How to form an alliance with web developer (profit-sharing)

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onion2k
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Re: How to form an alliance with web developer (profit-sharing)

Post by onion2k »

PCSpectra wrote:I have a newsletter managment application I am trying to sell (similar to campaign monitor, etc) and every business savvy person I have tried to partner with wanted 50-50. I laugh. How about 25-75 and I offer you monthly bonuses for excellent work. Or 50-50 and I cap you at 55K/year.
Let's say, hypothetically, your application is going to generate $500k worth of business in the first year. Amazing!

You demand 75%. Or 60%. Whatever, you're refusing to go down to 50% because you're the developer and you think you're worth more. As you say, you're trying to sell it at that price. EG you haven't sold it. You're earning $0 from it.

Personally, I think 50% of $500k is much better than 75% of $0.

Maybe that's just me though.

The fact is you've clearly never been involved in running a business beyond basic web design/development. To you the business is the software that you write. When you get a bit more experience you'll start to realise that sales, marketing, management, fulfilment, customer relations, PR, etc are actually worth a great deal of money. More than the software in fact. A business with an incredible team of developers is never going to get rich without a great sales team to sell what they build (or a large amount of luck). A business with a great sales team on the other hand, they can still get rich with only a very mediocre team of developers.
ex0r1
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Re: How to form an alliance with web developer (profit-sharing)

Post by ex0r1 »

I just thought I'd post an update on how things are going:

It looks like I'll be working with a friend and his friend, who will be performing the development work after-hours. They'll each contribute 10 hours/week. We haven't worked out the profit-sharing agreement, but I think we'll figure it out since we each want to see the other succeed, and I want to see my friends vested in this. Ideally they will quit their jobs and work full-time for me when-and-if the $ really starts rolling in :lol: I know what you're thinking - "yeah right" - but there's a chance there! Best to all,

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panic!
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Re: How to form an alliance with web developer (profit-sharing)

Post by panic! »

Good luck, keep us posted!

:)
jack_indigo
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Re: How to form an alliance with web developer (profit-sharing)

Post by jack_indigo »

What we have here is passive income. Every web dev freelancer eventually sees the light and seeks it. It's just that they can build it on their own because, well, they are web developers, not web designers. It may not look the prettiest, or may not be as intuitive as, say, a web designer might make it, but it will work. So the question comes up -- why work with you?

The only way an "idea man" or "web designer" can get a web dev freelancer to take a break from his own passive income projects and his own clients is to offer him a better deal. And the way to do that is with low payment + equity.

So that's what I suggest. If you want to bend the ear of a web developer, if you've built up enough trust, then speak to him up front, be frank as possible from the start, and say you have a deal that involves low payment + equity. So, for instance, if the project might normally take a web developer $25,000 USD to build your system, end to end, and require a developer two years to do it in phases, and have ongoing maintenance and troubleshooting and tweaks in those two years, then you might want to switch things up. So, for instance, you could say you'll pay the developer $9K or $10K USD, but then for a contract up to 5 years (until renegotiation), the developer would get 30% of the site's profit, with you taking 70%. To me, that sounds like a good deal for a developer-freelancer who's looking for passive income. And the deal would also require that the developer be willing to stick around up to 5 years (unless the developer's private company folds) and provide assistance with tweaks, troubleshooting, and maintenance. Now, that would also mean that the developer does NOT do phase work -- each phase would require payment. But tweaks, troubleshooting, and maintenance are different. And for this, you really need to come up with a contract, and yet be flexible in that contract to iron out a deal that you both can sign off upon. In other words, don't expect a developer to agree to your first contract without revision.

Passive income is important for all freelancers because it allows them to lower their rates, and therefore be more competitive in a tough market. So, I think you might have an inroad if you consider what I said.

I also suggest that you do some small projects with a developer, perhaps at least 2, on a regular payment basis. Get to know your developer really well. Then, if you like that developer, go to the next step of throwing out a loose partnership that offers low payment + equity.
ex0r1
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Re: How to form an alliance with web developer (profit-sharing)

Post by ex0r1 »

A well-thought reply by jack_indigo. I agree with him on most points, and I think he makes his case for typical web projects that do not involve significant investments outside of development.

In my particular case, there is a business plan that requires a large human resources investment. Thus, the relative value that the web developer is providing is significantly less.
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