Revenue Sharing with Clients- Is this for real?

12 years ago

From a friend I happened to be on the phone with. I read him your post, and he said, "I get 20% off a few local service providers (cosmetic dentists) when they get new business from a site they advertise on. I gave them the option to pay me a solid monthly rate or a percentage of what I made them, and they thought it made more sense to just pay commission rather than $200 a month each. Oops. (evil laugh)"

LOL

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MissTR

12 years ago

Originally Posted by ooMARSoo

From a friend I happened to be on the phone with. I read him your post, and he said, "I get 20% off a few local service providers (cosmetic dentists) when they get new business from a site they advertise on. I gave them the option to pay me a solid monthly rate or a percentage of what I made them, and they thought it made more sense to just pay commission rather than $200 a month each. Oops. (evil laugh)"

LOL

Sounds great. Has he collected yet? (leads back to my other questions)

This brings up another thought, depending on how one gets paid, it could have different tax ramifications. I will have to look into this my CPA, but basically if you call that payment a "commission" it could be taxed differently than say a "marketing fee" or "referral fee".

I would never want to be categorized someone's salesperson. That's what "commissions" usually mean and the IRS sees that differently than other forms of income/payments to individuals.

Maybe you or he just used the wrong word, maybe not. But, you may want to ask your friend about that and I would think he would want to check that with his tax person (before he ends up having to pay too much taxes on the money).

Of hand my thought would be have the dentist pay his company(legal entity) and not him personally...long story short, check with your tax person so you don't make a lot of money and end up shooting yourself in the foot with it...Assuming he actually gets paid in the first place.

-MissTR

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Baadier Sydow

12 years ago

But how do you track it? Surely if you are dealing with an unscrupulous businessman you can get nailed.

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MissTR 12 years ago

Originally Posted by Baadier

But how do you track it? Surely if you are dealing with an unscrupulous businessman you can get nailed.

Baadier,

I have already posed this question. I am looking for the answer. Also, the person doesn't have to be unscrupulous. Many are just bad bookkeepers and don't track the source of their leads. They are either too busy or too lazy or both.

Hence, so far revenue sharing can be very lucrative, but I have yet to see how to SUCCESSFULLY implement it.

Thanks,
-MissTR
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Baadier Sydow

12 years ago

Just read your next post but from my accountants opinion in South Africa, at least, you get taxed much higher if you are a commission earner.

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MissTR 12 years ago

Originally Posted by Baadier

Just read your next post but from my accountants opinion in South Africa, at least, you get taxed much higher if you are a commission earner.

Yes, I believe that to be true here in the U.S. also. Hence the reason for my comment.
Hopefully, I have helped the guy out-via his friend. He should at least check on that.

-MissTR
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Jon Patrick

12 years ago

I would have them agree to let your own accountant look over their books and match up the clients that you referred to them, the amounts paid, etc. Just put it in the contract - they can't exactly disagree and say, "We don't want to let you verify that we're paying you correctly."

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jimbo13

12 years ago

It is far simpler for you to sell a lead for a fixed and agreed figure.

If the figure didn't make sense the business owner wouldn't agree to it.

A few people like Jay Abraham charge in the manner you say but they are few and far between for a reason.

% of gross? I don't think so.

% of net profits? 50% of FTSE 100 companies pay no tax because their tax accountants get rid of the profits.

Just keep things simple.

EDIT: No offence JP above but really? A company will allow your accountant to look at their books. Don't think so.

Dan

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gabbo 12 years ago

The main problem is the tracking thing, and also in many cases this violates the TOS of the merchant you are dealing with. However I don´t have experience in that field as it´s easier for me to generate legitimate full price sales than moving bucks around between the merchant and the customer.
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MissTR

12 years ago

Originally Posted by jimbo13

It is far simpler for you to sell a lead for a fixed and agreed figure.

If the figure didn't make sense the business owner wouldn't agree to it.

A few people like Jay Abraham charge in the manner you say but they are few and far between for a reason.

