If you’re considering creating an OEM bundle (or bundles), but you’re not sure how to fairly price it, you’re not alone. It’s a tough needle to thread, and you don’t want to cheat your customers— or your business.
Bargain for your bundle
If your OEM bundle is indeed the typical software/hardware bundling arrangement, you’ll likely be expected to accept a per unit fee ranging anywhere from $.10-$1.00 per unit bundled—depending on a variety of factors, including the OEM partner, the anticipated unit volume, etc.
Assuming that’s the range you’re presented with, you’ll want to ask the OEM partner to justify that kind of rate by guaranteeing a minimum volume. For example, if they are only open to paying $.25 per unit, require that they bundle a minimum of 15K or 25K units in the next 12 months, and explain that otherwise there is no way to justify their extremely low per unit rate relative to what average customers are paying you per unit (for example, your MSRP might be $29.95 per unit).
Create a sliding scale
Set up a sliding scale so that the more units they bundle the lower per unit rate they’ll pay, so the OEM partner is incented to bundle as many units as possible and so they can get the low rate they desire from you, provided they hit certain metrics, but just not for “free.”
Some OEM partners will be able to bundle a few thousand units, while some of the larger ones can do a few hundred thousand or even a few million units, so it can really add up, although they will expect the rate per unit to decrease the more volume they can do, which is fine. Just make sure if they tell you that they’re expecting to bundle a large volume of units, that you tie them to it in order to get the pricing they desire from you.
How OEM partners keep rates low
There are a few reasons why OEM partners get away with such low rates. They can often guarantee a substantial minimum number of units (though not always, and sometimes it’s still a deal worth doing). OEM partners realize that you get free branding when they bundle your products, that you can sometimes collect email addresses from their users, upsell their users, etc., and this value you receive further justifies their low rates.
Also, you, as their partner, can appreciate the economics that leads to the OEM partner only being able to pay a very small % of the purchase price they charge their own customers given all the other expenses they have in each sale of their own product that they’re bundling you with, the other bundling product partners they’re paying along with you when they sell their own product, etc.
If they sell their own product—say for $30.00—pay retailers and distributors, buy advertising, have a significant cost of goods on their hardware product (being that it’s a hardware product with hard costs, not a software product), plus pay for 3-4 bundling product partners each being paid (in addition to you), you can see why they can’t afford to pay, for example, $5.00 per unit to each bundling product partner. Instead, they must deal in pennies per unit.
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