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JMasterJ
12-03-2010, 02:09 AM
Hi all... question here for any of you who are experienced in sales and marketing in the internet world, based on commissions.

I need to know the age old question of "What is a Fair Commission Rate" for the marketing specialist? Here are the components, and maybe one or more of you can either point me the right way or give me some numbers to work with. I understand there are a plethora of factors, so I am not looking for a definitive answer unless you can give me all the details behind it. Also if you can, please let me know your experience/expertise in the answer and field or please state it is just "what you would do." Thanks!

1. The business is a startup with zero presence right now, and will go live in January.
2. Products are health and diet related
3. Products can be sold as small as one little bottle or a boxed year's supply or more
4. Initial cost of product (includes shipping, labeling, etc.) starts at about $12 and up
5. Sale price will start at about $20+ and up, so we are looking at about a 100% markup
6. Estimated monthly sales target is about $25k/mo which may happen by early next year or mid summer
7. Marketing will be done on all fronts, from internet, social, and print/ads/hard materials
8. My (M) responsibilities will be building the web site (for which labor was paid up front), setting up the shop cart, link to merchant acct, maintaining back end, and all internet and web related promos and marketing, including FB, Twitter, articles, etc, and designing hard marketing material to send to the printers
9. The other two involved are the owner/President (P) who is fully funding (and paying us) and running the op.... the other is a partner (X) who will overlap the owner's duties, which include checking/taking/shipping orders daily, distributing hard marketing materials as well as writing some content, and any other remedial job that needs to be done that doesnt involved marketing on my end
10. My commission will be based on TOTAL net profits, which includes sales from other sources, internet or not. However we are not using phone orders right now so all orders will be going through the web site

So in order to start somewhere, I will put out some numbers, keeping in mind that I am not a sales commission expert, and these numbers may be way off, but it is something to guide you in what kind of info I need:

Commission breakdown (of total net sales profit):
P: 50%
M: 30%
X: 20%

I would also like to see if I can add a clause for a gradated percentage increase after certain milestones have been reached (I have heard many people use this), i.e.,

"At the time when the total gross sales amount since the inception of the program equals $50k, my commission rate will increase to 35%, and after the $200k mark has been reached, it will increase to 40%. This contract will hold at that position until both parties mutually agree to dissolve this business relationship."

I think thats about it, LOL... sorry for the length, but I rather have this than having people go back and forth asking for more details... I hope I have included enough info. Thanks!

vangogh
12-06-2010, 12:28 PM
Sorry no one's answered your question yet. We actually have another thread going on a similar topic that you might find interesting.

How much would you pay or do you expect for referral fees? (http://www.small-business-forum.net/managing-your-business/3959-how-much-would-you-pay-do-you-expect-referral-fees.html)

I think it deals with some of your concerns.

To me this is one of those questions with an "it depends" answer. Typically commissions offline range in the 10 to 15 percent range. However online and given that you're including web design as part of the marketing I think that range would be considerably higher. I assume you'd be managing the site ongoing as well.

Is this really a partnership? That's kind of what it sounds like you're describing in which case I'm not sure you can come up with an accurate percentage based on commission, but rather have to come up with one all three of you think fair based on each of your contributions to the company. If what you're talking about is more an affiliate commission for others then I say it depends on how much you can afford to give while still maintaing a reasonable profit as well as what the competition pays affiliates for similar products.

Again this is sounding more like a partnership thing. What I would suggest is all three of you figuring out all the different components of making the business a success and who will be responsible for each. Based on that figure out what's fair for each of your contributions. I don't think there's a single right answer other than doing the best to keep everyone happy. If any of you is doing a greater percentage of the work than the amount of money you make back that person is going to resent the other people in the company most likely. Spelling out all the different tasks and who's responsible for each should help alleviate that.

Hope that helps.

JMasterJ
12-06-2010, 04:58 PM
How much would you pay or do you expect for referral fees? (http://www.small-business-forum.net/managing-your-business/3959-how-much-would-you-pay-do-you-expect-referral-fees.html)

I think it deals with some of your concerns.

