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  1. #1
    SitePoint Wizard
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    mad crazy payment scheme idea

    i've got a mad crazy, or just crap?, idea possibly. an idea for a different way to charge clients for websites. this is just a tentative idea, haven't thought it through properly, wondering what anyone makes of it. there's aspects i really like about it but there's also major holes in it at the moment which i'm not sure are fillinable satisfactorily.

    as well as the usual (for me) way of charging:

    estimate for website work, get go-ahead, do work working towards/within the estimate, charge for hours at the end,

    offer this payment scheme option to prospective clients:

    no charge for any of my time to do their site (which obviously is 99.9999...% of the cost of a website usually). i get paid by getting a percentage of the takings of their site and/or business depending on what the situation is.

    i work from start to finish (and probably long after "finish"; analysing, tweaking, updating etc.), and i'm not talking some quick and dirty thrown together template site -- quite the opposite actually, a very thorough job (research, personas, planning/design, production, nothing skimped on, completely tailoring it to their situation). and take a percentage of sales. so my pay for doing the site would be attached to the success of the site/business.

    the offer wouldn't be made blindly/automatically -- subject to me and them agreeing on details. i'd be choosy. i'd have to be because i'm a one man band and can only work on a small number of sites, also i'd want to be choosy because i'm only going to agree to go ahead if it looks like it has a good chance of being successful.

    advantages/what i like about this:

    - it gives me a bit more clout so far as how the website is put together, the whole process, what doesn't get handwaved (like content). if i want to spend serious time on something (like content, or research) it should be very clear to the client i'm not doing that to try and generate more pay by being able to charge him more; i'm doing it because without it i think the site will fail. most of my clients skimp on what's important, and because of that, the websites are ultimately failures (they all look lovely, and are technically correct etc. etc., but they're failures imo). it would allow me to say "what i'm finding is that clients are skimping on what are very important parts of the process and because of that in the long run their sites are not very successful". of course i can say that already but with scheme in place it seems to make that so much more serious -- puts my time and effort where my mouth is.

    - if the above point pans out, i get a/some good sites under my belt, which is my number one priority at the moment.

    - i'm more likely to get more potential clients (maybe even have a choice of clients) with it because clients will be able to get a good website without paying upfront. it's a selling point. a hook. offers some clients something better for them. maybe it'll help get better for me clients.

    - a negotiation lever/tool for me (in the content on my site, and in talk between me and prospective clients): regardless of whether client likes the scheme or not, it's existence and therefore likelihood of it being talked about with prospective clients, gets the importance of somethings really upfront and concrete; establishes them in the client's mind. in other words i would hopefully get the benefit of the above first point to a certain extent, even if they don't like the scheme and don't choose it.


    disadvantages

    - it'll probably be a financial from my point of view disaster! i'll regularly get paid bugger all under this scheme. that's at least, clearly, a danger.

    - it may only be at all possible with websites which charge directly therefore i'd be able to know exactly what quantities of sales are occurring. there's many good companies where this wouldn't be the case. i'd either have to trust them greatly or not do this for those types of companies.

    - because they're not investing loads of their money in it maybe they'll be inclined to take it even *less* seriously (opposite of intended effect). hopefully i'd be able to filter these types out

    - websites, even very good successful ones, i suspect aren't generally profitable in any quick way, and the goodness of them has a more underlying long term good effect. possibly. not sure. more good effect like a good brand, rather than in immediate sales. depends very much on the type of company/business i suppose.

    - i haven't got a clue to how to work it out really. a percentage for ever? a percentage within x number of years? part payment once site is done, part payment by this percentage of sales scheme? what happens if they don't bother with their own business much (hopefully i'll be able to filter those types out)...

    lots of gaping great problems, but appealing because it's got good things. just the type of website offering this scheme it'd allow me to make, makes me like the scheme a lot. but.. the details... i'm clueless really.

    any thoughts/comments/suggestions, in particular how it might be able to work (work as in me get paid, if and when the site is successful, at least a reasonable percentage of what the site would have cost the client if charging by the hour) in reality, much appreciated.

    thanks

  2. #2
    SitePoint Guru El Camino's Avatar
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    I run away from any proposals where the client wants to pay a percent of potential revenue. You'll work your butt off and never see a dime. Clients often have a wildly optimistic forecast of their website's impact on the world and will blame you for any failures. I'd keep a clear client-customer relationship, stay away from 'partnerships' and always get a downpayment up front.

  3. #3
    SitePoint Wizard
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    hmm, yup i'm sure you're right. i still feel there's something good about the idea though.

