Profit sharing in a startup: offered 20% of profit


8

I've been offered 20% of the profit of a new startup if I build the website (which is essential to the business). What types of things should I look for in the agreement that is to be drawn up?

Partnerships Agreements Profit Sharing

asked Jun 7 '13 at 22:16
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User1477388
143 points

1 Answer


15

20% of profits? Let's say the company generates $1,000 of revenue but that expenses are $990: profits are therefore $10 and you'd get $2. What if the revenue grows to $50,000 but that the expenses also grow to $49,990? Same thing: profit of $10 and you'd get $2. In a startup, profits are supposed to be reinvested to fund revenue growth so startups usually don't have profits at the beginning.

Rather than a percentage of profits, I'd suggest an incentive based on a percentage of revenue so that the better the company does, the higher your reward becomes. So for instance, you could ask for 1% of the revenue: 1% of $1,000 would be $10 of income for you and then if the company is successful and grows its revenue to $50,000 you'd earn $500. So my recommendation regarding the incentive is to change to revenue sharing and to tweak the numbers so they make sense. For instance, you don't want to be greedy and take too much of the revenue because that could then prevent the company from funding its growth.

Good luck.

answered Jun 7 '13 at 23:51
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Frenchie
4,166 points
  • Thanks for your advice, that really makes sense. I wonder if they would go for 2% of revenue or greater... I will have to ask. – User1477388 6 years ago
  • After further negotiation, I think we may go for something like a royalty. I would get something like $1 to $3 per $100 sale, so basically like the 1% revenue like you suggested. Thanks, again. – User1477388 6 years ago
  • Ok, good luck with your business! – Frenchie 6 years ago

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Partnerships Agreements Profit Sharing