To me this is one of those questions with an "it depends" answer. Typically commissions offline range in the 10 to 15 percent range. However online and given that you're including web design as part of the marketing I think that range would be considerably higher. I assume you'd be managing the site ongoing as well.

Is this really a partnership? That's kind of what it sounds like you're describing in which case I'm not sure you can come up with an accurate percentage based on commission, but rather have to come up with one all three of you think fair based on each of your contributions to the company. If what you're talking about is more an affiliate commission for others then I say it depends on how much you can afford to give while still maintaing a reasonable profit as well as what the competition pays affiliates for similar products.

Again this is sounding more like a partnership thing. What I would suggest is all three of you figuring out all the different components of making the business a success and who will be responsible for each. Based on that figure out what's fair for each of your contributions. I don't think there's a single right answer other than doing the best to keep everyone happy. If any of you is doing a greater percentage of the work than the amount of money you make back that person is going to resent the other people in the company most likely. Spelling out all the different tasks and who's responsible for each should help alleviate that.

Hi.. yes that referral thing is not relevant to out business because we are mainly 3 people doing the WHOLE business. I am not some outside consultant that will send some marketing her way and then taking off. So yes, I do look at it as more of a partnership than anything.

I guess the problem with that is, the owner is pretty generous but the other person usually overvalues his contributions and undervalues others, so thats always a big issue. Honestly, in this project, I have the responsibility of the highest skill level job, the owner is paying out of his own pocket for everything, and the third person is pretty much like an "assistant" who does whatever needs to be done, if I were to be 100% honest. Here is a breakdown:

Owner:
- Funding (buying the stock, paying for ALL expenses, 100% concerning the business)
- Writing up some marketing material for ads/content online and print/mail
- Handling bank and merchant accounts financial end
- Some shipping and orders

Other person:
- Researching some content, maybe writing some, but I would have to edit them
- Taking orders, shipping, and handling customer service, which in all honesty, should be almost nil for this type of merchandise.
- Possibly being in an office for regular office hours (which is actually pretty useless but he values "financial security" so that means he needs a steady income)

Me:
- Web design, 100%
- Shopping cart set up and management and training to others to use, 100%
- SEO for web, 100% of implementation, some writing, some editing
- Graphic/print design for logo and all marketing materials to send to printers, 100% except for some written content, given to me mostly by the owner

This is kind of the outline... as you can see, the problem really is the other person, where he doesnt really have any skillset except in general sales, and the biggest value to him is to be in an office 9-5, M-F, and get paid a salary. I am not the owner and the other person is a friend of mine for years, so I have to tread carefully, but you see the dilemma for this part of the business. I know about friends and biz, but I also know about biz is biz, so....

Thanks for your time!

Blessed
12-06-2010, 11:27 PM
This is a tough one to figure - I don't really have an answer, but just another question/point to make -

You say that your commission will be on net profits - how is the net profit being figured? What expenses are being paid to figure out what the profit is to determine what you get paid? One reason typical offline commissions are 10-20 percent is because they are based on gross sales, rather than net profit. To the owner, your commission is an expense so their actual net profits are only seen after you are paid.

i.e. - bottle of fix-it oil sells for $20.
Expenses are:
Cost of the oil - $10 (includes price of having the oil shipped to your warehouse from the manufacturer)

Cost to advertise that bottle of oil - ?
- This includes the web design, the printing, the graphic design of the artwork, the SEO work, etc...

Cost to sell that bottle of oil - ?
- This will include the guy sitting in the office to answer the phone, any merchant fee's because the customer paid with a credit card, etc...

I almost think you would be better off to go for a smaller percentage and to base your commission off of gross sales - I think it will be more fair to you and will be easier to figure for the owner. By basing your commission on net profits you are making it easy for you to get the short end of the stick.

As for the other question about an increase in commission after certain milestones - that sounds good to me, just get it written into the contract!