% of gross? I don't think so.

% of net profits? 50% of FTSE 100 companies pay no tax because their tax accountants get rid of the profits.

Just keep things simple.

EDIT: No offence JP above but really? A company will allow your accountant to look at their books. Don't think so.

Dan

Jimbo13,

I agree 100% which is why I started this thread in the first place. To see if I could be proven wrong in a way that makes sense. Like I said, many talk about it or claim they do it, yet haven't seen it (guess that's their big secret).

Here's the thing- yes, keeping it simple is fine. BUT people jv all the time-which I sure you are aware.

Therefore this would be nothing more than that, but could be a simpler version of a jv.

There is a HUGE difference in the money to be made from selling a 300 per month led gen lease. To getting even 10% of what they make on, let's say a new cosmetic dental client or attorney client. If you send them 3 new clients in one month, would you want just $300 or would you prefer 10% of each client fee?- each running into the $1,000s.

Those are the kinds of numbers if you're good at lead gen. It's called pay for performance. You get paid when you deliver the goods.

-MissTR

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MorpheusMirror

12 years ago

Revenue sharing has to be done on the gross revenues, and preferably with a client you have been working with for a while, since essentially you are going into a quasi limited partnership arrangement with them. Starting out it would better serve you, and the client by first just providing them with paid leads, or a service offering with upfront cash and a continuity program.

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jimbo13

12 years ago

Originally Posted by MorpheusMirror

Revenue sharing has to be done on the gross revenues, and preferably with a client you have been working with for a while, since essentially you are going into a quasi limited partnership arrangement with them. Starting out it would better serve you, and the client by first just providing them with paid leads, or a service offering with upfront cash and a continuity program.

No. you can't do it that way.

I have a product that sells at an average £3600 price point.

So tell me what my profit margin is?

I wouldn't even give you 5% because 5% is not 5% it is way more than that from NPs.

I wouldn't give you 2% either.

Stick with a fixed cost per lead. Professional Lead Gen companies do it that way for a reason not for fun.

Dan

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MissTR

12 years ago

Originally Posted by jimbo13

No. you can't do it that way.

I have a product that sells at an average £3600 price point.

So tell me what my profit margin is?

I wouldn't even give you 5% because 5% is not 5% it is way more than that from NPs.

I wouldn't give you 2% either.

Stick with a fixed cost per lead. Professional Lead Gen companies do it that way for a reason not for fun.

Dan

Traditional lead gen companies work in volume. They sell to the masses. They sell the same lead at least 3xs. often way more times- so yes, that gets easy after a while and they make a lot of money from it.

On a smaller, local scale you can offer exclusivity and control the number of clients you have, and control the number of niches you are in. It wouldn't be the masses. You could easily have less than 5 clients total and make a lot of money---in theory.

As well, we could also decide not to work together if we couldn't agree on pricing. While you might not pay me 5%, another company would. It sounds like you are probably better at generating your own leads and wouldn't need me anyway. For some businesses, 95% of something is better than 100% of nothing.

Furthermore, it's interesting to see your take on this as being purely black and white because I would venture to guess that you would easily pay a Real Estate agent 5%, if not more, of your gross profit on a house you sold, if that agent brought you the buyer. May be a little different, but not much.

Thanks for your feedback. Much appreciated.

-MissTR

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jimbo13

12 years ago

Miss TR

To use your example of 10% $300 for the Cosmetic Dentist, you would negotiate that you will send him/her leads and at what cost.

So if $300 was okay by him as he knows his numbers then you fix it at that.

So the % and fixed fee are really one and the same from my perspective.

Making a site and renting it for $300 pm I did not see that outlined in your OP and didn't know that is what you were comparing to.

So yes I would sell per lead and make sure you deliver.

I'm sure there is tracking you can use. Don't ask me though.

Dan

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MissTR

12 years ago

Originally Posted by jimbo13

Miss TR

To use your example of 10% $300 for the Cosmetic Dentist, you would negotiate that you will send him/her leads and at what cost.

