...I'm prepared to take a gamble. I would rather they paid on a percentage of gross sales...

In my other career, I've had many % of gross, and % of increase deals. The clients love the concept in the beginning, hate it later when the checks are large and continuing. Consider this at the start, and get them to as well. Get legal help in arranging this. Will they be trying to disconnect from you, attack you, etc., because you're getting paid so much? Will it be worth the fight to battle for the money if they rebel? (The answer must be Yes.)

Arrangements like this really can be excellent for both sides, but they require a mature view, and good documentation, in the beginning. Some streaming thoughts:

How will you feel if they don't sell anything?

Are you obligated to provide ongoing maintenence, support, upgrades?

Will they be obligated to provide access to financial data so you can audit them to see if they're telling you the truth about their gross sales?

Does the code and all relinquished rights revert to you if they are in default, or is this 'work for hire'?

Maybe some of this is not relevent if your time/creativity investment is smallish to you, maybe not.

Get legal advice.

Damn pesky business issues. However, those issues will never not exist, for any of us. You should use the legal geek, just as your client is using your specialty. (I'm not a lawyer fan by any means, but, well, y'know...)

just thoughts. HTH

Get legal advice!

Apart from this, it really is not as easy as one would wish. Personally I think your idea about a precentage of gross sales is not too bad, especially as you say they'd be happy with that. This guarantees that you'll get something regularly as long as they run/sell they product. The down-side is, if they stop selling it, or it sells badly, then you'll feel that.

I don't like the idea of getting paid in stocks. You can't go to a shop and get something with stocks. If you want to sell them to get to money, you are dependent to a certain degree on their market value - which will tumble at exactly the wrong moment.
On the other hand, stocks may - note: may! - be an investment for the future, depending on the amount you get, and the health of the company. Oh, they're in IT? Forget what I just said...

Selling your code for a one-off payment may seem attractive for the moment, but once the money is spent, it's gone. And I feel that a large sum at once can sometimes get to your (my...) head. Having said this, if you can live off your job well enough then this might not be an issue at all. At the same time, you get something regardless of whether they can sell the product or not.

All these options may apply for you or not. Whichever you choose, make sure you get legal help to make steadfast conditions and write them down in a contract!

The other thing is, how much do you want to charge? This question is always hard to determine. I usually tend to underestimate the value of my scripts. I think the way I would do this is, see how much I'd charge, try to find out how much they'd bee wiling to pay (which ideally would be more than what you'd charge, but don't ell them this (:), and then find a sum which is somewhere in between.

Hope this helps. All the best!

--cs

There are nights when the wolves are silent and only the moon howls. - George Carlin

How do you keep the balance so that you can afford to do what you do without feeling you're getting screwed or demoralized?

Depends on what your program does, the companies and people involved, and many other variables. One thing you can be sure of is that you will lose some control over the program. They're not going to spend a bunch of money only to let a programmer with no business sense (their perspective, not mine) get in the way of marketing.

As for other alternatives, I recommend reading The story of Snort, it might give you a couple ideas.

Update: Also take a look at Software Libre and Commercial Viability.