JMasterJ
12-07-2010, 03:16 AM
You say that your commission will be on net profits - how is the net profit being figured? What expenses are being paid to figure out what the profit is to determine what you get paid? One reason typical offline commissions are 10-20 percent is because they are based on gross sales, rather than net profit. To the owner, your commission is an expense so their actual net profits are only seen after you are paid.

i.e. - bottle of fix-it oil sells for $20.
Expenses are:
Cost of the oil - $10 (includes price of having the oil shipped to your warehouse from the manufacturer)

Cost to advertise that bottle of oil - ?
- This includes the web design, the printing, the graphic design of the artwork, the SEO work, etc...

Cost to sell that bottle of oil - ?
- This will include the guy sitting in the office to answer the phone, any merchant fee's because the customer paid with a credit card, etc...

I almost think you would be better off to go for a smaller percentage and to base your commission off of gross sales - I think it will be more fair to you and will be easier to figure for the owner. By basing your commission on net profits you are making it easy for you to get the short end of the stick.

As for the other question about an increase in commission after certain milestones - that sounds good to me, just get it written into the contract!

Hi, and thank you! Those are some awesome points yes.... well, let me give u some more details then... approximate facts:

Bottle of oil "cost" = $10 (already includes cost of shipping, labeling, packaging, etc...)
Target Retail (can be flexible, my call) = $20 (talking about an avg of 100% net return)

Now as far as net profits, that is taking it all expenses into account BUT the 3 person labor cuts.

Now, the reason your gross % makes some sense is that as we all know, in web marketing, there are hard dollar expenses, like for google ads, shopping cart software, etc... but as of now, I can say with about 90% certainty that the owner will pay all these extra expenses, ie., I am not expected to pay for anything but my time working. Does that make sense? And if I do, that will be solely because I want to for some crazy reason, who knows.

The owner is very flexible and is very favorable towards making us happy, but it seemed like she was set on paying out of net profits.

So in this case, as someone proposed more of a "partnership" I think the breakdown of commission should be, according to workload and skillset of what we are bringing into the company for the purpose of actual SALES and profits:

Me: 40%
Owner: 35%
Other person: 25%

But out of respect for the owner, I may propose a

Me: 35%
Owner: 35%
Other person: 30%

Again the problem is that other person, because he needs somewhat of a full time salary, and as a startup, I dont think he will be able to live on 30% of this for a long while so... unless the owner can somehow guarantee the 25k in sales in the first full month live, this will be tough. Th other crappy part is that the other person will want to basically be "available" and "working" like 9-5, so will want to be compensated for that, even though I know for a he will not be needed for 40 hours a week on this job until the company increases in sales to over 25k/month.

So yes, not only does this have to do with numbers, it has to do with feelings. OUCH right? Makes me wonder if I should be totally honest with the owner about this and just tell her all this. I dont NEED this project to survive, so what do I have to lose right? Better than making half of what I should be making... tough choices. Help!

jamesray50
12-07-2010, 05:11 AM
I wouldn't work for commissions on net profits. What if you don't have any net profits? What if you have net losses? Then you don't have any commissions. Thats why commissions are paid on gross sales. The commissions will be an expense to the company.

Blessed
12-07-2010, 10:54 AM
...Again the problem is that other person, because he needs somewhat of a full time salary, and as a startup, I dont think he will be able to live on 30% of this for a long while so... unless the owner can somehow guarantee the 25k in sales in the first full month live, this will be tough. Th other crappy part is that the other person will want to basically be "available" and "working" like 9-5, so will want to be compensated for that, even though I know for a he will not be needed for 40 hours a week on this job until the company increases in sales to over 25k/month.

So yes, not only does this have to do with numbers, it has to do with feelings. OUCH right? Makes me wonder if I should be totally honest with the owner about this and just tell her all this. I dont NEED this project to survive, so what do I have to lose right? Better than making half of what I should be making... tough choices. Help!

I think you nailed it right here - you do need to be completely honest and up-front with the owner and let her know all of this. Then if you do work on this project - do it as a commission only sales person instead of a partner - with your commission figured traditionally on gross sales rather than coming into the 3-way partnership. You've indicated before that there is some friendship between the three of you too - it seems like you are setting yourselves up for hurt feelings, frustrations and a miserable 2011. Be completely honest with the owner - bring out all these points to her and you can probably make it work and will definitely get off on a better start!

vangogh
12-07-2010, 11:52 AM
Sorry the link I posted didn't quite help. I posted it before I really read through your post and understood your situation.

