When you take a piece of the action, how long do you take it for?

Doing web work for a % of sales, for how long do you get your cut?

[MichaelBluejay]

Many consultants/developers who increase revenues or generate sales for a site get paid by taking a piece of the action (i.e., a commission on sales). Various services they might offer and get paid for this way include:

(1) Building an online store for a brick-and-mortar store
(2) Optimizing a site for conversions on sales (i.e., increasing sales per unit of traffic)
(3) Permanently increasing traffic (e.g., organic SEO, permanent inbound links)
(4) Increasing the price of advertising per unit of traffic (i.e., optimizing the ads)

In cases like these, how far into the future do you typically get paid? Is it forever, or just for a fixed period of time (and if fixed, for how long)? I'm sure many people here had had these arrangements. What was your agreement/experience?

[drongo]

My experience is don't go in for these types of deal at all. Just get paid for the work you do, and do it damn well so you keep getting paid.

Most customers who offer this do so because they have no money, which carries over into their ability to market and grow their businesses no matter how much value you add yourself.

Piece-of-action deals are very hard to track and trace. Will you have access to their accounts for example?

The value you add, and how to measure it, must be worked out in exquisite detail, otherwise there'll be endless arguments over what you're owed.

You'll probably end up getting paid nothing but being forever tangled up in a business that is "just about" to start making serious money.

In short, it's not worth it. Sure you may end up passing up on some amazing business that's growing. But the vast majority of businesses that don't have enough money to pay you real money don't grow at all imho.

[piatkow]

Performance related payments occur in some fields but require a clear measure that can be counted and agreed upon. Also you need a minimum guaranteed payment so that the other party is incentivised to market the product.
For example a band may take a booking with a payment per ticket sold rather than a fixed fee. The band's manager can look at the room and see how many seats are filled and agree the exact number with the promoter.

Golden rule - if you can't count it then don't do it.

[Fortune Hunter]

I agree with drongo, I have been involved in 2 or 3 of these types of deals over the years and I have always been hosed in the end. They never work because if people don't have to pay up front for your services then they basically have nothing at risk to make the venture successful. You on the other hand have it all at risk as if it doesn't work you take a soaking.

I just got out of one of these involving an import business. I ran the web site and my two partners brought in a container of merchandise and handled the wholesale. One partner was stealing and the other partner found out and basically walked away. I was left owed a bunch of money from a defunct organization after I had racked up hosting, domain registration, marketing, development and other costs plus all of my time. I should have known better, but I didn't.

Bottom line stay away from these types of deals I don't think they work and you will end up being owed a bunch of money by someone who risked nothing to use your services for free.

[MichaelBluejay]

I'm sorry I didn't see the replies to this topic, because this thread didn't show in my Recent Threads control panel since this thread got moved to a new forum by a moderator.

In any event, I'm not really asking about the relative merits (or lack thereof) of striking a "piece of the action" deal. I'm asking, for those of you who have provided web services using that model, how far into the future do you typically get paid? Is it forever, or just for a fixed period of time (and if fixed, for how long)?

[Demaestro]

I will add that if you are considering a royalty you need to have answers to some questions before you can decide how long you ask for the royalty.

1) What are the current sales

2) What are the projected sales
----> What are those projections based on?

3) What is your total investment (time + out of pocket)... if your investment is only time then you have to give that a fair dollar value and that is your investment.

4) What type of return are you hoping for?

5) If you ask for 3%, using current/actual sales levels, how long would it take to recoup your investment? How about at 4%? How about at projected sales levels?

6) What would you want your maximum ROI timeline to be?

7) What is a fair profit to ask for? How long at actual/projected sales levels will it take for you to realize that profit.

Once you have the answers to these questions then you will know what to ask for and what is fair.

I don't think it is out of line to ask for royalties indefinitely.

I would say plan to make your investment back in year 2 and profit after that..... rather than define when your royalties end... define a buyout option where the partners can buy your royalty back for a dollar amount based on sales at the time they wish to end your royalties.

[MichaelBluejay]

I will add that if you are considering a royalty you need to have answers to some questions before you can decide how long you ask for the royalty.

Yet again, this has nothing to do with what I'm asking about. I'm not considering undertaking such an agreement. For reasons I don't want to get into, my question remains as I stated it in the original post: for those of you who have provided web services and received compensation in the form of a percentage of sales, how far into the future do you typically get paid? Is it forever, or just for a fixed period of time (and if fixed, for how long)?

I'll add: If the time period has been all over the map for you, then feel free to elaborate about the differences in different jobs.

Again, I'm emphatically not asking for advice about the relative merits of undertaking such an agreement, or how I should personally evaluate an individual case. What I'm actually looking for is to find out what the common timeframe is in the industry for people who have *already* entered these types of agreements.