So if $300 was okay by him as he knows his numbers then you fix it at that.

So the % and fixed fee are really one and the same from my perspective.

Making a site and renting it for $300 pm I did not see that outlined in your OP and didn't know that is what you were comparing to.

So yes I would sell per lead and make sure you deliver.

I'm sure there is tracking you can use. Don't ask me though.

Dan

Hi Dan,

I understand your confusion. It would not be $300 per lead, it would be $300 for the month- whether they got 1 lead or 10 leads or how ever many. If they close on more than 1, they are up and you are at a loss. Then again not really, because after all you made your $300 flat fee, guaranteed money (whether they close 10 leads or zero leads) you have your money and you agreed to that and you are happy.

Done deal. Works either way, as long as you make money - which is the point of it all.

-MissTR

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MissTR 12 years ago

As a side note, offering them a choice between a flat fee or rev. share is an Excellent closing tactic anyway.

It jolts them into seeing how valuable your service is and that they will pay you only a little and could end up making them a lot! Both sides are happy.

It's selling 101. Make them a deal where you make money no matter which option they choose. Be happy with that and cash the checks!

All done now.
I doubt I will respond to any further replies (unless it is spot on to what I've been looking for in the first place). Nothing is guaranteed one way or the other anyway. I get that.

-MissTR
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MissTR 12 years ago

Please note, I'm keeping this thread open because I haven't gotten an answer yet.

However, all the comments are starting to repeat and it's already something we all already know. Yes, keeping it at a flat fee is easy, but that wasn't my question.

The point of this thread wasn't to confirm that keeping it a flat fee is easier. I already knew that.

I still want to find out if someone has used the revenue share model successfully.

If any one has done it, that's the information I am looking for. There are other lead gen business models, and I am aware of those and anyone and their brother can pretty well use those and be successful.

It's more challenging with the revenue model, hence the higher reward.

However, success in all this is the key.

I still hope to get more replies regarding my specific question.

Thanks everyone for sharing.
-MissTR
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MissTR

12 years ago

Originally Posted by MorpheusMirror

Revenue sharing has to be done on the gross revenues, and preferably with a client you have been working with for a while, since essentially you are going into a quasi limited partnership arrangement with them. Starting out it would better serve you, and the client by first just providing them with paid leads, or a service offering with upfront cash and a continuity program.

Spoken with wisdom. However, if you have been good at providing them leads they have no incentive to rev. share because they are seeing they are making a lot of money based on you delivering the goods. They would have to be crazy to rev. share at the point. It makes no sense, unless you are bringing something else to the table- like you , as a managing partner or something like that.

I say, nice thought though.

Thanks,
MissTR

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iAmNameLess

12 years ago

Some forms of revenue sharing like with attorneys and other fields are actually illegal.

The "gurus" are usually not really gurus, they just sell products about their theories not necessarily what they have really done.

Revenue sharing is something that if it went to court you would be screwed. The ONLY time it really works is when you get into the company and they file their articles of incorporation and it states the percentage of the company you own. Without that, you're not going to have a case if things go sour.

It just isn't a viable plan. I've done a few things with revenue sharing on ecommerce sites but it's pointless. You don't get it off gross sales, you get it off net profit, but then magically the profit margin decreases when someone else gets involved. What normally had 300% margins, now have 50% margins because the partner you have is getting greedy.

Hand over the accounting books? I don't think so.

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MissTR

12 years ago

Originally Posted by iAmNameLess

Some forms of revenue sharing like with attorneys and other fields are actually illegal.

The "gurus" are usually not really gurus, they just sell products about their theories not necessarily what they have really done.

Revenue sharing is something that if it went to court you would be screwed. The ONLY time it really works is when you get into the company and they file their articles of incorporation and it states the percentage of the company you own. Without that, you're not going to have a case if things go sour.