    > Clients often have a wildly optimistic forecast of their website's impact on the world

    that's definitely true -- even when they're just outputting standard fare stuff. no real idea. nothing special. website full of usual marketing fluff. nothing particularly useful or good. a broshure. doomed to obscurity apart from their friends and family looking at it and saying "that's nice". that's what i'm trying to counter. i feel sites going like that right near the start from what the client says and does, or more from what they don't say and do -- like not giving a hoot about content.

  4. #4
    SitePoint Zealot ikjosh's Avatar
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    If you want to play the revenue percentage game, make sure that they've (and you've) done your due diligence. Make sure they've given you a business plan, metrics, goals, milestones, etc. Make sure that they're smart enough NOT to begin their projections with "if we get 1% of China's population logged on, we'll make millions!" You're looking for "If we do x, y and z we'll get 1 customer" - Many brilliant ideas fail because of bad marketing. Make sure their marketing plan is viable and will yield results. Make sure ownership percentages are defined on paper, revenue percentages are on paper, etc.

    One thing you can do is give the website work you're doing a value. Let's say $10,000. In your revenue agreement, you can say revenue splits will be 50/50 until you've reached the $10,000 mark, then revenue splits go to 80/20 (or whatever, I make the numbers up) this might help you recoup some of your investment should it fail.

    Remember: Your time IS worth something. You don't have unlimited billable hours. Use your time wisely, and always get something in return.

    PM/Email me if you have any questions or need help. There is only so much I can type in a response, but these type of partnerships require a lot to work right.

  5. #5
    SitePoint Wizard
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    Quote Originally Posted by ikjosh View Post
    One thing you can do is give the website work you're doing a value. Let's say $10,000. In your revenue agreement, you can say revenue splits will be 50/50 until you've reached the $10,000 mark, then revenue splits go to 80/20 (or whatever, I make the numbers up) this might help you recoup some of your investment should it fail.
    yes that's exactly the sort of thing i have in mind.

    yup, thanks for all that, most helpful.

  6. #6
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    You can make a lot of money doing that, but consider this:

    In your current model, you need to be an expert web developer.

    In your proposed model, you need to be an expert web developer AND an expert and evaluating and picking great business opportunities.

    If you think that you can do both, you'll do great. Neither of them are easy, though!

  7. #7
    SitePoint Wizard
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    > You can make a lot of money doing that

    it's interesting you think that. i'm thinking websites done under this scheme probably won't make me that much money -- at least not fully cover the time spent -- but, indirectly will help me make good money because the sites will be excellent examples of well researched, made as useful as possible sites; and good previous done work gets good work (at which point i could drop this payment scheme if it wasn't financially that great). but you think it could be a reasonable money spinner in istelf (with necessary mentioned provisos). very interesting.

    > If you think that you can do both, you'll do great. Neither of them are easy, though!

    i think with enough time and a reasonable attitude and good business idea from the client i can do great sites (both from a creative and production point of view). being "an expert and evaluating and picking great business opportunities" i'm not sure about. who knows. only one way to find out.

    thanks.

  8. #8
    SitePoint Wizard LiquidReflex's Avatar
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    I've been approached with these types of offers before, and I stay away from them 99.9% of the time. Other people have brought up many good points that I won't repeat. A few other things to think about:

    The fine print would be key. For example, you say you get a % of the profits ... which profits? Gross? Net? Weekly profits? Monthly profits? Yearly profits? Are they profits right off the top or is that after all the marketing / overhead costs are covered? These are going to drastically alter the numbers you could see. After covering costs, the "profit" may be next to nothing in the end.

    Are you a "partner" in the company? Do you get a say in how the business is run? The success of the company will depend on the decisions made for marketing, advertising, etc. If you are reliant upon others to make the right decisions without your input, all you can do is hope that whatever they do will make you money. Personally, if I had a share in the profits, I want a share of the decisions.

    Finally, in what way will you be able to verify your earned amount? Are they going to give you access to their books? Or are you reliant upon them being honest and giving you the correct amount? I would hope that any company you would go into business with you could trust ... but if you don't know what the numbers actually are, how do you know what you are actually earning?

    If these factors are figured out ahead of time and you are comfortable with everything, then give it a try. Really, the only way to really learn is to try. If you feel strongly for the company, it's a risk, but you will definitely learn from it (either good or bad). Either way, I wish you luck!
    Kevin Hauge : Modern Leaf Design : Follow Us on Facebook
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  9. #9
    SitePoint Zealot ikjosh's Avatar
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    Excellent points.

    Make sure you know how everyone is being paid - The last thing you want is a partner to be writing himself checks from the company and leaving no revenue for you to "split".



