Two co-founders and I have started a project that is going rather well. We sell a service that is paid on a monthly basis but that also has some up-front costs (revenues for us).
Thus far we have relied on sharing any 'profit' we make (80% * (revenues - base tech hosting/domain costs)) based on the effort we put in. This is paid out on a quarterly basis. We have very little startup capital and are in no position to pay proper salaries, so profit-sharing seemed fair enough.
Now as we begin to grow, when does the profit-sharing model start to break down? If we either grow enough to afford salaries, or find investment should we eliminate profit sharing all together and opt for assigning salaries to the founders and future employees?
Business Investment Profit Sharing
Continuing the model of sharing profits can and should continue.
What will need to change is your model for calculating profits.
You don't want "profits" walking out of the company when you have R&D, marketing, design, development and talent costs. As your revenue grows the percentage you are taking out should go from 80% down to something reasonable. Maybe 10-15%?
You have very little start-up capital, so you will need to bootstrap with the revenue generated by the company. develop a realistic budget that calculates a profit line distinct from 'gross margin' -- and plan your company's growth!