Yes I can see your dilemma. Based on what you're saying it sounds like there is currently one owner and 2 employees (you and your friend). It sounds like your friend would be happy and even prefer to be an employee with a base salary and perhaps additional commission based on sales. However it sounds like you would prefer to be a partner in the business and do seem to be taking on a large amount of the work. Is it possible you could work something out based on the above?

Is it possible the current owner would agree to a partnership? Assuming he is maybe you then take a larger share of the company while your friend takes a much smaller share along with a salary. The owner could still retain the majority of the company and have the controlling interest. You would get the majority of what's left and your friend gets a smaller share because he opts for the salary.

I think that while this is a dilemma for you the only solution is going to be to talk out all your thoughts and concerns with both the owner and your friend. It really sounds like a partnership of some kind is the fairest and that's something you're all going to have to talk about to make work. If you do want to keep this as a commission on sales then I don't know that there needs to be different rates of commission. You would more likely make more sales and you would probably want to be the one to get all commissions on sales coming through the site. Your share would come more from the greater number of sales made through the site than a bigger commission.

Also assuming you talk this through with friend and owner you have to think a lot about which is more important to you, this business opportunity or your friendship. It's not that you have to give up one for the other. It's more than you'll likely make some compromises with one for more from the other. You do run the risk of hurting your friendship, though that would depend on each of you and the strength of your friendship in general. You also run the risk of feeling resentment toward your friend if you give up too much of the business.

There isn't an easy answer for you. I think you do have to decide what you really want and then talk to owner and friend and do your best to work something out.

JMasterJ
12-07-2010, 01:52 PM
I wouldn't work for commissions on net profits. What if you don't have any net profits? What if you have net losses? Then you don't have any commissions. Thats why commissions are paid on gross sales. The commissions will be an expense to the company.

I understand what you are saying but I guess I prefer the big picture for the future where I am confident we will make this work, but since this isnt a primary or even secondary source of income for me, I dont value needing to make a lot on this even if I spend some time on it. It seems she is thinking of this more as a partnership than using me as a simple associate. Then I am thinking it is easier to divi up the percentages between the 3 people's roles and responsibilities.

JMasterJ
12-07-2010, 02:21 PM
Thanks guys! Well I have a vague idea of what to do, but before that I have some critical questions points and hopefully this will clear things up for me:

1. In my situation, how much value does the owner really have? Ie, an owner who puts in all the money for all expenses, but lets say, does VERY little on day to day?

2. How much difference is there between having a share in the company or going on commissions alone in an indefinite term contract? The company is just starting and I thought u can only talk about shares after a company goes public.

3. As far as friends being offended, the only problem would be that other guy, who gets a bit defensive because he knows he is very one-dimensional, pure phone sales in B2B (which this is not) and shipping, something we can hire a college kid at $7/hr to do. So if he gets a hint of our downplaying his role, I just know he will come back with this "Well who will be in the office all day (we dont need u in the office all day).... who will be taking all the calls (there will be hardly any calls for the first year probably)... who will be shipping out every products (I bet he wouldnt even want to do this when he finds out that he is not sending 7 shipments of 500 pieces at a time, but more like 70 orders of 1 qty each... I see him actually wanting to hire someone to for that for him honestly)..... and then he will probably downplay my role in saying can you guarantee sales results? Are you going to be in the office all day, M-F? Are you going to be shipping any product out? Are you taking any phone calls? --- I think u get the gist here... and yes, does it seem like I have been through this with him before? LOL, ya, this is not really speculation, but about a 90% certainty, unless the owner steps in, and then ya, feelings probably will be hurt. He will do everything he can to exaggerate the importance of a full time office person and how he will be the only person doing it. He would think that u set a web site up and people will just come to it from the never never land. But we have had some tiffs in the past and we get past it so.... whatever.

