Forums: Discussions for entrepreneurs and small business.

I have a question about how to go about using profit sharing to help finance my business during the first 2-3 years.

The person I have chosen to develop my ecommerce site said that he would be willing to take 50% of his fee up front with a back-end profit sharing package in exchange for him handling all of the web related work for our ecommerce site.  My first thought is "yipee" because it frees up the rest of my capital for marketing, advertising, and admin costs.  However, how do I develop a package that isn`t too generous but also adquately compensates him for his effort.  Is there a going market % rate that is offered in these cases?  Also, how common is it to negotiate a cap on how much he an earn?

FYI - I am in the online bookselling business if that helps your responses?

Thanks,

D

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http://www.mahoganybookstore.com/blog

The way I would approach it is to establish an "equal" value exchange. Take his 50% (unpaid) and add to that the amount of work /time/effort you expect him to contribute over the next 2-3 years. Add in an appropriate amount of "interest" for having the use of the funds

Next decide how much his risk is worth. That is the risk he is taking by waiting for his compensation.

Then determine from your projections - what percentage of the profits would equal the above.

 

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