to produce another app (which can be deducted from the current app's profits) and the money keeps rolling in. –  Christopher Bibbs Jul 14 '11 at 14:49
    
A 10X payout on a bet with 10:1 odds against will only break even in the long run and recoup only costs on average. –  hotpaw2 Jul 14 '11 at 15:01
    
@hotpaw2 You should read up more on how the recording industry abuses contracts. You really want to give the client the illusion that if the app takes off he'll make a fortune and 10:1 repayment will appear abusive. –  Christopher Bibbs Jul 14 '11 at 15:16

The bigger problem is how do you protect against the app not selling at all? (The median paid app sells less than one copy per day. Many sell less.). 50% of nothing is nothing. Even a 90% cut is still nothing.

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I'm a developer discussing a similar arrangement and was considering 50/50 split of revenue for these reasons:

1) the client is providing extensive content that's been successful in the form of a book with accompanying CD

2) the materials are required for a class at around 1,000 universities (don't have data on class sizes)

3) the client has a good name in his field and has been marketing-savvy in other enterprises

4) the content is really top-notch - actually I approached him with the idea of adapting it for iOS, and he was enthusiastic about my proposal & quick demo

5) I've got only one app in the store; the visibility gained from working with this person would do me good

But please tell me if you think I'm crazy even given the above - all comments/reactions welcome.

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2  
If he has content used by 1000 universities, then he should have enough funds to fork some over to cover (most of) the development. –  Bart Jul 25 '11 at 12:24
    
Hey, don't tell him that. Equity on a project that is likely to be successful is better than a check. –  Morgan Herlocker Jul 28 '11 at 15:07

It's obvious that the execution is the money maker, but execution on a bad idea is usually just as worthless as an unexecuted good idea. So the quality of the idea is worth something. The way I see it, if a client wants to pay my full development fee, then the app is theirs. Conversely, if I do ALL the work, the app is pretty much mine. To give them options on striking a shared-risk deal, I think the profit (not revenue) split should be an inverse of the fee split. So if they want to pay 70% of the upfront cost, you split the profits 70/30 in their favor (70% of the risk = 70% of the return). If they only want to pay 25% of the cost (or do 25% of the work), then you take 75% of the profits... and so on.

Let me know what you guys think of that. Only do this if you think the app will make money over time, though. Otherwise, recoup your time & materials costs as quickly as possible and move on.

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