Bottom line, to make it simple without too many variables, I would like to propose the 40/35/25% of net sales (me/owner/other) cut I stated above with an additional statement that if the owner is actually shipping out product himself as well, then we can go a 40/40/20, but there is no way the other would go for that without any salary so... I guess thats a decision for the owner then right? In a startup I personally dont think it is right to give anyone a salary (and keeping someone in an office 40 hrs a week while they only have about actual 10 hrs of work per week.. oh wait, thats like most office jobs right? ;p ) before we have revenue coming in. Where will the money come from to pay a salary? I rather just ship all the stuff out myself and leave the other out of the picture, but I dont want to present myself as so cut throat and backstabbing... sometimes my character and integrity mean more than making a few extra dollars.

You guys are awesome btw, I appreciate this!

Blessed
12-07-2010, 04:52 PM
1. In my situation, how much value does the owner really have? Ie, an owner who puts in all the money for all expenses, but lets say, does VERY little on day to day?

Well... in order to compare apples to apples you have to look at how much cash the owner is investing vs. what cash value the web design/marketing/sales and etc... that you do has. Figure out what you would charge someone who cold called you for the same work.

For example:
Month one:
the owner invests $5000 in merchandise, domain fee's, telephone service, advertising spots, etc...
you invest your time and expertise in building a website, creating marketing materials and shipping out orders - you need to break down the value of each thing you are doing to figure out how much you are contributing.
Website: $2000, Marketing materials: $750, Customer Service work - 7 hours a week at $20/hour, Shipping product - 3 hours a week at $7/hour (figure 4 weeks) - for the first month your total investment is roughly $3400.

Month two:
Owner invests $3500 in product and monthly maintenance fees for credit card processing, advertising spots, etc...
You - invest $500 in website maintenance, another $250 in marketing materials and you spend 10 hours a week doing CSR work at $20/hour and 5 hours a week shipping product at $7/hour - bringing your monthly investment to $1690.

Month three:
Owner invests $3500 again
You invest $500 in website maintenance, $250 in marketing materials and 15 hours a week in CSR work and 10 hours a week shipping - your monthly investment is now up to $2230.

in the first three months of business the owner has invested $12000 cash dollars and you have invested just over $7300 in cash value through your services and work. So... both of you are vital to the success of the business - because without the cash investment all of your work would have no value and at the same time without your work the cash investment would just be sitting there doing nothing. But to figure it on a percent split you are looking at Owner 63% and You 37% - roughly a 60/40 split.

Of course to make things more complicated you have that third party in there too.

As for your 2nd question - I don't know you'd better hope one of the financial/attorney types around here chime in on that

And for #3 - if one of you draws a salary then all 3 of you should draw a salary in a fair 3-way partnership. Or... it becomes a 2-way partnership between you and the owner and the third party is an employee and his salary is deducted before you figure your percentage of net profits. Or... there is one owner and you and the 3rd party both are employee's. There doesn't seem to be any fair way to pay one person a salary and not the other two if this is supposed to be some sort of three-way partnership.

Just thinking out loud here - hope it helps!

vangogh
12-08-2010, 11:52 AM
I'll pretty much echo everything Jenn said.

1. Find some way to place a value on everyone's contribution that can be compared. Converting time and effort into a monetary value like Jenn showed is a good way. You can also consider whether or not the company would or could exist without the contribution of one of the people involved. If all the equipment, marketing, etc the owner is currently going to be purchasing is absolutely necessary to get the company going then maybe it's worth a little more than just the absolute dollar value.

2. You're thinking shares as in public stock. I think the issue here isn't about shares in that sense, but rather what percentage of the company each person owns.

3. The way you describe your friend he's not someone I would ever want to work with and definitely not someone I would want to go into business with. To be honest that's the feeling I get from you as well reading through your posts here. Sounds like you think he's really not going to be an asset to this business and his inclusion has much more to do with the personal friendship than it does with anything he will or can contribute to the business. That to me is a warning sign. If you feel you do need to include him I might give him a salary and no percent of the company. If you want to offer commission on sales that would be ok, but I think I'd steer clear of having him become a partner in this business. The feeling I get is that before long you'd want him out of the business and that will be much easier if he doesn't own part of the company.

