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I have read up on quite a few of these questions asked on here regarding "how much should I charge for..." such as:

How should I charge for programming things which take two minutes to fix?

https://softwareengineering.stackexchange.com/questions/52954/how-much-should-i-charge-for-a-web-app

https://softwareengineering.stackexchange.com/questions/27947/how-much-can-i-charge-for-this-a-little-job/27956#27956

and these are fine for freelance projects dealing with specific clients for a specific product. My situation has a bit of a curve-ball to it, and this is: how much should I charge a company to develop a product where I retain the 'Intellectual Property' of the final product.

I am working with a company to create a web application that will help with some administrative processes. The idea for this project had originated between me and an employee of the company outside of business hours. Thus the product idea was then presented to the company and they are very interested in me developing this idea for them.

The CFO of the company wants to pay me for my time to develop this product, yet I would also like to own the IP of this product and resell it to other companies when it is completed.

When we do meet to discuss fair wages, what would be the best way to position myself? Presumably in the future with a completed product this would be a 'fee for service' software platform, wherein a company would purchase seats (monthly or annually). But I am unsure of how I should treat this development 'partner'. Their contributions would include helping me tailor the product to fit their needs specifically, along with debugging and testing.. So should I charge an hourly rate? A lump sum? Or start out right away with a monthly subscription type?

This project is done on the side, I still have a day-job.. But will be investing a lot of time into this project since it has a lot of potential. (if that factors into any of it)

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I don't know if there is a standard for this, it's pretty rare, but I've seen either hourly or fixed price (I suggest hourly if they offer - you won't spend your time arguing about what was included in the price), but at a lower rate to make up for the IP. Also I've seen giving the client a percentage of revenue from the software for a while, to give them some interest in the product as a whole and as something to exchange for retaining the IP.

But I think everything is negotiable, and you may not need to offer any of that (they may only care about the IP in terms of being able to use the software themselves). Mostly your goal is like any contract: to get the contract, limit your liability, limit your scope of future commitment to something reasonable, make everyone's responsibilities clear, etc. In this case you also want their help in developing and promoting the product, and to make sure your rights to the IP are clear.

I don't think the plans for future pricing model have to influence the immediate pricing model. I think hourly rate cuts the risk of you committing to more work than you are paid for. You probably can't charge by the hour for development plus charge your original client a fee for service, but you can and should charge for your expenses in time and/or hosting costs so that you don't have an open ended unpaid commitment.

  • Thank you much for the advice, especially the "right to the IP are clear", and "percentage of revenue from the software for a while"... I had not considered the later. – CenterOrbit Aug 16 '11 at 22:27
  • I don't think it's that rare. I've seen it at two of the last three companies I've worked at. The first, we built the product for a customer but retained IP rights, genericized it and sold it to other companies. Most recently at this job, I saw it in an RFQ a company submitted to our company. – Phil N DeBlanc Mar 15 '18 at 21:16

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