Let me give one example: In one case I developed an online store for a friend so she could sell her handcrafts online. Our agreement was that I'd get 5% of gross sales forever. These are the kinds of examples I'm looking for. Thank you.

[Fortune Hunter]

Again, I'm emphatically not asking for advice about the relative merits of undertaking such an agreement, or how I should personally evaluate an individual case. What I'm actually looking for is to find out what the common timeframe is in the industry for people who have *already* entered these types of agreements.

Let me give one example: In one case I developed an online store for a friend so she could sell her handcrafts online. Our agreement was that I'd get 5% of gross sales forever. These are the kinds of examples I'm looking for. Thank you.

I see what you are asking for. In my deal it was an eCommerce site and I was to be paid 15% of the gross online sales of the company forever. If the business was ever sold or bought out by someone I would get 10% of the purchase price payable immediately to compensate me for my efforts to "build up" the site and its digital assets over time.

Good luck on this.

[MichaelBluejay]

Thank you very much, Fortune Hunter, that's very helpful. It's exactly what I was looking for.

Does anyone else have experience with providing web services for a percentage of sales?

[Demaestro]

In cases like these, how far into the future do you typically get paid?

Yet again, this has nothing to do with what I'm asking about.

Um... it has EVERYTHING to do with what you are asking about... you are just missing it.

Again, I'm emphatically not asking for advice about the relative merits of undertaking such an agreement

I didn't give you those questions to discuss the merits of a receiving royalties.... I gave them to you so you can create a realistic time line to recover your investment and make some money ... therefor answering your question of "how long"

I will simplify my answer for you.

If sales are $0.00 a month then you should ask for royalties indefinitely since there is no timeline you can create that will show you making money.

If you are investing time with NO guarantee then you deserve to the royalty forever... unless you discuss a buyout as I outlined above.

The answer to how long you should get royalties depends on how long it takes for you to recover your investment. What others have done doesn't matter because until you factor in sales and your investment it makes no sense to assign a timeline.

Without knowing:
1) what sales are
2) what your percent is
3) what your investment is

Then we can't give you good advise you on how long to ask for royalties without knowing some of this.... if sales are $100 a month and you get 3% and we tell you to ask for royalties for 5 years that is $1800... I don't know if $1800 is a good deal for you over 5 years or not...

I am not trying to talk you out of it.. I am trying to help you see you need to work this out on paper to have a good idea of what you are talking about.... without knowing sales or projected sales all we can do is guess.

However typically you get royalties forever and your kids inherit them, unless there is a buyout agreement. Royalties are offered when there is no money to pay.. which means high risk.. high risk=high reward.

[MichaelBluejay]

I didn't give you those questions to discuss the merits of a receiving royalties.... I gave them to you so you can create a realistic time line to recover your investment and make some money.

And that has absolutely nothing to do with what I'm asking about. I'm not "trying to create a realistic time line to recover [my] investment and make some money." I'm trying to do a survey about what kind of timeframe others have used in deals where they've been compensated by a percentage of sales.

.we can't give you good advise [sic] you on how long to ask for royalties without knowing some of this...

I'm not looking for advice on how long to ask for royalties for. You're not listening to me.

I am not trying to talk you out of it.

Good, because I'm not contemplating entering such an agreement. I never said I was. And that's why I've said, repeatedly, that I don't need advice on that topic.

What others have done doesn't matter...

It might not matter to you, but it matters to me, which is why I'm asking that question, and not the other question you seem insistent on answering. If you don't like my question, fine, but in that case there's no need for you to try to change the subject.

[MichaelBluejay]

Any others have any experience with doing work for a percentage of sales? I'd really like to get a larger sample than just 1. Thanks!

[johnblack]

Sorry this isn't going to increase your sample number as I've had no experience of this kind of deal.

But if I were in your shoes, I'd consider myself an investor in the company, not directly with money but with my time, effort and skillset.

Thus I'd expect to be paid for as long as the business is operating.

[TheMadScientist]

Yes, and the lifetime of the site is the time period for royalty payments to be made.

[MichaelBluejay]

Thanks, MadScientist, that's what I thought. I was really hoping to get a larger sample of people who have done piece-of-the-action type deals, but either those deals aren't so common, or folks don't care to comment (or just didn't see this thread).

The reason I trying to find what's typical is that I *did* enter into such a deal with someone, and now years later we're arguing over whether the commission should be paid perpetually or not. We didn't have a written contract, unfortunately. My goal now is emphatically *not* trying to find out which side has the better *legal* case, or which side might prevail in a legal contest, or how to walk away with the most money in a settlement. My first goal is to find out what's typical and what's fair. Since I didn't get the volume of feedback here I was hoping for, each of us is going to submit a brief to various business ethics experts to get their take on the matter.