    Quote Originally Posted by LiquidReflex View Post
    I've been approached with these types of offers before, and I stay away from them 99.9% of the time. Other people have brought up many good points that I won't repeat. A few other things to think about:

    The fine print would be key. For example, you say you get a % of the profits ... which profits? Gross? Net? Weekly profits? Monthly profits? Yearly profits? Are they profits right off the top or is that after all the marketing / overhead costs are covered? These are going to drastically alter the numbers you could see. After covering costs, the "profit" may be next to nothing in the end.

    Are you a "partner" in the company? Do you get a say in how the business is run? The success of the company will depend on the decisions made for marketing, advertising, etc. If you are reliant upon others to make the right decisions without your input, all you can do is hope that whatever they do will make you money. Personally, if I had a share in the profits, I want a share of the decisions.

    Finally, in what way will you be able to verify your earned amount? Are they going to give you access to their books? Or are you reliant upon them being honest and giving you the correct amount? I would hope that any company you would go into business with you could trust ... but if you don't know what the numbers actually are, how do you know what you are actually earning?

    If these factors are figured out ahead of time and you are comfortable with everything, then give it a try. Really, the only way to really learn is to try. If you feel strongly for the company, it's a risk, but you will definitely learn from it (either good or bad). Either way, I wish you luck!

  10. #10
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    Quote Originally Posted by johnyboy View Post
    > You can make a lot of money doing that

    it's interesting you think that. i'm thinking websites done under this scheme probably won't make me that much money -- at least not fully cover the time spent -- but, indirectly will help me make good money because the sites will be excellent examples of well researched, made as useful as possible sites; and good previous done work gets good work (at which point i could drop this payment scheme if it wasn't financially that great). but you think it could be a reasonable money spinner in istelf (with necessary mentioned provisos). very interesting.thanks.
    That seems a little convoluted - if you don't think that the projects will make money but their existence will somehow 'spin' you money in the future, I guess that could be ok but it seems to be getting a little abstract. By the same logic, why not just build sites for yourself to use as showcase sites and not bother with a client that isn't paying anyways?

    Quote Originally Posted by johnyboy View Post
    >
    i think with enough time and a reasonable attitude and good business idea from the client i can do great sites (both from a creative and production point of view). being "an expert and evaluating and picking great business opportunities" i'm not sure about. who knows. only one way to find out.
    There is one way to find out, yes, but you can spend years and lots of money finding out. For most people, becoming an expert in ONE field is hard enough and competing in business is never easy. Making a plan where you have to be an expert in 2 fields seems overly risky and doomed to failure unless you have some special ability, experience or potential in both fields (in which case you are in a great position).

    Be careful with this plan!

  11. #11
    SitePoint Zealot somecallmejosh's Avatar
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    We never design on spec... As well as being a very unstable business model, it violates trade ethics. This model lessens the value of what you bring to the table. Many unscrupulous business owners prey on this situation... BEWARE!!!!

    You must be very confident in your ability to create VERY persuasive systems to go into an agreement like this. Have you consistently calculated the conversion rates on the sites you've developed in the past? If so, would you be able to survive on a small percentage of those total revenues?

    Are you certain that you can consistently build sites with high conversion rates? Are you looking to exclusively develop eCommerce sites? How can you be 100% sure that your customers are truthfully reporting their earnings from the site?

    Like most who've replied, I really suggest sticking with a more solid model.
    Joshua K. Briley
    Website Design and Front End Development

  12. #12
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    Did you think of basing this type of collaboration on a partnership? Value your effort + a percentage of the expected profits and exchange it for shares in a company. (These companies will most likely not be too big...) The contractual agreement is that your "customer" can buy you out at any moment for an agreed amount. This way you will have some more grip on the project and your possible gains. It's just something I've been thinking of. Feel free to shoot at it...

  13. #13
    SitePoint Zealot ikjosh's Avatar
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    I just wrote an article about the Buy/Sell Agreement which is what I'd recommend if he is going into a partnership.

    Quote Originally Posted by quickdesk View Post
    Did you think of basing this type of collaboration on a partnership? Value your effort + a percentage of the expected profits and exchange it for shares in a company. (These companies will most likely not be too big...) The contractual agreement is that your "customer" can buy you out at any moment for an agreed amount. This way you will have some more grip on the project and your possible gains. It's just something I've been thinking of. Feel free to shoot at it...

  14. #14
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    HI, I find these postings very interesting as I am on the other side, I am a customer. It has helped me to understand how you think. Somehow I also get the feeling that there is not always a lot of trust in client relationships based on past experiences.

