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I just don’t think he’ll be willing to pay what I would need to charge him to do everything he says he wants. Rather than quote him $X,000 (or based on some of his comments $XX,000) I’m thinking about telling him I’d be willing to become a partner with him and take 10 or 15% of the gross sales from the site depending on what his margins are.
The funding for advertising would come from my cut and I would pay affiliates out of my cut. Essentially, it would be a glorified drop-shipping partnership. I know I’m all for it and I work extremely well with commission based partnerships. Just knowing that pulling an all-nighter may help my pocket book later on down the road rather than just eating up the hours I have left on the project is really nice.
Has anybody done this is in the past? How did your clients react to it? Any pitfalls that I should think about?
Otherwise ... wish I were in your shoes!
Someone I used to work with quit her job and partnered with her sisters to start an online woman's clothing store. They invested a ton of money it and it lasted about 2 years before it failed. They had inventory problems - too much some stuff that wouldn't sell, not enough stuff that would, and provided poor customer service. The lost a lot of money.
If running a business was easy, most of them wouldn't fail. :)
Another thing to consider, if you are going to get paid a percentage of online sales, you might ask to include percentage of in-store sales as well (albeit a different percentage). The arguement being that the website may be driving customers (who may be unconfortable with purchasing online) into the store.
joined:Feb 13, 2003
I've heard that for some stores 40% of the people found them online, and then went into their store, or called in phone orders. If you're not careful, you'll lose this entire type of comission.
Basically, you have to see how much you trust this potential client. Also, bring up telephone sales in your preliminary discussions and find out how they will keep track of sales. It can work out if everything is clearly laid out ahead of time.
Personally i would taste their proposal, mention numbers (though nothing firm) and say that you will get back to them, once you have researched and analysed what is involved in the R&D, future proof site planning, affilaite scheme viability and implementation, and the E-comm side.
Never try to do a deal in a heartbeat unless you know (and i mean can smell the roses) that it is too good to be true.
For me, though, I see it as a win-win deal. If the business is successful, I'm assured a large, steady income. And if unfortunatly it's not, since I'm just starting out, it's a chance to show future customers that I'm as good as I say I am; something very hard to do without a porfolio to back you up.
Too many have been burned with $15k websites that have a lot of flash and drive people away. I don't think they could last very long if they used a commission model. Besides, my costs are droping for each new store as I re-use code components.
From experience, there are a few other things you might like to consider.
Seasonality. Most businesses make 75% of their sales in the 3 months before Xmas. Having some that sell inventory in the spring or throughout the year is good for cashflow. Also, will their site be ready a few months before their high-period, or will you wait a year to see decent returns?
Margins. Many retailers have 40-50% margins. Asking 10-15% is really low, I spend more than that in Adwords alone. The retailer should cover shipping, and I ask for 25-30%. Margins can be also be set based on product type, or time of year (e.g. renting a hotel room during the off-season is more valuable than when it's already booked solid through off-line channels, so commissions could vary).
You need to have enough money to pay affiliates, your self and have some money left over for growth.
Another way to charge is to ask for your margin, and ask them what percentage of sales can be ear-marked for advertising. I would be happy making 6-10% if 15-35% goes to marketing.
I also won't speak to any retailer that I don't think will see more than $100k/yr, based on search numbers in OV and G, industry information, etc.