Selling your software in retail stores (all that glitters is not gold)

Selling your software in retail storesDevelopers often ask in forums how they can get their software into retail. I think a more relevant question is – would you want to? Seeing your software for sale on the shelves of your local store must be a great ego boost. But the realities of selling your software through retail are very different to selling online. In the early days of Perfect Table Plan I talked to some department stores and a publisher about selling through retail. I was quite shocked by how low the margins were, especially compared with the huge margin for online sales. I didn’t think I was going to make enough money to even cover a decent level of support. So I walked away at an early stage of negotiations.

The more I have found out about retail since, the worse it sounds. Running a chain of shops is an expensive business and they are going to want take a very large slice of your cake. The various middlemen are also going to take big slices. Because they can. By the time they have all had their slices there won’t be much left of your original cake. That may be OK if the cake (sales volume) is large enough. But it is certainly not something to enter into lightly. Obviously some companies make very good money selling through retail, but I think these are mostly large companies with large budgets and high volume products. Retail is a lot less attractive for small independents and microISVs such as myself.

But software retail isn’t an area I claim to be knowledgeable about. I just know enough to know that it isn’t for me, at least not for the foreseeable future (never say never). So when I spotted a great post on the ASP forums about selling through retail, I asked the author, Al Harberg, if I could republish it here. I thought it was too useful to be hidden away on a private forum. He graciously agreed. If you decide to pursue retail I hope it will help you to go into it with your eyes open. Over to Al.

In the 24 years that I’ve been writing press releases and sending them to the editors, more than 90 percent of my customers have been offering software applications on a try-before-you-buy basis. In addition, quite a few of them have ventured into the traditional retail distribution channel, boxed their software, and offered it for sale in stores. This is a summary of their retail store experiences.

While the numbers vary greatly, a software arrangement would have revenues split roughly:

  • Retail store – 50 percent
  • Distributor – 10 percent
  • Publisher – 30 to 35 percent
  • Developer – 5 to 10 percent

Retail stores don’t buy software from developers or from publishers. They only buy from distributors.

The developer would be paid by the publisher. In the developer’s contract, the developer’s percentage would be stated as a percentage of the price that the publisher sells the software to the distributor, and not as a percentage of the retail store’s price.

The publishers take most of the risks. They pay the $30,000(US) or so that it currently takes to get a product into the channel. This includes the price of printing and boxing the product, and the price of launching an initial marketing campaign that would convince the other parties that you’re serious about selling your app.

If your software doesn’t sell, the retail stores ship the boxes back to the distributor. The distributor will try to move the boxes to other dealers or value-added resellers (VARs). But if they can’t sell the product, the distributors ship the cartons back to the publisher.

While stores and distributors place their time at risk, they never risk many of their dollars. They don’t pay the publisher a penny until the software is sold to consumers (and, depending upon the stores’ return policies, until the product is permanently sold to consumers – you don’t make any money on software that is returned to the store, even though the box has been opened, and is not in good enough condition to sell again).

The developer gets paid two or three months after the consumer makes the retail purchase. Sometimes longer. Sometimes never. If you’re dealing with a reputable publisher, and they’re dealing with a major distributor, you’ll probably be treated fairly. But most boilerplate contracts have “after expenses” clauses that protect the other guys. You need to hire an attorney to negotiate the contract, or you’re not going to be happy with the results. And your contract should include an up-front payment that covers the publisher’s projection of several months’ income, because this up-front payment might well be the only money that you’re going to ever see from this arrangement.

Retail stores’ greatest asset is their shelf space. They won’t stock a product unless there is demand for it. You can tell them the most convincing story in the world about how your software will set a new paradigm, and be a runaway bestseller. But if the store doesn’t have customers asking for the app, they’re not going to clutter their most precious asset with an unknown program.

