This article is a companion to our podcast – Your Business Ally™. Please check out the Coders, Consultants and Content episode, and companion post – Copyrights for Business.
Licensing for Coders – Custom Software, White Labeling & SaaS
Hello, my brilliant friends who turn 0s and 1s into algorithms that reveal the perfect gift on Amazon, or make that little Echo box recite this week's weather on demand. The nerd in me salutes the nerd in you.
Let’s dive into three key ways to use your coding talents for good, and be paid well for it. Of course, you're familiar with Custom Development, White Labeling, OEM, and SaaS models. But do you know the most important negotiation point to help avoid leaving money on the table and inadvertently giving away your value? No worries. I've got you covered, Allies.
As you well know, Custom Software is uniquely designed to meet a defined customer need. When there are no “off the shelf” options, customers will pay for software that provides a unique solution. Because of its bespoke nature, you'll want to price appropriately for the time and unique nature of that customized deliverable.
By contrast to that single-use, or one-off product, you might gain more economy through White Labeling. In this scenario, you create the backend software that's presented under another party's brand, perhaps integrated into a larger program.
Your customer looks brilliant by delivering your incredibly elegant code under their brand, and they save the costs and oversight of having an in-house team of programmers. In turn, you gain scale through repeated use of your software, ideally with far less work than potentially reinventing the wheel via a custom software project. It's a win-win.
Finally, the strategy of recent popularity is “software as a service”. SaaS platforms have disrupted the historical model of software delivery. Whereas we used to, in the ancient ages, download software from disks or CDs, now it's efficiently delivered through the cloud.
Of course, the upside for customers is we receive consistent feature improvements. The profit play for SaaS providers is consistent cashflow through recurring subscription revenue. We see the SaaS concept at play in Microsoft’s Office 365 suite, for example, where for a monthly fee we receive regular updates to Word, PowerPoint, OneNote, and Excel.
Don’t Give Away Your Ownership Rights!
With Customized Software, clients might request “Work for Hire” terms. Legally, this means you're agreeing that you do not own the software that you create. Instead, from the moment you save that code, your client owns it. As long as you're being paid appropriately, this may be fine. Again, it's bespoke work for which you're ideally receiving a premium price.
But what if you didn't agree to Work for Hire terms? What if, for example, you'd like to use that same code, or elements of it, to develop custom projects for other clients? Or, suppose you want to use it for White Label or SaaS products?
Now we're thinking about scale. Reusing that custom software in another format is a derivative work. (We discussed those more in our companion article, Copyrights for Business.) In fact, retaining ownership of your code in its various formats is a key principle of building intellectual property assets in your software company. That way, you can reuse your programs in new ways, and generate greater revenue.
Allies, please don't inadvertently give away your software through agreeing to “Work for Hire” terms! By maintaining ownership of your code, your business has more value, is more attractive to investors, and is more likely to sell at a higher multiple.
Pricing & Fortune 500 License Negotiations
Returning to pricing, if you're creating a bespoke customized program, you can charge a premium because it's a unique, possibly single-use development. But let's rethink this. There's room to both charge a premium because of the unique value that you deliver to your client, and retain your rights in the program. How? By issuing that client a license, rather than agreeing to Work for Hire terms where, again, you're giving them ownership of your code.
If you punch above your weight, and work with Fortune 500 clients, you know that many of their standard contracts require Work for Hire terms. Of course they do! They’re expecting you not to negotiate. In fact, they may expect that you won't even read the contract.
A little secret, Allies, many times the lawyers who drafted that contract are not IP lawyers. So, they don't know that it's not necessary to require those Work for Hire terms in their standard agreement. But I do. And now, so to you. It's all a matter of negotiation.
Software Licensing Value Ladder
So, let's consider this scenario. First, you create custom software to meet a unique client's needs. Because it's customized, you charge a premium and do not agree to Work for Hire terms. Instead, you retain ownership in the work, and they get a perpetual license. Second, you create less bespoke versions of that code for White Label use, perhaps tweaked but not wholly reinvented. That pricing aligns to White Label value propositions.
Third, you apply the code to develop a SaaS product for sale to masses at scale. This is the opposite of customized software. It's “off the shelf”, commoditized delivery for margin based on volume. Your SaaS sells at a lower price point than the bespoke deliverables for that premium client at the beginning of the value chain.
All three scenarios are licenses, including the Customized Software, White Label, and SaaS. And you, my dear Ally, made money at every level. You can choose all three, or you can choose one or two. In fact, it might be rather tough to deliver in all three models, so you'll likely choose one that aligns best to your business goals.
Ultimately, it's worth understanding all three options. And importantly, refusing Work for Hire terms is critical to maintaining your copyright as an asset in the code you create. That way, you have the greatest latitude to generate residual IP licensing revenue from your investment.
Licensing for Consultants and Strategists
Much of what we've already discussed for Coders relates directly to Consultants and Strategists. Rather than licensing code, you license expertise, and the content that flows from it.
Let's say you're engaged to help coach an executive leadership team, and develop related business strategy. You devise a plan based on your experience. As with the bespoke software discussed before, you're creating unique, customized deliverables like training materials. That content might include assessments, workbooks, or frameworks.
Of course, once you perform with expert level aplomb and have extraordinary bottom-line impact, that executive team is going to be immensely grateful, and extol your value. What's next? I could imagine that they'd love to distribute your training resources at scale within their broader leadership development program. And there, dear Allies, is an opportunity for new revenue!
