Forum Moderators: LifeinAsia
The rate I bill them is already half of my normal billing rate. I low-balled the proposal in order to build my monthly clientele up. I'm afraid they're just wanting a way to get work done for less.
I've been freelancing for years and have always billed hourly or set a flat rate for the standard brochure site, or 50 product ecommerce site, etc. Other than affiliate commissions, the concept of working for a percentage of the clients' profit hasn't really crossed my mind.
I would like to know how many others do this and what kind of things I should make sure get put in the contract? Other than the company never making a profit, what other pitfalls do I need to take into consideration?
why not go for something higher for the first year and decrease the percentage as sales increase?
depends on the product obviously and what you think the client will accept-start high and you can always negotiate from there)
Client is not paying any money and the better you perform the more both parties make.
its a win-win situation for both sides.
I am sure you will get other opinions from other members here.
Silly question - but why would you have to relocate?
Second ... why on EARTH would a company capable of making that much money want to give away $240,000 on something that I'm sure you're charing MUCH less for. They want a price break now because they can't afford it now, and won't be able to afford it later. Also, no company will make $12 Million the first year without some kind of outside financing, be it a bank or venture capital. And if they have that, they can afford to pay your normal rate.
Promising a percentage of the company is something that is only done by complete amateurs who for the most part will never make it to the numbers they dream up in their head.
Stay firm on your normal rate - if they whine about it, tell them you're confused why a company in their position who is going to be making as much as they say is having such a hard time coming up with the money to pay you your normal rate.
Personally I would hold of relocating for 3 or 4 months especially as this is a new concept. Wait and see if they are going to be a success or a flop.
Maybe you could have a minimum built into the contract, if they are so confident this shouldn’t be a problem.
I was recently asked to do some work for client who didn’t really want to pay for the website. They had no idea if the site would be a success or not, so i built it for free(50 static pages) and get % of the profit. In two months I’ve made 5X what i would of charged them normally. Have tried 2 other similar ideas with them that have both flopped.
The original poster's situation is a little different ... they're clearly being mislead by someone who knows they can't afford to pay the normal rate and is trying to score something for free.
Also - any professional who DID for some odd reason want to cut you into profit sharing in the original scenario would do it by offering you shares in the company, not a "percentage of the profit". No real business person making $12 Million a year talks like that :)
In this case, if they expect $12 mill like they say but are yet trying to chew you down in upfront price, - that just smells fishy. Sounds like they are trying to make you an affiliate and/or don't have actual confidence in reaching that $12 million.
If I were you, I would have built the site for them under the condition you own the domain. If they cheat you, you can always move the domain to their competitor or jack it out from under them.
If someone approached me with that kind of deal, I would have to study it carefully, because my gut feeling is they're smoking stuff that shouldn't be legal.
As to moving... that's a huge commitment. What are they committing in this deal?
Regarding the relocating... it didn't get put on the table until I became defensive about working for 1/4 of my normal rate and 2% of profit. It would mean relocating me and my family from the east coast to the west coast -- a 30% increase in the cost of living. After our conversation, I thought maybe my reaction was uncalled for and perhaps this is what other webmasters do. I'm glad to know it's not necessarily how others handle it.
I hooked up with this client from one of the freelance sites. We have no contract. As a matter of fact, I don't have a contract with any of my clients. If they don't pay I take my work down. I've only had to do this once in five years, and by that afternoon I had payment in hand.
I like sweet_ali's idea of having control over the domain in this situation. My next step will be to have them sign a contract before proceeding with any more work. They already have about $3K worth of work lined up for me to do in the next couple of weeks, and more coming soon thereafter. At this point I don't have the luxury of turning away a paying client, but I can't afford to give my time away either.
Thanks again you all!
Forget about relocating for a minute. For one, you have bills to pay - can you really afford to work for 1/4th of your normal rate anyway? Pretend that the 2% is NEVER going to happen, because it most likely isn't. Can you afford to TAKE this job? That's going to take up time that you could be using to find (and DO) other projects in place of this one. Do the math and figure out what you're going to make per hour taking a 75% pay cut, and you might find you could make more money working at McDonalds. One of the biggest mistakes webmasters (and heck, MOST small business owners) make is they fail to factor in what their time is worth - they look at the total income from the project, and not the human cost it took to get there.
