One of the questions that I have frequently encountered has been to describe the pricing mechanism, specifically related to the royalty model.  The royalty model is based on cumulative net receipts over the contract term for a particular product incorporating VSTA.  Each time your cumulative net receipts surpass a specific percentage threshold, your subsequent royalty rate falls as well.

 To better illustrate this point, here are two examples of the royalty model:

ISV with $6 million in product sales per year:

In this scenario, the ISV quickly eats through the higher percentages, and within the first year, is paying a 1% Royalty Rate.

Specifically, this ISV will pay a total of $126,000 in the first year, as seen below:

5% on 1st    $100,000   =   $5,000
4% on next  $400,000   =  $16,000
3% on next  $500,000   =  $15,000
2% on next $4,000,000  = $80,000
1% on last $1,000,000  =  $10,000
Total year 1:                  $126,000

In Year 2 (and subsquent years of the contract) the royalty rate is 1%, regardless of product sales.  So, in this case, assuming no change in product sales, the royalty due will be $60,000. 

ISV with $2.5 million in product sales per year:

In this scenario, the ISV takes a little longer to move down the royalty ladder, but will be paying the lowest percentage by the beginning of year 3.

Specifically, this ISV will pay a total of $66,000 in the first year, as seen below:

5% on 1st    $100,000   =   $5,000
4% on next  $400,000   =  $16,000
3% on next  $500,000   =  $15,000
2% on next $1,500,000  = $30,000
Total year 1:                    $66,000

In Year 2, the ISVs starting royalty rate will be 2%.  Royalties for the year will be $50,000  ($2,500,000 @ 2%).

In Year 3, the ISVs starting royalty rate will be 1% (the cumulative product shipped will be $5,000,000).  Royalties for the year will fall to $25,000 ($2,500,000 @1%).