It just isn't a viable plan. I've done a few things with revenue sharing on ecommerce sites but it's pointless. You don't get it off gross sales, you get it off net profit, but then magically the profit margin decreases when someone else gets involved. What normally had 300% margins, now have 50% margins because the partner you have is getting greedy.

Hand over the accounting books? I don't think so.

Yeah, I agree with you. That is my biggest concern. What would actually hold up in court.
I still believe there are people doing it- just very few, and still fewer who are doing it successfully- especially without going through the entity route, as you have pointed out.

I know it CAN be done, but the possibilities of not having hassles and not being screwed... could be a different story.

Everyone talks about net versus gross. It's up to whatever is agreed upon in the contract. I would never agree to net, just for the exact reason you mentioned. It's gross or nothing.
If I didn't bring the lead, there would be no gross. End of story.

I'll figure this out. I know there is a way. I am going to give my own suggestion right now which is offer it up to a prospect and see what they say.

It is always about a meeting of the minds and what is agreed upon in writing.
If a prospect has done these types of agreements, they will probably be ok with doing it again or be dead set against it.

The only way it really makes sense for them to do a split is if they are really desperate or really cheap and just don't want to pay a dime up front.

I think I may be done with this thread. Guess the gurus will continue with their...whatever.

-MissTR

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e30drifter

12 years ago

set up google account with google voice and # and forward it so you can actually monitor how many calls they get...and it is possible deal...I have clients like this that pay per deal...

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MissTR

12 years ago

Originally Posted by e30drifter

set up google account with google voice and # and forward it so you can actually monitor how many calls they get...and it is possible deal...I have clients like this that pay per deal...

I think you may be confusing things...what you speak of is tracking phone calls. This will help track activity, but a phone call does not mean it becomes a "deal".

Maybe you are confusing a "deal" with a lead. Leads are different. Companies easily pay per lead. The benefit to you as they pay you for that lead, whether they close the "deal" or not.

Again, this is where the revenue sharing could make a difference.

Sticking with the easy route, sure just charge the company per lead i.e. per phone call.
Or charge them a flat monthly fee, regardless of the number of phone calls they receive from you.

This thread is about the revenue sharing model.

-MissTR

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Ken Hoffman

12 years ago

Interesting thread. First the tax thing. You can structure in a way so that it's not considered commission. Even so I've never heard of sales people paying higher taxes than any other self-employed business owner.

Looking at their books? Yes. There are several people I can think of who have that in their contracts, IF they think they are getting shortchanged they can have their accountant look at the books. It's right in the contract.

As far as court? That's not the point of having it in the contract. You only do these deals with people you feel you can trust. The auditing stipulation is just an extra measure of safety to keep them honest. But ultimately, if they are happy and you are helping them making more money than they would have otherwise...they'll pay you and want to keep the relationship going.

It's quite usual for a copywriter to get paid a fee plus percentage of gross sales generated. Same for a sales person. Why not for any other area where your intellectual/creative work is being used to help generate profits for a business?

Typically, you'll have a harder time with small businesses and large companies. The best one's to do percentage deals with I think, are entrepreneurs. They are open minded enough to see the upside, without feeling like they are having to pay out too much.

Generally a mistake to work purely on a percentage, because the business owner needs to have some skin in the game.

If you make it a normal and customary part of how YOU do business, than you can do it. It's just a matter of building into your business and making it clear to people that's how you work. If they don't like it they can choose someone else. But then of course, you have all the reasons why you are a better choice anyway to sell them.

You can speculate forever about whether or not it's viable. But the truth is it's been done by quite a few people on a regular basis. You it's definitely possible and lucrative.

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MissTR

12 years ago

Originally Posted by Ken Hoffman

Interesting thread. First the tax thing. You can structure in a way so that it's not considered commission. Even so I've never heard of sales people paying higher taxes than any other self-employed business owner.

Looking at their books? Yes. There are several people I can think of who have that in their contracts, IF they think they are getting shortchanged they can have their accountant look at the books. It's right in the contract.

