How to model a product combination?
Hey all, new here so not sure where to post this but I recently joined a corporate development team and ran into a project where we are partnering with another company in offering a product. So our product is capable of providing services A and B and our potential partner's product is capable of providing services C and D. Any idea how I model this out? We are trying to see what revenue split, royalty structure we should propose.
I am sure this won't be like a regular financial model where you come up with an enterprise value.
If the company you're with is your username, I'd delete this post, create a new username, and repost this topic. CD teams usually aren't big and if you're a new hire, you're probably easy to identify. If you don't care I'll point some CD guys to this thread
Nope its not my username.
Awesome
@"Nefarious-" and @"HashtagCorpDev" might be able to help
Interesting question, would be interested in hearing other thoughts also. Full disclosure, I've never had to build this type of model before. Few questions... well, more like rhetorical questions.
1) Are services C & D that the other company provides as important as services A & B, or are they equal? 2) Are both companies equal size (revenue, cap, etc) and established? (This should effect negotiating power) 3) Are the costs & revenue the same for all of the services -- or, is one revenue stream going to be a majority while another may be more of a supplemental service offering. 4) Is one service more scalable than the other (without increasing costs)? 5) Was this service/product your company's idea? Can you easily go to your potential partner's competitor and offer them the same deal?
Basically, I think this comes down to 1) difference in cost/revenue that each individual service is responsible for and, 2) how much leverage your company has in the negotiations. I'd model out the revenues for X years (by individual service, then rolled-up), and toggle between various scenarios (low, mid, high growth) and how/if that effects costs for each service. Even if your potential partner's service ultimately has lower margins, you may be in a better position to negotiate if you're providing a bulk of the total service. Though, you may just end up focusing on revenue since you might not be certain as to your potential partner's costs. Overall, I think royalties/rev split would depend on which (if any) service is the primary revenue generator and how much leverage your company has vs. the potential partner.
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