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I got an offer to white label one of my products. They want to determine pricing/conditions, etc.

I would appreciate any advice/references on how to best deal with this situation.

Thanks in advance.

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3 Answers

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There are various ways you can handle this. It really depends on how much you want to market and sell the product you will license.

You want to continue to sell the product

In this case, you need to ensure that you maintain the rights to do this. Some things to consider:

  • Which markets will they sell into?
  • What are the minimum amount of sales required to keep you interested and keep the deal valid?
  • Minimum pricing and how that cuts into your pricing structure
  • Exclusivity for a certain time frame, geo-location or vertical market
  • How is maintenance and support dealt with (e.g. they only get rights to one revision, etc)?

You Don't want to sell the product

In this case, you have to figure out the maintenance and logistics. Look into things like

  • Who does support?
  • Schedules for new revisions and bug fixes
  • Scope of revisions and changes
  • Outright assignment of ownership
  • Royalty schedule.

In either case, you have to figure out if this deal will net you more money than if you just sold it yourself. The tricky thing is the maintenance and support issues that are always going to take more resources when you license your product to someone else.

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+1 for the great bulleted list. On the "You don't want to sell the product" list, I would add (from personal experience) "Scope of revisions and changes". Not only do you want to control the schedule for revisions, you also want to limit how much you are willing to customize it. For a single customer, this may not be an issue, but imagine if you have to support five customers, each of whom want their own tweaks. It can get to be a nightmare for the codebase maintenance. – Seenu Mar 24 '10 at 20:42
Good point. I will add that. Scope creep can really kill a deal like this. – Jarie Bolander Mar 24 '10 at 22:34
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Thanks a lot for the input. I just had a call with the interested party and I raised these important questions. I should hear some answers next week. – Miguel Hernandez Mar 26 '10 at 17:39
No problem. Good luck with the deal and let us know how it turns out. – Jarie Bolander Mar 26 '10 at 21:32
up vote 7 down vote

We have white labeled hundreds of products over the years. Aside from what Jarie said there are two important other considerations.

  1. It's better to compete with yourself rather than compete with another company. If company A wants to white label a specific product, will they do it with someone else's product if they don't get yours? If so, you are probably better off licensing it to them. At least that way you make money every time you or they sell the product.
  2. Let's assume your white labeled product really takes off. The company selling it is making tons of money and so are you. At some point after this it is in your white labeler's best interest to dump you and write the product themselves, or license a similar product for lower royalties from someone else. (Typically the white labeler will write the application themselves, buy a small company with a similar product, or contract the code out.) Your contract with the whilte labeler needs to prohibit this.
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+1 for your second point – Sandeep Satavlekar Mar 25 '10 at 7:07
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We had a white labeled product in the early 90's that sold over 950,000 copies. The white labeler simply replaced our product with a new (inferior) product one day. So much for that revenue stream. – Gary E♦ Mar 25 '10 at 15:01
up vote 2 down vote

Great answers. I would probably add:

  1. Indemnification - Write a great indem clause protecting yourself against infringement claims if they modify any code with or without your consent.

  2. EULA - Keep ownership in tact by requiring an end user licensing agreement for the white label product. Along the same lines, control distribution, sublicenses, and customization. Reserve audit rights and be clear about record-keeping for royalty purposes.

  3. Non-compete - They will have your code so add a non-competing product restrictive covenant for a period of time. You will need to extend the scope to restricting key persons from starting or having a controlling interest in companies with similar products. I see this end-run happen all the time.

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