Wesley: Hello and welcome to the Partner Strategy Network podcast. I'm Wesley Coelho and I'm here with Mark Sochan. Hey Mark.
Mark: Hey Wesley, Happy New Year.
Mark: Well, today we're going to talk about OEM deal pricing. Last time we spoke about reseller and referral, typical incentive rates. Wes,eg, can you give us a quick recap of last week's discussion?
Wesley: Last week, we focused mostly on reseller incentives, which are typically offered as a discount off of licenses and usually in the range of 20 to 30%. And we also talked about referral rates, which are often in the range of 10% of the deal. And usually those apply for the first year of the deal only.
So Mark for an OEM deal, how do you define an OEM deal? And how is that different from a reseller?
Mark: Well, when I see a big difference between a reseller and an OEM deal, is that in a reseller deal, the partners selling your product on your customer agreement on a per transaction basis. So they're using your paperwork. One customer, one order form, and the terms are agreed for on. For an OEM, the partner sells on the partner's paper and there is no approval step for them to sell.
So typically multiple transactions are reported and paid after the fact on say a monthly or quarterly basis. And you may or may not be aware of who they actually sold to you may or may not be involved in the actual sales process.
Wesley: Okay. Got it. So that's helpful to draw the distinction there. And then what are the shades of gray between resale and OEM deals?
Mark: There are resell oriented OEM deals. So in other words, they can be sold standalone when that specific functionality is needed. And then there are bundle OEMs in which there's a hundred percent attachment to one of the partners.
Wesley: All right. So in that scenario, where there's a resell oriented OEM, what should you expect in terms of partner incentive?
Mark: Well for the OEM reseller deals, they look similar in deal structure to a reseller deal, meaning that a typical discount off of list price is going to be 20 to 40%. Except you can expect the discounts be somewhat higher than a regular resale because the partner's taking on more of the sales, marketing, and support and all of the legal.
Wesley: And now for the other kind of OEM, a pure OEM, what can you expect there?
Mark: When it comes to an OEM bundle deal where your product has a hundred percent attachment rate to one of their products, it looks more like a royalty. Than to discount off your list price. This royalty rate is often relative to the value of the bundle. So in other words, the pricing is no longer directly connected to your product pricing, and it can run anywhere from a few percentage points to 80 or 90%, depending on the circumstances.
Wesley: So it sounds like there's no real rules. It can be anywhere in this range for these bundle OEM prices. And maybe you need to get creative to figure out what that's going to be. What are some of the key factors you need to consider to see where that.
Mark: Well, here's the factors that I would consider looking at, you start out first by looking at your standalone price of your product, then you consider, okay, what's the relative value of your product relative to the product that you're being bundled with in terms of customer value perception, then you should estimate what percentage of your partners, customers are expected to use your product.
Then you might make some estimates on the anticipated sales volume. I suggest doing a min-max exercise where you start with the worst case scenario of minimal products that might sell over the next 12 months. then look at the other extreme and do some blue sky dreaming about the potential best case, and then maybe land somewhere in the middle point.
That seems doable. from there you might consider, what are the limitations of the specific OEM package product you're providing? Is it full featured or more of a teaser? I always encourage erring on the side of more value to make sure customers are happy with the solution that they got. Then you might consider whether it will carry your brand or be white labeled.
I always really pushed for branding. It's so hard to get market awareness for most startup companies, and there's just huge value in getting someone else to help your brand. And then finally cash is king. So you might consider a discount on the royalty rate. If you can get a prepaid commitment upfront.
Wesley: All right. Well, thanks for all your insight, mark, on those considerations for your pricing and for more information, come join the discussion at the Partner Strategy Network LinkedIn group.