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Structuring Revenue Sharing Agreement

My wife has a side business selling olive oil for which we set up a simple website. We didn't intend to really pursue ecommerce, but recently decided to look into it.

I know a Web Development/SEO guy who is willing to work on driving more biz to/though the site in exchange for a percentage of Gross Sales.  I have worked the numbers and think I know what's fair and provides the proper incentive, but I'm wondering what about this I might be missing.  Any advice or tips on where I can learn more are appreciated.

Answers

Keith Taylor
Title: CFO
Company: Lyris, Inc.
(CFO, Lyris, Inc.) |

Mark, I've worked with many organizations hiring firms to drive traffic and sales to their websites.

On the one hand an SEO who offers a gainsharing agreement is taking most/all of the tangible risk. Your risk may be in paying too listtle to drive enough activity or provide enough incentive to work on your behalf; or simly an "opportunity cost" of relying on the chosen SEO vs others.

In a pure gainsharing agreement the SEO puts up a certain amount of effort in exchange for a commission on sales. In my experience, most SEOs want some other pay combination besides pure commissions*.

For startups or in new endeavors where new ground is being broken, I've preferred these "gainsharing agrements" since little/no money is at risk and payoff only occurs when the results are delivered.

What is a fair rate? While there may be a firm or org that tracks the current economic benchmarks, I'm not aware of any at the moment. Thus, I'd suggest that typical sales commissions rates from 2% to 8% or even 10% may be may be proposed -- Limit your "overpayment" risk with contract cancellation clauses, or even capped or maximum payments. Nevertheless, it has to be profitable or provide adequate incentives, otherwise they may not expend adequate effort to produce any results.

Here is a summary of SEO Contracts I have encountered or seen proposed:
> Consulting - Hrly, or By Project or Deliverable
> Standard Profit Sharing - %age of Revenue (commission), Pay-Per-Action, Pay-Per-Lead, Pay-for-Rankings, Pay-for-Traffic
> Modified Profit Sharing - May be some type of retainer plus a commission.

ALso, consider giving yourself adequate outs for the contract just in case you find another solution you like better.

Topic Expert
Mark Von Der Linn
Title: Principal
Company: www.VDLconsulting.com
(Principal, www.VDLconsulting.com) |

Thank you, Keith, this is good info. I'm starting with a straight Revenue % (Commission), but if it doesn't produce good results, you've given me some other ideas.

Keith Taylor
Title: CFO
Company: Lyris, Inc.
(CFO, Lyris, Inc.) |

Good luck - report back how things develop - What rate was agreed to (%ages), what was the success rate (if measurable), etc.

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