Profit share

[silverlake77]

Hi Guys,
Does anyone know of a web/eCommerce design company that builds and maintains your site for a return on the the profit the site makes?
I've been looking but cant find one.
It seems like a good idea to me, if i had the techno skills i'd probably set something up like that myself.
Thanks
John

[NuBlue]

Not a great idea for the web developer though, as most online shops don't make a profit...

Last time I saw any stats about this it was somewhere along the lines of 90% of online shops fail in there first year.

If I do £10,000 worth of work I want £10,000, same as any other profession. Shares in a business doesn't pay the rent!

I think for this sort of agreement you are best looking to outside investors (business angels, capitalists etc..) to get the capital and then pay for the website as normal. IMHO

[Steve2507]

I'd agree with nublue above.

From a retailers perspective a profit share may seem like a good idea but what if the site really takes off.

Lets say you agree on a 20% agreement and the original work would cost say £5,000.

First year you make £10K profit, so you pay the designer £2K, next year you make £20K, so designer gets £4K. In 2 years you have suddenly paid more for the site than it was worth. Lets suppose you have a site as good as ASOS. What profit does it make? £1million, £2million more? If they have a profit of £1m suddenly the designer has an income of £200,000 for doing work that should have cost £5K.

An angel/investor will not only bring money to the table but also expertise and contacts and would be a far far better approach than profit sharing with a designer.

[Jon123]

Hi John,
I have not come accross any webdesigners who do this however there will be some out there. I know some webdesigners will accept monthly installments. But as for paying £10,000 for a website I know some cost alot more but getting online shouldn't be expensive. especially if the statistics are right and 90% of online businesses fail. Don't go paying for expensive web designer offices with £200 office chairs find some website whiz kid who will charge you a fraction of the cost for exactly the same Job.

Jonny

p/s I am working on those figures for you I have just been caught up with helping out a mate this week.

[FireFleur]

Normally people take a mix of cash and shares, or cash and revenue %.

But, very true, most online shops fail, and the reason is primarily because the actual costs are a lot higher than most expect. It is normally due to technical costs, and promotional costs both tend to get under estimated.

A bricks and mortar shop has the advantage of people entering with a chunk of cash, and of course there is foot traffic, a website costs nothing but time to a web developer, but promotion is not a given there is no foot traffic if you will.

It is easier to take a B&M to the web, then someone who wants to start on the web. With that said there are some big success stories, but they had let's say 3 million in investments, in about 3 rounds; a million a pop. And let's not forget stock, it costs to purchase, and house it.

[Cromulent]

An angel/investor will not only bring money to the table but also expertise and contacts and would be a far far better approach than profit sharing with a designer.

Not really. They expect shares in the business and thus take their share of the dividend so it works out exactly the same in the end.

[Steve2507]

Not really. They expect shares in the business and thus take their share of the dividend so it works out exactly the same in the end.But they have an incentive to work for the growth of the business as well. Most angels get involved because they are interested in the business itself and like to see businesses grow. So they tend to work a lot more in the business and a lot more closely with the other shareholders. Using a profit share scheme with a designer may mean the designer does the work and then sits back waiting for the money to roll in.

If the angel only wanted an increase in wealth there would be much easier ways to get it.

[katie11]

yep, you can build a great free online shop on shopcreator (http://www.shopcreator.com). It has no set-up fees or monthly subscription, just takes between 2% - 5.5% of revenue (depending on the level of revenue)

[teddybear]

A profit share is what I'm working on now. This is my first, I have never done it this way before. It's normally freelance work and affiliate stuff for me. A profit share seemed like the natural progression. Why should I promote the same products every other affiliate is promoting. So instead of having a relationship with a big affiliate company like commission junction, where I don't have much say and they take part of my commission; I can have a close relationship with company x where I help build a business.

It SHOULD be a win win situation. I got compensated for my initial work (creating site and adding 300 products). I have a web statistics package I have created over a number of years that tracks the websites visitors and conversions. Pay per click, VAT, delivery charges and stock cost are all factored in; I then get a percentage of the profit pie.

I'm sure there will be mistakes but that's all part of doing business in a new way. Providing I have done my homework, the market is healthy, the product is good and company x can deliver it with a passion then everyone concerned will reap the rewards.

If this does work out then I plan to search out more opportunities like this. Obviously It will have to be with a company I believe in, I will vet them as much as they vet me.

The long term goal is having 3 or 4 opportunities like this running side by side.

[teddybear]

Obviously this is ongoing. Pay per click management, new features to the site, maintenance, SEO, link building, generally doing what ever I can to get visitors to the website and make them buy something.

If company X requested a big addition to the site or another 300 products adding then a charge may be applicable. Obviously If I'm receiving a profit share payment of 2k a month then I couldn't possibly charge them for adding 300 products to the website. If however I'm only receiving a cheque for £200 a month then creating a new section on the website that doesn't effect our bottom line will be invoiced for.

[edmondscommerce]

the tricky thing here is to define profits i think.

the business wont make any profit if the MD decides to get himself a nice new company car, or even blow a load of revenue on some hair brained marketing scheme

revenue share is more realistic, but 5% of revenue will take a huge chunk out of competitive ecommerce markups

I'm with nublue on this one

[AOB]

The odds are stacked against the success of a start up business. Part of it is down to the quality of planning and strategy etc, part of it is luck, but an even bigger deterimant of success if perseverence and commitment.

This is all obvious, of course, but for angel investors to be interested they need to see financial commitment from the founder. This is the so called "skin in the game" that makes it hard / painful for founders to walk away when the going gets tough. Investors would also look for a disproportionate upside to cover their inevitable losses on other investments.

I suggest that the same would apply to any designer / developer considering a contingent based approach.... Unless you have a great track record, or the developer has no other work, this is a deal that is not likely to happen!

[teddybear]

Revenue share was my first thought but internet marketing costs can be massive. If it was just a matter of revenue then I would just tell company x to spend as much as they can on PPC, which would line my pocket. I like the idea of a profit share, I want to do a good job of not only making a good website but making it convert and getting the best out of every £ spent in terms of advertising.

In my case I don't care what he does with the profits of the company as long as customers get their products. I'm not concerned with how much rent he pays for his premises or what new equipment he's got. My area of expertise is the internet, that is the only bit that concerns me and that is where I will measure the returns.

The potential upside would need to be massive for me to ever work on a profit share with a startup. I prefer a company with a good track record that has yet to exploit the internet fully.