|Paying developer with share of business. How to calculate?|
There's a site I may start up that will require a good deal of development. It's based in Drupal, but will need to be modified pretty extensively.
I'm basing the idea of the site on another existing site in a completely different niche. The site makes money through sponsored listings and banner ads, and I've been tracking all of those, so I have a pretty firm handle on how much the site grosses.
I'm not in a position now to pay the developer, and he understands that. He's interested in getting a share of the business. What I don't know is how much of a share to offer.
Any ideas as to how to come up with a percentage?
Thanks for any replies.
Dickbaker the 1st question before I would give a % is the duration of the %.
I assume you will need to keep him to do future modifications?
There are many factors that play into your offer.
Can you give a little more detail on the role the developer will play into this adventure, and a time frame this person will be involved?
A rough estimate of the revenue and a rough time you might expect it to reach this target.
This issue (development for % ownership of the company) has been asked several times on WW. The general consensus has been that it's a bad idea. (I really that's not your question, but just wanted to offer it as fair warning.)
The math is pretty simple:
A) What is the value of the business?
B) What is the value of the work being performed (i.e., if you could afford it, how much would you pay for the development)?
Your percentages is B/A.
Going back to my first point- remember that you are basically taking on an investor/co-owner of your company. In many cases, investors/co-owners stick around longer than a marriage. On that point, if your developer dies, his share of your company goes to his heir(s), who then become your business partner(s). If you want to buy them out, it will be based on the fair market value of your company at that time, not now.
Lifeinasia good points.
Thanks for the replies.
If I could afford to just pay outright for his services now, I'd do it. A divorce last year took a lot of my money.
I need to give him an outline of the site, wireframe, etc, before he can give me an estimate of time involved. He's a good guy. He helped me with my current ecommerce site, did a lot, and asked for nothing. He just wanted to help. I gave him a nice gift, though. Something expensive he wouldn't otherwise buy for himself.
The existing site in the unrelated niche grosses about $20K a month in advertising. That's the sole source of revenue. I advertise on the site, so I know the rates, and I've counted the number of advertisers. As for expenses, I don't know what if anything he spends on advertising (never seen any), hosting, etc.
I'll try to get a better idea from the developer on what his actual fee would be.