As far as court? That's not the point of having it in the contract. You only do these deals with people you feel you can trust. The auditing stipulation is just an extra measure of safety to keep them honest. But ultimately, if they are happy and you are helping them making more money than they would have otherwise...they'll pay you and want to keep the relationship going.

It's quite usual for a copywriter to get paid a fee plus percentage of gross sales generated. Same for a sales person. Why not for any other area where your intellectual/creative work is being used to help generate profits for a business?

Typically, you'll have a harder time with small businesses and large companies. The best one's to do percentage deals with I think, are entrepreneurs. They are open minded enough to see the upside, without feeling like they are having to pay out too much.

Generally a mistake to work purely on a percentage, because the business owner needs to have some skin in the game.

If you make it a normal and customary part of how YOU do business, than you can do it. It's just a matter of building into your business and making it clear to people that's how you work. If they don't like it they can choose someone else. But then of course, you have all the reasons why you are a better choice anyway to sell them.

You can speculate forever about whether or not it's viable. But the truth is it's been done by quite a few people on a regular basis. You it's definitely possible and lucrative.

EXCELLENT Reply. (spot on)

Thank you,
-MissTR

P.S.-Wish I had a sample copy
of one of those "contracts"...

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pwk2000

12 years ago

Here is what I did when I thought the business was not paying me my % from my referrals/leads.

I called up each lead, stated who I was and told them I was doing a customer satisfaction survey for my website. Just asked 2 or 3 questions:
1. How did the business treat you? (answered your questions, polite, did you like them)
2. Did you use/buy the service?
3. If you build good rapport, I would ask for dollar specifics. (In my case, I asked how much was the loan for).

This is also good to get feedback for adjusting your landing page or service. If I caught someone on the phone, the vast majority were happy to answer my questions. Otherwise I left a message, I would say 30% called me back.

If you get the sense you the business you are working with is not trying hard to convert your leads, this will give you a kick in the pants to go find someone else to make money with.

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MissTR

12 years ago

Originally Posted by pwk2000

Here is what I did when I thought the business was not paying me my % from my referrals/leads.

I called up each lead, stated who I was and told them I was doing a customer satisfaction survey for my website. Just asked 2 or 3 questions:
1. How did the business treat you? (answered your questions, polite, did you like them)
2. Did you use/buy the service?
3. If you build good rapport, I would ask for dollar specifics. (In my case, I asked how much was the loan for).

This is also good to get feedback for adjusting your landing page or service. If I caught someone on the phone, the vast majority were happy to answer my questions. Otherwise I left a message, I would say 30% called me back.

If you get the sense you the business you are working with is not trying hard to convert your leads, this will give you a kick in the pants to go find someone else to make money with.

Yeah, you're right. I've thought of this.
What I am ultimately trying to do is avoid getting to that point.

Starting by having a solid contract in place.

Thanks for your input.

-MissTR

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badlimey

12 years ago

Originally Posted by MissTR

I have heard so many of these gurus talking about how you can set up an agreement to get a piece of your client's pie. For example, from your lead gen site, ask your client that you are sending the lead to give you a percent of whatever they make off of the sale(s).

That's all fine and good. Makes sense.

The challenge is, how does one actually pull this off?
1- This agreement needs to be in writing, how legally stiff does this paperwork need to be? My guess is, probably going to need to have an attorney review the contract. O.K. fine, but I wish I had a place to start and not from scratch.

2- How do you actually track the fact that they owe you money on a deal? And also know how much they made off the deal?-so you can know how much they owe you?

3- What if they don't pay you? I guess now you will have to sue them and go to court -ouch- but I guess you gotta do what you gotta do,

IS THIS ALL TALK?
Or ..

Is there someone out there who has successfully done this that is willing to share ?

Thanks,
MissTR

Groupon has built a massive and viable (at least for them) business model on lead generation and revenue sharing. In my opinon it is not a cost effective model for the business owner.

If someone asked me for a revenue share based on a service they offered I would immediately ask for a share of theirs.