Tricky situation re: pay / commision, your thoughts?

[RustyCage]

Hi,

I currently run as a one-man-band multimedia designer, and things are going nicely. Over the past few months I've been speaking with an old colleague, who is also self-employeed, about "combining" our skills and services. This will basically enable me to offer a far broader array of services through my business. We will both stay self-employeed and separate entities, and I will pay him as a contractor (hourly rate) for all the work he does on my projects.

This is where it get's tricky though - say there's a project where the vast amount of work is done by him, and very little by me, I can't really see where the benefit is for me. The service will be charged to the client at my collegaues hourly rate, which he would obviously expect to receive. However, the job would have been obtained through my business, my contacts, my network etc., and I'll be acting as the project manager doing all the client side liasing and legwork. Obviously, I need to make this situation worthwhile for myself and my business as a whole. What's the done thing here?! Do I...

a) Charge my colleague a percentage commission on his hours worked on my projects?
b) Charge the client a set percentage on top of the hourly rate, and take that percentage?
c) Something else which I haven't yet thought of?!

Apologies if I sound a bit brash and self-centered here, however as fellow businessmen I hope you can appreciate my concerns. On the face of it, I'm really excited by the prospect of this "partnership" as we compliment each other in terms of personaliy and skills, however I have to make sure it's right for me.

Any thoughts would be really appreciated :)
Thanks,
RustyCage

[creospace]

I have a similar instance although the other person has taught me a lot of his technical skills so that most things we could both handle.

I saw a company being formed and we both work as partners / directors. On the other hand we have differnt skill sets all of which are needed to make the company work at the end of the day.

Gary

[gapgb]

I would work out a inter business rate between you and your colleague that you are both happy to work for and then charge your normal rates to the customer. If you charge above your normal rate then you are going to be less competitive and make it harder for the partnership to work. You should both be prepared to work for a lower rate because for the work that each other brings to the party, you are picking it up free ,so there's no cost of sales involved.

If you have no involvement at all and are just passing him a job then agree a finders fee that you are both happy to add into the price.

[clairemackaness]

Why not talk to Tom (macmyday) at Coding Monkeys as I beleive he works by subcontracting out to offer a larger service.

[RustyCage]

Thanks for the quick replies!!!

Gary - The idea of going into a proper business partnership is very much something for the future but neither of us are prepared to take that leap yet... we want to give this system a go first to see how it fares, then we'll have a better idea whether or not becomming proper partnes would work.

Guy - Sounds good, that's the kind of thing I was pondering. For the "finders fee", would that normally be a percentage of the hourly rate? Any rough estimate on what would be a good percentage to start at?

Claire - Excellent thanks, I'll get in touch with Tom!

[WakingDragon]

From my experience of this (which is pretty broad) I would say you first need to make sure that a) you are accurately accounting for the value of work being done, and b) making the client aware of the value they are getting. If you are charging a standard rate for design, but there is a lot of additional value-add coming from you beyond the usual service then you should be charging for this and making the client aware.

That said, you should be looking at different price levels as mentioned above. Your partner should not be selling to you at client rates and vice versa! There should be an agreed "trade price" between you to make it worthwhile doing the job. It is better for both of you to act this way as there is an incentive for your partner to generate work for you as well. Takes it beyond the "mates doing favours" stage.

On larger/more complicated projects you need to work together to agree the best way of pricing an individual job. By agreeing in advance there is less chance of one saying that it was underpriced later. Particularly you need to agree how to deal with overspend and money spent on speculative pitching. A "pre-nup" agreement may suck in romance but it is the basis of a long and happy business marriage.

I have worked with plenty of designers and across lots of busines partnerships in the marketing and creative sectors and can honestly say it is one of the best ways of working with lots of high-class people. But if people are not clear to start with then problems occur.

