Let’s say that you’re a marketing consultant hungry for new business.
A prospective client calls up and says he’d like to hire you right away, that price is not an issue. But there’s a catch. Because he’s got a blockbuster product but no revenue as yet (that’s where you come in), he can’t afford to pay you your standard retainer of $5,000 a month. Instead, he’ll pay you a 10 percent commission on every sale your marketing campaign brings in–even if you end up making $1 million a year.
Should you say yes? If you’re like most consultants, you’d probably turn that job down. After all, it’s an unknown product from a new company with no track record, so why take the risk? And, even if the product does catch fire, how do you know you’ll ever get paid for those sales you worked so hard to make? Better to take your fee upfront than gamble it on what’s behind the curtain or in the box.
Rev-share deals have always been popular among startup businesses with limited capital (and less popular among the consultants and professional service providers who work with them), but now they’ve become a fact of life–especially on the internet. Amazon.com started one of the internet’s first affiliate programs when it started paying other web sites a bounty for steering customers to its site to buy books. YouTube pays users a small fee every time the video they post is viewed. The more people watch, the more money the user stands to make.
At my former internet marketing company, NetCreations, we realized that we needed to do two things to grow our e-mail marketing business: 1. Build a huge database of opt-in e-mail addresses and 2. Rent out as many opt-in e-mail lists as possible to direct marketers. Unfortunately, we didn’t have a war chest of venture capital to buy site traffic, and we didn’t have a lot of cash flow to pay salespeople. So we built our company on the cheap–by joining forces with high-traffic web sites.
Thanks to our network of B2B and B2C publishers, we were able to post our signup forms on more than 500 high-traffic content sites for free and pay the publishers only when we made a sale. On the sales side, we tapped into an existing network of more than 1,000 list brokers, ad agencies and other resellers who sold our lists to the marketers they represented in return for a 20 percent commission. It was a beautiful, risk-free business model, and everybody made lots of money.
Does this mean you should start sharing revenue with your clients and waive your usual fee?
The key is understanding how much upside you stand to gain vs. how much upfront money you’re prepared to lose. For example, a 6 percent commission on a $3 million waterfront mansion would be a nice payday, whereas 6 percent of a $100 product probably would not (unless you helped ring up thousands of sales).
If you do the math and the rev share that your client is offering you doesn’t add up, it’s important to let him know how much he’d have to offer you to make it worth your while. After all, your client can’t make money unless you do.
This entry was posted on Monday, October 12th, 2009 at 10:09 am and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.Leave a Reply
