Business Offer - 30% for nothing?

[tinysteps]

Hi all,

Someone I have worked with before was commissioned to develop a system for another client. The system worked well and they have now approached me as a UK contact (which they need) to see if I would like to become a partner and use the system independently.

The deal they have offered me is that the database is free, they will design a website for free but all other costs are mine. They will then be entitled to 30% of any profits made.

To use this system or database and start the company up, I will need to employ 2 persons. As/if the company develops I will need more employees of which I will have the bare the cost out of the 70% I am entitled.

I appreciate this is vague, but I was really hoping someone would let me know their thoughts on such an arrangement and how from a business perspective I can make a decision as to accept or walk away. Yes, I am getting a system for free but that has effectively cost them nothing anyway.

Appreciate your time.

 

[Paul Kelly ICHYB]

What are 'all the other costs'?

What is the product/service?

Why will you need to employ people?

It is hard to give an opinion without knowledge!

 

[tinysteps]

Many thanks for the reply.

Yes, on reflection my OP was a bit too vague!

What is the product/service?
Affectively the product/service is sales. We sell and take an admin fee on sales, nothing new or exciting. The system/database they have is very good at managing this process. I have seen it running and have used it, it would certainly streamline and manage everything very well. It would cost a lot to rebuild and has taken 3 years to reach this point.

Why will you need to employ people?
Initially, I need someone to be by a phone Mon-Fri to takes these sales. The same person will also have to process the sales. As/if this grows I will need back room staff to manage the processing/invoicing etc.

What are 'all the other costs'?
The majority of business will come from search engines/Google so I will need to pay for PPC advertising initially (I would say around £450 per month) and then probably a full time SEO.

This is really what I think will be involved and the other party want 30% of any profit generated directly from sales with no outgoing costs. Yes I will get the lion share (as they like to phrase it) but with clearly the start up risk.

I just don't know how I can ascertain value for for money from a business perspective. I don't know how far this will go and paying out 30% from the get go seems a lot when then are carrying no risk. But then again, without the database and knowledge I would have nothing...

 

[Chris Ashdown]

Sales would seem to be the biggest problem to overcome, just PPC is a hard way to sell software unless it is a wonder product.

I suggest you need to fully cost the cost of sales and marketing who your customers will be

As it sounds like the supplier may be a oversea's company than who would be responsible for customer support, this area could be the make or break of sales if not in place

If they want you they are more likely to be open to a better deal percentage wise

 

[Newchodge]

I don't understand the terms: they want 30% of 'profit', but don't want to pay any costs. That, surely is 30% of turnover, which cannot be viable.

 

[tinysteps]

Sales would seem to be the biggest problem to overcome, just PPC is a hard way to sell software unless it is a wonder product.

I suggest you need to fully cost the cost of sales and marketing who your customers will be

As it sounds like the supplier may be a oversea's company than who would be responsible for customer support, this area could be the make or break of sales if not in place

If they want you they are more likely to be open to a better deal percentage wise

The supplier is UK based company but we are effectively selling the product/service - acting as the middle man and taking an administration fee.

My partner is oversees, knows the business well and needs a UK 'face' and has offered me the proposal. I agree they might be open to a better % but without knowing how to a certain whether it is worth it, it wouldn't know what to counteroffer.

I don't understand the terms: they want 30% of 'profit', but don't want to pay any costs. That, surely is 30% of turnover, which cannot be viable.

My first thought was the same. In affect yes. Their deal is that as they are providing the database/software that will manage the sales etc. and also a website (both including full maintenance, training and future updates). The database would cost a lot to anyone else but I get it for free. They have indicated they could easily sell this as a product in its own right but want to partner with me to use it instead.

Now I get this for free but have to manage and pay for everything else. Sales person/persons, marketing and overheads mainly.

So we sell a product [a] and add on our admin fee which after tax is [c]. My partner then keeps 30% of [c] and I keep 70%. Out of my 70% I am responsible for sales person/persons, marketing and overheads etc.

Without knowing what each sales person can manage in respect of sales I have no idea how to decide if the offer is worth considering. I have seen the sales that the only other person using the software is generating and they are very good.