How do prepayments and paid pilots work for hardware?

A prepayment moves customer cash ahead of delivery; a paid pilot funds a bounded test with agreed success criteria and a purchase decision. Both work best when the buyer receives a concrete benefit and the company can meet the promised delivery or test conditions.

Define what the payment buys

Chapter 3 distinguishes early payment from vague enthusiasm. A pilot needs scope, acceptance criteria, a decision-maker, and a decision date. If the fee is credited toward a rollout, define when and how that credit applies. Hardware agreements also need clear handling of installation, ownership of equipment, support, and failed tests.

The book’s capital-stack discussion offers 15–20% upfront-payment discounts as a structuring example, not a universal market rate. Its historical source for customer commitments financing hardware is the 50-computer Byte Shop order. Read the historical account. A discount must still leave enough contribution to deliver the product.

Worked example: price the test and the conversion

Illustrative assumptions. A normal first-year deployment costs $100,000. A customer pays $15,000 for a six-week pilot, credited in full against that deployment if specified tests pass and it signs by an agreed date. The remaining invoice is $85,000; the pilot did not create $115,000 of revenue.

If the pilot costs $9,000 to deliver, its $6,000 contribution is not free cash for unrelated promises: retain the cash needed to meet the next milestone. If you instead offer a 15% annual-prepayment discount, the customer pays $85,000 for the year. Check whether faster collection is worth the $15,000 reduction against delivery costs and alternatives.

The test of a useful pilot

Before signing, agree what result justifies expansion and who has the budget to approve it. Avoid a discounted custom-development project disguised as a product pilot. Get appropriate advice on the actual contract; deposits, cancellation rights, and revenue recognition have consequences beyond cash timing.

This page is an original summary of an argument developed in Speedstrap, not an extract from the book.

From Chapter 3 of Speedstrap. Find the book on Amazon.

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