Before you agree to allow your training materials to be reproduced and distributed for free, perhaps even “White Labeled” among other company resources, let's consider how you might instead license those resources resulting in a win-win for both you and the client.
They want a proven, quality training and development program, but they may not have the budget to engage you to deliver one-on-one coaching to more junior executives. And frankly, you might not want to do that level of work one-on-one. However, through licensing your work, again, without ever agreeing to a Work for Hire contract provision, then you can earn additional revenue - and even annual profit - from your earlier trainings.
Perhaps, each year you update that content. Or, maybe you establish a license deal whereby you create new content and share it with the client throughout that annual term, so that they receive additional ongoing value. With that, we’ve moved from a finite license to a subscription license. Either way we negotiate the deal, you have more potential for revenue than if you'd simply agreed to allow that client to reuse your trainings for free.
MSAs and Licenses Are Different Revenue Streams
A content license is different than the MSA that you may normally enter with your clients. An MSA, or Master Services Agreement, includes the work scope for the original executive-level strategy and coaching. It's your vehicle for new work scopes and change orders, as those service deliverables may evolve from time to time.
By contrast, a license is the tool through which you permit that client to use your content. Within a license, you'll establish pricing, number of permitted users, exclusivity vs non-exclusivity, and identify allowed channels of use (online vs print, or both). You'll also set up geographic territories and determined timeframes for license renewal. Each of those are points of negotiation, and potentially additional revenue sources.
For example, you might permit your client to have unlimited access to view your training materials online, but no rights to make physical or digital copies. You might permit the use of your trainings within a parent company, but not with their subsidiaries or affiliates. Or, you might limit the license to one year so that they recognize the value in your original content, and then you can create newer additional materials that have value in future years. With that last strategy, the client is enticed to renew their license, possibly at more favorable pricing for your business now that your value is well established.
All of this is possible because you did not agree to Work for Hire terms, but instead maintained ownership and control over your content. By the way, we discussed different types of licensing negotiation variables in Episode 4 called Untapped Income: IP Licensing for Midsize Companies.
When to Register a Copyright
Here's an Assure ™ Action
It's a very good idea to file applications for copyright registration for any content in these situations:
If you'll use that content repeatedly in your consulting engagements, because it's a core staple related to your service delivery.
If you expect to license the content, as we discussed above.
If you anticipate that your content might be used without your consent, and you want to improve positioning to enforce your rights against an infringer.
It's best to file that application for copyright registration before you either present the content to any client, or otherwise share it publicly.
Here are a couple of helpful links for copyright registration in the United States.
Content Licensing Value Ladder
Imagine that you've had great success licensing content to your clients. Now, let's take it up a notch. Suppose that you have so many clients and prospects who see the value in your strategy, frameworks, and training materials that you don't have capacity to serve them all.
Take a page from the book of our Coder friends who sell SaaS at scale, you could do the same by teaching an online course. Create it once, deliver it through the cloud on a multiple delivery platform like Teachable, Udemy, or Thinkific. Each person who takes your course then pays you a licensing fee through one of those platforms. And, by making your content available online, you've created additional residual licensing income.
You're so brilliant, Allies! Now go tell your Coder and Consultant friends to listen to the Coder, Consultants and Content episode of the Your Business Ally podcast, so they can be experts too.
Quick Recap
For Coders, copyrights are Customized Software, as well as the programming that underlies White Label and SaaS models.
For Consultants, copyrights might include training materials, videos, and other business content.
Plan in advance to earn residual income through derivative work licensing ladders. For Coders, that may be redeploying programs in stages from Customized Software, White Label, and scaled volume SaaS delivery. For Consultants, bespoke trainings can be scaled for license in the formats of video, physical and digital training materials, as well as online courses. All of those resources can be licensed individually, or through ongoing content subscription models.
The key to maintaining copyright ownership that can generate residual income and grow your company's value, is actively avoiding Work for Hire contract terms.
Here's an Assure ™ Action.
Consider how you're delivering code or distributing consulting expertise today. Take a moment to strategize new licensing models, whether directly to individual clients, or at scale to multiple customers.
Need some help? Let’s collaborate!
We help 7 and 8 figure companies build recurring revenue through licensing successful brands, software, expertise, and business content. Our Assure Architect™ strategy framework identifies what to license, highlights target customers, develops pricing models, and establishes a go-to market sales plan. It's easy to get started. Reach out to us via our website. Or, connect with me, JoAnn Holmes, directly on LinkedIn.
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We always appreciate your support, Allies. Until next time, Set Your Agenda, and Here's to Your Success!
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JoAnn Holmes ("Jo") is the founder of HOLMES@LAW. The firm helps innovative midsize companies grow recurring intellectual property revenue, negotiate successful business contracts, and implement profitable legal strategy. Learn more about our Assure™ strategy services to monetize IP, establish a sound legal foundation, and streamline smart business decisions. Our Business Ally™ contract subscriptions help clients stop leaving money on the table, and protect your bottom line.
Holmes, How … about the Disclaimers?
Information shared by JoAnn Holmes and/or HOLMES@LAW, LLC ("We or Us") is for educational purposes only. It is not legal advice. Each situation is unique, so the information We share may not be relevant to your circumstance. Until you enter a formal engagement agreement with Us, We are not your legal counsel, and no attorney-client relationship exists. So, please do not share any confidential information with Us, and please only interact with Us if you agree to these ground rules. Thanks!
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