This is where a lot of problems can occur. You are going to get a share of the “profit” … but what they determine is profit may not be what you would consider. You mentioned manufacturing, hosting, customer support, etc … it’s the “etc” that worries me. There are always going to be costs associated with running a business that are going to cut into the profit. How do they determine customer support costs? If they have a support team, are they being paid for only work involved in the one website you’re working with or would their staff work for both? If both, are the costs split equally or based on time? How about shipping costs? Are those deducted from the profit? How about advertising costs?
After answering these questions, the next one would be: If you are receiving half of the profit, do you have a say in how the business is run? Do you have input in how this money is spent that is cutting into your profit? If not, who is to say that they won’t decide to bump up advertising to increase traffic to the site which zeros out all of your profit for that month. It would possibly benefit them in the long run, but could also keep you from seeing any profit for months or even years. Reinvestment is common in a new business venture so when I see profit sharing deals, I am always wary of how they are structured and how much say I would have in the spending.
Just a couple things to think about when structuring your agreement.
Agreed, this can be a terrible way to structure a deal unless you really get detailed in the agreement. For example, let’s say you and I split profit on our widget company 50/50. Sounds great, and sales are really good the first year! We just take the revenue and deduct all of the expenses to determine the profit that we’ll split evenly, right?
But don’t forget to deduct that salary that I decided to pay myself at the beginning of the year. That’s an expense, not profit, so I get $1000 and you get $10.