I don't envy your conversations with him, since they probably won't be easy or go smoothly.

JMasterJ
12-08-2010, 04:19 PM
Hey guys... thanks, that dollar value system really is nice, puts a lot of uncertainty out the window and also I can show the owner some actual facts and figures so he should appreciate that. One question in all that value...

1 - I am approximating my hours spent per week on marketing right... I mean, I can say 10 hrs, but then do 20 or 3... a little trust factor there? Hard to prove when u work from home
2 - What about the value of my current personal equipment? I.e., high end PC, all Adobe software, marketing software/memberships, etc? Or is that included in my hourly wage value always?

And ya that other third person is a problem, and he has kinda been MIA too, and I think the owner is kinda feeling the drag there, I can hear it in his voice, and I am not man enough to bring up the possibility of u know.... Frankly, I rather ship the crap myself and do it all, and hire someone under me for pennies to do the remedial time consuming work. If u didnt feel it from my writing, I much rather be the boss and running everything than following incompetent people (me = AAAAAAAAAAAAA.... LOL)... luckily the owner seems to be willing to entrust 100% of the marketing to me, online and offline and values my opinion about the direction of the business. Thats nice.

Blessed
12-08-2010, 04:51 PM
In this case I think that the value of your personal equipment is part of your hourly rate - not something that is independent of that. Also - that personal equipment is part of your independent responsibility - you pay to upgrade your software, you buy your new PC, you get it fixed when it break's, you renew the membership's. Otherwise - the investor owner needs to buy you a set of equipment, software and membership's that are solely for the use of the business.

I work for myself from home as a Graphic Designer, part time (because I have two kids a 3 year old and an 18 month old! no way to work full-time) in my work I do some marketing research and CSR type stuff for a couple of customers - that work is paid hourly and it is a trust factor - I would say it's fine to estimate but try to stay close to what you are estimating - so if you say 10 hours a week, make sure that in the course of a month you are close to 40 hours of marketing work for the month - I'd say try to be at least at 35 hours and not over 45. I estimate everything. Prior to the whole hard drive crashing thing last week I had a time keeper program that I ran more for my benefit than for anything else - I tend to give flat rate quotes on jobs and if I flat rate you a price for a postcard, I'm basing that flat rate on my hourly rate - I want to be sure that I'm guessing right on how long things take me - both to be fair to the client and to make sure I'm getting paid for the amount of effort I'm putting in.

vangogh
12-09-2010, 10:55 AM
a little trust factor there? Hard to prove when u work from home

If you're going to be in business together you have to trust each other. If you're reporting 20 hours and only worked 2 it should become obvious you're not getting any work done. On the other hand if you report 20 hours and work 18 or 22 it's unlikely any one would notice.


What about the value of my current personal equipment? I.e., high end PC, all Adobe software, marketing software/memberships, etc? Or is that included in my hourly wage value always?

I take it these are things you bought for yourself. If you start valuing them as part of the business and using them to gain a greater share of the business, keep in mind that the business may then decide it will now do whatever it wants with your equipment and that decision may not be yours personally. You may not want to include some personal equipment as part of the business. I'm not saying you can't, but know if you do you're putting some personal things at risk. The risk may be worth it, but I wanted to make sure you'd thought of that aspect.

If you're friend is MIA you might not need to do anything about the situation. The owner is going to realize what his value to the business really is. Sounds like he's already starting to realize it. Your friend may also have decided this business isn't for him. It's possible your problem in working things out with him in the mix may go away without you having to do anything.

JMasterJ
12-09-2010, 02:26 PM
Ya, I was just throwing that personal equipment stuff out there, but I agree that should be out of the picture...

Kind of a big development... I just talked with the other person and he tells me that the real problem here is that this whole biz was initially HIS idea, and the owner took the idea and running with it now as if he didnt even exist, like he is just an employee or outside consultant, and that if he doesnt like the owner's way, maybe he should do something else, LOL... dont u love how some people do biz? So the other has done some work so far, research for content, freebies to offer on web, and some other ideas, but now the owner thinks those things are insignificant bec he already provided me with a ton of content through hours of work... also now the owner seems to want to have everything shipped to his place and he will do all the shipping (or pay some kid min wage to do it) instead of having the other do it...