[Mortime Business Software]

Basically, the way I used to do this is simply get a quote from the 'helper' service, then submit a quote to the customer with my whack included. If the customer whinges about the price, there's nothing wrong with telling him you will try to do better, then, if you think you can quote lower, go back to your helpler and discuss it with him.

But generally, don't worry about what the helper is making out of it, just get on with your part, and any other jobs you've got going.

In my signs biz, I had helper services for electrical work, light box manufacture, neon tube manufacture, installation, powder coating, large frame building, and a few others.

To get the lowest price possible, I used to have three or four of them bid on the work for each service. They gave good discounts because of this, and also because I was 'in the trade' and giving them regular work. They also understood that they had no leg work or advertising to get this work from me.

I also used casual labour on this principle when I was sometimes overloaded with too much work.

I would speak to Matt at MK Printing. He seems to do a lot of this.

You don't need to use just one helper. Contact a few more and form an association if you want to remain independent.

Dave

[WakingDragon]

Basically, the way I used to do this is simply get a quote from the 'helper' service, then submit a quote to the customer with my whack included. If the customer whinges about the price, there's nothing wrong with telling him you will try to do better, then, if you think you can quote lower, go back to your helpler and discuss it with him.

But generally, don't worry about what the helper is making out of it, just get on with your part, and any other jobs you've got going.

This is quite risky in your sector though, RC, as it is quite an aggressive way of working. Longer and more stable (and profitable) working relationships can be achieved through much more of a partnership approach even if there is no legal entity in place.

[gapgb]

Guy - Sounds good, that's the kind of thing I was pondering. For the "finders fee", would that normally be a percentage of the hourly rate? Any rough estimate on what would be a good percentage to start at?

It's difficult to say without knowing the value of the work being passed. I think a quick discussion between you should sort it out and I would probably use fixed rates rather than a % to keep it nice and easy.

[Real World Hypnotherapy]

I sub contract everything now. Basically I have a design (Col from Pixels Ink) who does a lot of work for me at rates we have already arranged. As I run a print management company I offer the design as an extra, this cost is determined by Col and I do not take a cut.

For examples with business cards, we charge £74.99 for 5k if you supply the design or use the online design tools, or £89.99 if you want a designer to do it for you. An e-mail is sent to Col who then contact the client and they arrange the artwork. Then once a week, Col invoices me for the work.

When you do something like this you have to make sure that the sub contractors work is up to your standard. I always hire people that are better than I am at doing the job. Colin is a great designer so I work with him, if he wasn't very good I wouldn't!
Because our business go hand in hand we both make our money from our own service i.e. I do the print and Colin does the design. If I was to hire Colin or someone on an hourly basis and I needed to make money from he did then I would pre arrange a rate for this work and put my own mark up on it. If you are using someone a lot then they should give you a decent reduction because in everyone’s pricing stratigy it should include the cost of obtaining the order either by advertising or marketing etc, this cost can then be taken off because it is the same person giving you the work.

I think a decent mark up is between 10-20%, but always pay your staff well. Never let price be the deciding factor for customers to choose you over someone else, this is the blind leading the blind and you will always be undercut by others. Instead offer a high quality service to your clients and use the best materials and personnel. If you pay peanuts you get monkeys!

Matt, MK Printing

[directmarketingadvice]

Rustycage

If your friend brings in business for himself, there's likely to be some marketing cost for him.

It might be the cost of advertising, time spent networking, or it might just be the time wasted while he sits around waiting for the phone to ring. Whichever way it is, he's putting time, money and/or effort into bringing in business for himself.

Now, if you were to get business for him, you're saving him this marketing expense. Is there any reason why he shouldn't knock that saved expense off his normal rates?

I have a deal with an accountant where he recommends me to his clients if these clients are looking to make more money. I charge my usual rate to his clients, but pay a percentage of the fee to the accountant.

It's because I know that the time I save on my marketing is a far larger percentage of my cost than the (generous) chunk I pay the accountant.

Hope this helps.

Steve