    Currently, I am in the start-up phase and I am about to hire a web designer. Initially I thought it could be a win-win situation for both of us and in the interest of a long-term relationship to find a tailored agreement - say a 10% discount for him mentioning his name/company on my site. So, if the website looks great he may get further business out of it.
    I agree that a profit sharing agreement may sound odd and may go too far because none of the parties has certainty about the future and there isn't yet the required trust between the parties.
    On the other hand it very much depends on the customer I would say and a more tailored agreement could be the sign of your commitment to the project. Why? Don’t forget both parties don't know what they get. You worry about getting paid on time, the customer worries about getting the quality he desires.
    I really start from scratch as I don't just go online with an existing offline business. You can't imagine how often you think about who to hire and even if you found someone, whose reference projects look quite nice "is he the right guy to realize my dream?" For us small clients it is decisive to be taken seriously with our projects even if you as the web designer may only earn 10'000 bucks instead of 100'000. May be it is idealistic but as a customer starting your own business you really want to experience the feeling of teaming-up.

    I haven't yet signed the engagement and will very likely not discuss the initially envisaged discount for "advertising/name dropping" in the view of a hopefully emerging business and long-term business relationship.
    As I said above, I am right at the beginning and this is my first web-project so this is probably not representative from a customer’s perspective. However, I hope it may help some of you to consider the other side and why the clients may come up with "strange" ideas. I believe it is not black and white.

  15. #15
    SitePoint Wizard
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    it seems to me websites which really work are run by people who get it (not commissioned by people who don't get it, regardless of the competence/knowledge of who they hire). they're run, owned, and commissioned by people who have a strategy/idea (nothing really to do with computers, everything to do with people), one which is carried out with some passion, and almost always one which involves being genuinely useful to their clients/prospective-clients in some possibly innovative way. and in order to do that, knowledge of clients/prospective-clients is required. an almost kind of planned, well executed altruism[*] is required from the client for it to be successful.

    .[*] selfish altruism? obviously that's an oxymoron. it's just doing something very well, usefully, which takes an upfront investment with a view to payback in the future; nothing to do with altruism really but that's what the good ideas seem like in the short term.

    you can't expect to be able to persuade a client to have this kind of attitude, not to any serious extent, so it's nothing to do with trust between website maker and website owner/client i don't think. you can't expect someone to take an attitude on board and fully display it themselves who didn't think it to start with, even from the best presentation in the world -- it's an unreasonable expectation. the client needs to think it for themselves (they more than likely need to have a much stronger idea of it than the website maker). so it's not about trust for me. it's an attitude (belief, idea) in the first place from the client. that's what my issue is (the lack of it -- in my limited experience that is of course[**]), and was the driving force behind the above payment scheme idea, but it's obviously going to fail because, as i say, the client either has the good attitude in place or they don't; the payment scheme above is an attempt to bypass/make-up-for the missing good attitude from the client. but it's not going to work. the only thing which will really work is for the client to have a good attitude in the first place.

    .[**] a number of my clients just want a website in order to tick the 'got website' box though really, so their expectations for their website aren't high, so if that's all their goal was, that's obviously up to them and all this is irrelevant to those types of clients anyway.

    the good thing about the payment scheme idea though, isn't the actual payment scheme itself, carrying it out being paid that way, but it's the kind of issues it helps get into the light. it has educational aspects to it i think.

    it seems to me setting up a successful business, in a high level conceptual way, is very similar to setting up a successful website. the same attitude and kind of thinking which makes a successful business is the same attitude and thinking which makes a successful website. and you can't persuade someone to set up an excellent business. they either have a good idea and want to do that or they don't. it comes from them.

    > So, if the website looks great he may get further business out of it.

    it's requires more than looking good.

    > I am right at the beginning and this is my first web-project so this is probably not representative from a customerís perspective.

    i bet it is. (my blind guess is) you've seriously underestimated or are going to entirely ignore necessary upstream work. you'll get a website at the end which looks very nice and you'll be very happy with it to start with. as time goes by and it makes no difference to your business what so ever you'll be a little less happy with it (assuming you want your site to have a positive effect on your business). website-maker's-clients and website-maker's-clients' clients use different criteria to judge a website. it's your (paulinchen's) client's judgement which matters not yours. so try and use/learn about/second guess their judgement criteria (they're looking for something which is useful not something which looks nice (i'm saying that as a trained and ex professional graphic designer)) before you go into production of the site, and use that to make a website which will get a positive response from them (forget about your judgement and response -- i.e. it looks good).

  16. #16
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    I've tried this twice before and the first time the client was all for it. The second time the client was aghast that I would suggest receiving a small percentage of their sales.


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