It’s a tough market. It’s all about sales. And if there is no demand for your software, you’re not going to get either a distributor or a store interested in stocking your application. These folks are not interested in theoretical demand. They’re interested in the number of people who come into a retail store and ask for the product.

To convince these folks that you’re serious, the software publisher has to show a potential distributor that they have a significant advertising campaign in place that will attract prospects and create demand, and that they have a press release campaign planned that will generate buzz in the computer press.

Many small software developers have found that the retail experience didn’t work for them. They’re back to selling exclusively online. Some have contracted with publishers who sell software primarily or exclusively online. Despite all of the uncertainties of selling software online, wrestling with the retail channel has even more unknowns.

Al Harberg

Al Harberg has been helping software developers write press releases and send them to the editors since 1984. You can visit his website at

8 thoughts on “Selling your software in retail stores (all that glitters is not gold)

  1. Tony Edgecombe

    I did some consulting work for one of the major distributors into retail in the UK a few years back. As I spent quite a lot of time working on their invoicing I got to see what sort of deals the publishers were getting. Pretty much everything Al said is correct.

    But it was actually worse than that, their whole culture was about screwing every last drop of blood out of their suppliers. This meant long payment times, large returns and quibbling over every last detail. Eventually I had to sack them as a client because they couldn’t learn to treat me any differently from their other suppliers.

  2. Small Business Computer Consulting Blog

    There’s a pretty good reason that there is only a handful of really successful software providers out there, and it’s pretty much exactly what you mention in your post and also what’s mentioned in the above comment! The truth is, the real profit for those that aren’t the size of Microsoft, Red Hat or some other major software company (and what small software company is?) is in sophisticated, specialized IT services. Solution providers and computer consultants with a focused business plan and a well-defined specialty stand to enjoy a lot larger profit margins than a small software developer. A big reason is, they’re not working with “products,” which inevitably bring about price-sensitive buyers and the inevitable question, “How much is this going to cost?” Those that pay for IT services on an on-going basis view the price they pay in terms of a benefit and an investment in business growth, not a price tag. This means that they are less likely to balk at high, competitive rates and more likely to understand the value of the service being provided. Typically those small developers that are successful at selling software (assuming they are not the size of Microsoft or some other huge company) are successful because they don’t make that product sale their main focus, rather tie it into services and benefits they provide to customers above and beyond a mere commodity.

  3. Andy Brice Post author

    You can make very good good profits on a purely product based business, whether you are a small or large software company. Also products are inherently more scalable than services.

  4. Marcus

    Hi Andy,

    I have retail experience in the food industry (in another life). My experiences with food retailing translate fairly accurately with Al’s description of software retailing.

    We made pastries such as family sized quiches. We would sell a product for a little over $2.00 (including profit) to the distributor. As a customer you could buy the quiche from the supermarket deli for $9.95. A 500% mark-up between manufacturer and retailer is common. Many supermarkets also had a return policy for unsold goods – if they didn’t sell it, they wouldn’t pay for it. This encouraged the supermarkets to ensure they looked fully stocked as they weren’t burdened with the cost of over stocking.

    Another major supermarket chain deducted allowances from the invoice you sent them. There was 4% for storage (you paid rent for stock sitting in their warehouse), 4% for breakages (whether any stock was damaged or not), another percentage for ‘weekly specials’ and son on. These totalled almost 25% which was taken off the invoice amount (after they had already haggled a good price).

    Regards –

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  7. Craig

    Al is right on. But, it is even worse. Today if your product doesn’t sell at retail it isn’t returned to you. It is too expensive for the retailers and distributors to go through the process of taking the product of the shelf and returning it to the publisher. They now do “field destroy”. Your product is gone. All of your product is put in a dumpster and crushed.

    It’s tough out there. :>)

  8. Jason Kiwaluk

    Digital Distribution through major online retailers.
    70% margin, no additonal fee’s
    TigerDirect, CompUSA, WindowsMarketplace + more…

    Keep more of your profit margin & distribute digitally

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