I would really hate to see you take this job and be in here in a month or two posting a question about finding a collection agency or how to sue a client who violated a contract :P
As for relocation ... I would never relocate for a company unless it was somewhere I wanted to live ANYWAY and would have moved there on my own circumstances permitting. My guess is they're only saying that to make you think they're a real company. Have you ever spoken to more than one person there? Can you verify this isn't a garage/basement operation? If they wanted someone local they could GET someone local - I think they WANT someone remote because (1) you don't know who THEY are, and (2) It's easier to screw someone who can't walk a couple blocks and kick your ***. :)
The whole thing sounds really fishy, and I think you feel that way too - you wouldn't have posted here otherwise. Just be careful. There are always other clients, don't sell yourself out because you think you need them.
..... Shane
Well, to make a long story short, I kept up my end of the bargain, but I had to watch as the owner made one boneheaded decision after another, completely ignored my advice, and I was left with nothing because I had agreed to be paid a percentage of the profit. In my case, 20% of zero.
Hope i helped
Also - any professional who DID for some odd reason want to cut you into profit sharing in the original scenario would do it by offering you shares in the company, not a "percentage of the profit". No real business person making $12 Million a year talks like that :)
Digitalv, I completely understand your concerns about the offer and the company's ability to achieve its goal of $12M in first-year revenue without outside financing.
However, I can think of two circumstances where I've seen offers written as "a percentage of the profits" rather than equity through shares.
So, it's not impossible for a credible business to have this type of clause; however, as always check the business model--especially with start-up companies that can't show you their financial records for past years.
Also about the $12M, be sure you have a good idea of the expected profitability of the company. What profit margins are common for companies in that sector. Some companies squeak by with razor thin margins while others enjoy 15% or greater margins of profitablity on revenue.
If you're offered a percentage of the company's profits, know how profitable the company might be. Don't discuss revenue, discuss margins, and ask the owners to justify their estimate.
If the company makes 10% profit on $12M, that would be $1.2M in profit, and your 2% would be worth 24,000.
If the company makes $75,000 on $12M, then your 2% would be worth $1500.
As you can see, it's not revenue that matters; it's profitability.
Compare the amount you would receive to what you would normally invoice.
it is time to call it a night, good luck.
Taking profit form the business instead of a salary means you pay capital gains taxes on whatever you get. Trust me, I've seen a guy write off two cars, and a house on his business and than tell the employees the bad news about profit sharing. Closely held firms are the worst when it comes to this issue.
I suggest you structure a contract so that you retain ownership of all intellectual property until salary/contact is paid.
Drop me a line if you want a copy of a very tough professional services agreement.
I only partner with high margin product sellers and I take 5% of each transaction subtotal (before tax & freight). I control the system becuase I completely take over the web operation and move the application to my server. I even get ownership of the domains. Otherwise I would turn down the business and work at an hourly rate.
And the $3K job? Ask for cash up front.
Otherwise - accept that you are doing it for free (well - at 1/4 of your 'normal' rate - you are).
:) Walk.
On the other hand, nail down ownership of what you put in, work for a few months in your present location, then re-assess. Sometimes (but not that often) profit-sharing deals work out.
The percentage, as has been pointed out, should be on some number which is very close to the top line (gross sales net of discounts and returns, say). You don't want to argue about whether the founders should or should not take a trip to Vegas; you just want a measure of gross sales success. The percentage should be high enough that it would result in (say) 2x to 5x ordinary compensation if the idea flies.
You may want reserve a set of domain names and do your best to make them all valuable in this endeavor (so as to increase their value as a portoflio supporting the business).
That's your insurance against being cheated. You all share the risk, and hopefully the rewards.
they obviously left the sign with "scam" written on it in the car when you met ......
Don't go there unless you really want to be writing here in reply to a post like yours "Dear ****** this happened to me.............."
My 2cts ...calculated on the profits