So the problem here is that the other had the idea, has some vision and desire, but doesnt really have the skills, funds, or the forward thinking enough to make it happen, so now his "friend" the owner is taking over, and u see where this is leading... they didnt sign a nondisclosure agreement (which they should have) and now there seems to be some animosity growing. I understand this is a sticky situation for me to deal with, but its a good op and the owner is so flexible and nice to me that I feel like this can be a big project for me to blow up my expertise on ecommerce + SEO, etc... and gain a nice little income while playing golf during the day plus all my other freelance/consulting jobs.

Sorry this has turned more into a soap opera, but then again thats life isnt it? Anyways, knowing this, I would appreciate any more input on the commissions, LOL, altho I know this additional info is a whole another thing, but I still need to come up with some percentage to propose to her... I am planning on doing this right after she approves of the initial mockup of the site so I have a little more leverage and work has already been done.

Blessed
12-09-2010, 03:42 PM
Aha - and so the drama continues :)

Personally, I can see why you would still want to do the work and I think that is fine - but I would definitely keep it on a consultant/client basis and not form any type of partnership. That's just a gut feeling reaction - so do with it what you will. I think if you consider everything else we've mentioned that nothing has really changed as far as your position goes - figure what you want to earn from all of this, what percentage you feel would be fair and then let the other two individuals form or not form their partnership and dither over what is left.

vangogh
12-09-2010, 06:26 PM
Don't apologize for the drama. It's interesting to hear and it'll be interesting to find out how it all plays out. Hopefully with you getting what you want.

The other had the idea, but ideas are usually worthless. It's only what you do with the idea that gives it value. Otherwise most every science fiction writer from the previous generation would own all the technology that exists today. Hopefully this all gets worked out.

JMasterJ
12-11-2010, 04:02 AM
Ya, I am going to go with the amount of monetary value each party submits every month and then adjust with some other intangibles there. I'll post it when I do it and then let u know what happens. Frankly, I dont value "job security" or constant income flow, so I will be more partial towards a bigger cut of the net profits, and if it doesnt work, whatever, I still have a lot of other thins going on... this would just be a bonus, kinda like a lottery ticket with better odds, haha.

JMasterJ
12-11-2010, 05:07 AM
This is what I sent:

All figures below are based on the average hourly rate for the following expertise:

Web/graphic Design: $50/hr
(my standard rate for all computer related work)

Online/Offline Marketing: $40/hr

Taking orders, executing & shipping: $9/hr

Retail Customer Service: $12/hr
(Should really not need this as much until we get high volume)
__________________________________________________ ____________
(All figures are approximations)
__________________________________________________ ____________

Me:

Weekly Hours Maintaining and Improving the Web site: 10
Weekly Hours Marketing (total): 15
__________________________________________________ _____
Total Value Per Week: (10x$50)+(15x$40) = $1100
Total Value First 3 Months: $3,300
__________________________________________________ ____________
__________________________________________________ ____________

Owner:

Investment in product purchases for first 3 months: $10,000
Marketing Cost $500/mo ($1,500 for 3 mo)
Orders/Shipping? (Approx 5 hrs/wk if shared with other) $45/wk ($540 for 3 mo)
__________________________________________________ _____
Total Value First 3 Months: $12,040
__________________________________________________ ____________
__________________________________________________ ____________

Other:

Orders/Shipping (Approx 10 hrs/wk if shared with you) $90/wk ($1,080 for 3 mo)
Customer Service (Approx 2 hrs/day, 10hrs/wk) $180/wk ($1,440 for 3 mo)
(Not sure how much we will need of this honestly to start, but include anyway)
__________________________________________________ _____
Total Value First 3 Months: $2,520
__________________________________________________ ____________
__________________________________________________ ____________

So as far as monetary contributions and corresponding %:

