

Ask HN: Advice or Resources on Revenue Sharing? - cluelesshacker

Although I've participated on HN for about 2 years, I'm posting under an anonymous account for this question.  I run a web application that started I wrote and started promoting in 2001.  We are currently profitable, growing and making a nice living.  No VC money, all growth funded from profits.  It now me, 6 tech support people and a couple of other people.<p>Our service has caught the attention of a fairly large media company in our vertical.  They are wanting to partner with us in a revenue share deal.  There plan is to re-skin our application and make sign-ups and logins available from their portal.  They want us to handle all the back-end stuff, customer support, etc.  Basically - they want revenue share for referrals.  They <i>do</i> have the potential to pump a lot of targeted referrals our way.<p>Are there any resources or places where I could get some ideas for how to structure a fair revenue share arrangement?  I had a phone call with the CEO and they started off by asking if we'd share "50/50" which I flatly said no to.  I friend of mine suggested something more in the 20-30% range (for their share).<p>I, frankly, don't know what to do.  I'm a half-decent programmer who is pretty decent at marketing, but "deal making" is out of my element.  I don't want to pass up a good opportunity but I also don't want to get screwed.<p>I've asked them to provide me with numbers of how many subscribers they have on all of their web properties, email newsletters and print publications, and to outline for me how they plan to promote the co-branded service and how often they will promote it.  That should give me a better idea of the potential, and, frankly, bought me some time to stall since I don't really know.<p>Any feedback, help, or pointers toward resources would be greatly appreciated.
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ScottWhigham
The bigger the gap between you and the partner (in terms of revenue/size), the
less likely anything positive will come to you in my experience. I wouldn't
waste a bunch of time on this if I were you _unless_ you have the time to
waste and you understand the risk. It's fine to devote 'x' hours to getting
the deal done but just understand that even if you get the deal done it
probably won't amount to much for you.

That being said, I would be very hesitant in signing any exclusive contracts
or anything that would prevent you from operating or doing what you want. If
you aren't a deal maker, then you probably aren't going to be able/willing to
put in big performance incentives. If there aren't valuable performance
incentives for both parties, then I wouldn't sweat it.

My approach to things like this is to work out in my mind what I want, explain
my case to the partner and explain that why this is win-win (and it had better
be), and then to just politely decline all of the "Can we change this?" and
"What if we added that?"

I spent large parts of 2008 and 2009 doing this kind of stuff and nothing of
quality ever came out of it. I'm probably the end of the spectrum that would
be "once bitten, twice shy".

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ScottWhigham
Saw this today and thought of this post: <http://i.imgur.com/3oLHi.jpg>

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Scott_MacGregor
Fairly large media company + phone call from their CEO will = legal contract
from their legal department = their attorney will be involved in the deal.

Since "deal making" is out of your element, you might want to talk to an
attorney who can help you with the deal process from open to close. I would
imagine we probably have a few attorneys who read this forum that can help you
out. You will probably need to come up with the numbers on your own though,
that is a business decision.

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notauser
I have had a lot of experience in white label work from both the technical and
commercial side. If you want a call to pick my brains about specifics you
would be most welcome - email richard at the domain in my profile.

If you can get cash up front. I can't stress how important that is.

A common commercial model I'm used to is a per-user fee plus a percentage.
Because that massively reduces your risk you can (and should) agree to a
smaller percentage.

No one ever wants 'just a re-skin'. It NEVER happens. Think hard about how
many people you can afford to have sucked into the project.

Be aware that you can't fully agree the scope up front. Make sure you lock
down the agreed change process. Identify who is going to pay for changes.

What happens if it's a success? Who pays for scaling? What changes would be on
the table for phase 2? Are you trying to hand over maintenance, get bought,
start up a white label business team to service this customer?

What happens if it's a failure? Who makes the decision to terminate the
project? Who covers the cost of shut down?

You are clearly in a strong position here - it's an opportunity not a critical
deal - so don't feel pressured to sign the wrong contract fast! And
congratulations :-)

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answerly
If you have an average cost of acquisition through other paid media channels
then that may be a good starting point.

One good exercise is to try and determine the current value of the partner's
inventory (emails, placement in publications, etc) that will be used to
promote the co-brand. Your goal should be to structure the deal in such a way
that you can meet or exceed the current value of that inventory for the
partner and still be economically viable for you.

Also, you may want to think about developing a tiered structure that gives
monetary incentive to the partner if they deliver higher volumes of
leads/sales.

Hope this is helpful.

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credo
One point to consider is whether this will be a one-off deal or whether this
will be a good business model for your company.

If you think that you'd like to work on getting more white label deals, I
think that it will be worth it for you to spend a lot of times/resources on
implementing this white-label deal. OTH if this is not going to be an
important biusiness model for you, you may want to make sure you don't expend
too much energy on a one-off deal.