Me: 3300 18.5%
Owner: 12040 67.5%
Other: 2520 14%

Now as you have mentioned, since every order goes through the web site one way or another and depends on its stability and functionality, I would add a 25% factor for that to my end, which results in:

Me: 3300 23%
Owner: 12040 64%
Other: 2520 13%

Now since we will calculate the commissions from net profits only, not gross (which is what was assumed so far), Other and I get added a 25% factor:

Me: 3300 29%
Owner: 12040 48%
Other: 2520 23%

Finally, this is not that significant but since we are doing all the numbers, might as well... we make a slight adjustment for my training you or Othern on using the shopping cart, any tech support questions, and basically being your IT guy and not just the company's "web designer." (i.e., web designers are not necessarily trainers or computer techs, its just an added bonus) We will add a factor of 10% to my percentage:

Me: 3300 32%
Owner: 12040 46%
Other: 2520 22%

[ These are the final percentages off net profits for everyone ]
__________________________________________________ ____________

It seems I like math still a little too much... anyway, these numbers are very similar to what I actually had i mind, which was like 35% 45%, 20%. So I have no idea if these were close to what you were thinking, but the only other adjustments I can think of are:

- If we are just getting a straight profit commission and that is it, or do we have a share and say in the company and its direction, etc....
- Will we actually need, or can we afford to have someone sit in an office 40 hours a week to answer about 2 phone calls a day, or can we just do with the voicemail as you stated with email and intermittent chat support. If it is email and chat, are you and Other handling 100% of that among yourselves?
- Buying more or less product per month will change this, but I would assume we are making good business if you are buying more, so you wont mind keeping the same % at that point in the future?

And finally, negating any other mitigating factors, I would like to add on if I may, an adjustment in % (mine anyway, your decision if Other as well) after certain gross sales milestones, i.e.:

After $100,000 gross sales: 40%
After $300,000 gross sales: 45%
After $700,000 gross sales: 50%

This seems to be a favorite among people who want to succeed and expect success instead of earning a steady paycheck.

So sorry this wasnt a simple and concise little thing I was expecting to send you, but I just got on a roll so I hope you dont mind. Let me know your thoughts and then we can get something in writing by January when I am back and start full blast.

Thanks!
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EOM

Blessed
12-11-2010, 04:58 PM
Looks decent - it will be interesting to hear their response!

vangogh
12-12-2010, 10:45 PM
It's interesting you came up with numbers similar to what you were thinking. Either you have good instincts or perhaps you skewed the math a bit so it worked out to where you wanted. Regardless the numbers do sound reasonable. They have to me since you first mentioned them.

I'll be interested as well in how this all works out for you and hope you'll share the story.

JMasterJ
12-12-2010, 11:49 PM
Ha, no, I am not so pretentious and full of an inferiority complex I need to fudge things to make myself look better or anything like that... I just thought of everything I could to sway the number as much as I could, and at that point, I could not think of anything else that I could profit off of without seeming like I am being too arrogant or greedy. Believe me I would add more if I think I could and it be validated.

They are looking it over and probably wont have anything until January they said. Obviously they dont know as well or else they should have just come back the next day and said sure, its fine, or whatever other proposal/counteroffer... I just hope they dont decide to cut my share by like a half after I do all the work to set up the ecommerce site... I would be pretty upset then... but he seemed to emphasize he wants me to make money and be happy so... we'll see what his words are really worth when the crap really hits the fan.

vangogh
12-13-2010, 11:12 AM
Funny. I didn't mean it that way. More that we all subconsciously do things like that. I actually figured this was more your instincts being pretty good and while you hadn't really run these numbers like you just did, you kind of had been running them for awhile now.

So how patient are you? Will January get here soon enough for you?

JMasterJ
12-13-2010, 01:17 PM
Well I am very analytical and I am a big numbers guy (as u could prob tell already) so it prob wasnt too random, but it was a pleasant surprise because I am not the most experienced by the book business person... I always did my own thing and tried to do the right thing.

Ah its ok, I am going away for 2 weeks far far away, LOL, wont be thinking much about this at all... thats the only reason they will take that long I presume.